As much as £100 billion could be repatriated to Britain if government proposals to reform the way multinational companies are taxed go ahead.

Chris Morgan, head of international corporate tax at KPMG, described the discussion document released yesterday by the Treasury as “potentially the biggest shake-up ever in the UK corporate tax system”.

As forecast by The Times on Monday, the consultation paper proposes exempting groups with foreign operations in countries with low corporate tax rates from a top-up charge on the dividends returned to Britain. That exemption would apply to companies with share-holdings of 10 per cent or more in foreign concerns.

The move is a response to the European Court of Justice’s judgment last year, in a case involving Cadbury Schweppes, that the present rules violated the free movement of companies across the EU. Under the current regime, dividends from foreign-controlled companies to their parent are taxed, whereas dividends paid by British subsidiaries are exempt. Business groups claim that this situation hampers cross-border investment.

Many companies have sequestered earnings in foreign subsidiaries rather than paying the tax, meaning that relaxing the rules could merely repatriate profits rather than increase government revenues.

Mr Morgan said: “The devil is most definitely in the detail but measures announced today could, in due course, pave the way for up to £100 billion to return to the UK.” Accountants gave the plans a cautious welcome but said that the new system could prove complex.

Dawn Primarolo, the Paymaster General, said: “This discussion document underlines the Government’s commitment to provide the best possible environment for business and to maintain a modern and competitive tax regime.”

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