Treasury set to scrap business tax proposals

It is believed that the government is set to reveal a U-turn on its plans to tax foreign profits, after claims that it would cause many businesses to leave the country.

The Financial Times reported that Alistair Darling will announce later this week that the proposed taxation on foreign profits will be scrapped following intense pressure from UK businesses.

In particular, firms said that plans to impose worldwide taxes on 'passive' incomes from things like intellectual property were deeply unpopular with businesses.

A Whitehall official explained to the paper that the move would be revealed in a letter to the Confederation of British Business (CBI) later this week.

He said: "Some people will see this as a climbdown, but it's a sensible, positive reaction to the feedback we’ve got, which we think will be welcomed by business.

"Business felt the changes [to the anti-avoidance] rules were not acceptable or workable and we're talking with them to resolve those concerns.

"The proposals in the discussion document are all being rethought - we're not taking them forward."

Recently, the Bowmark Optimism Index indicated that many small businesses were concerned that the government would increase their tax levels if the economy slowed.