The Association of British Insurers said yesterday that the UK government must be careful in detailing its proposed changes in the taxation of foreign branches of UK companies, warning that the changes may not put into effect its desired outcome, according to a report on the Dow Jones news wire.In recent years, the ABI has been advocating a lower corporate tax environment to prevent insurers from relocating from London and make the city more competitive against other financial hubs around the world.Yesterday, the UK coalition government moved to ease the tax burden on British companies with overseas subsidiaries, allowing them to exempt the profits of those subsidiaries from UK corporation tax.In reaction, Peter Vipond, director of financial regulation and taxation at the ABI, said in an e-mail response: “While we support the work to introduce a branch exemption, we are concerned that the details could prevent some insurers from benefiting, forcing them to consider locating in other countries. This would undermine the aims of the reform before it even begins.”“Insurers pay the fourth most corporation tax of any sector in the UK and need to know how foreign profits will be taxed as they decide where to headquarter under Solvency II,” Vipond said.Solvency II refers to the new set of capital-adequacy rules being prepared by the European Commission, to be implemented in early 2013.Under current rules, companies are charged UK corporation tax on all profits, wherever they are made, and companies must claim back a credit to recompense for any foreign corporation taxes they’ve paid. However, that means they still pay the UK rate of corporation tax on all profits.The UK Treasury’s new proposals, set out in draft legislation that it is hoping to enact next year, mean companies will be allowed to irrevocably exempt their foreign subsidiaries from UK corporation tax.However, no UK tax relief will be available against any losses incurred by the foreign subsidiary and the government said it will prevent companies from diverting profits that would have been taxed in the UK to a foreign subsidiary to try and avoid paying the UKrate. It also said that subsidiaries that have generated more losses than profits in the last six years will have exemption deferred.The UK Treasury said its new proposals apply to general insurers and not to life insurers, which are “undergoing extensive changes” to bring themselves in line with Solvency II.Several UK insurers have left London in recent years amid calls to lower the corporate tax. Among them are companies now based in Bermuda, including Catlin Group Ltd, Hiscox Ltd and Hardy Underwriting.Shore Capital analyst Eamonn Flanagan said the legislation “was intended to encourage the non-life insurers to stay in the UK as opposed to moving to Bermuda, Dublin, etc.”“As such then, it’s good news for those who stayed”, including Chaucer Holdings, Amlin, Novae Group, RSA and Aviva, Flanagan said.