Midlands companies with offshore interests could face complex new rules if proposals to change the way foreign profits are taxed get the go ahead, according to accountants PricewaterhouseCoopers.

The likely changes, which were included in a discussion document published by HM Revenue & Customs in June, could affect local companies.

Specific drivers for the proposals include a desire to enhance UK competitiveness, a response to concerns from business about the complexity of the tax system and, to some extent, harmonisation of tax rules.

The proposed exemption from tax for dividends received from certain foreign companies is expected to be particularly welcome. However, other proposed changes for the foreign profits of controlled companies - which cover UK as well as foreign subsidiaries - could increase the compliance burden for UK companies and also increase their tax liability in some areas.

Ingrid Gardner, tax partner at PricewaterhouseCoopers in the Midlands, said: "The proposed exemption for some foreign company dividends will undoubtedly be welcome news for many Midlands businesses. However, the proposed changes to the tax rules affecting how the profits of controlled companies are classified and taxed could prove less favourable.

"The discussion document is also suggesting 'a new restriction' on tax relief for interest paid currently claimed by UK company members of multinational groups, whereby the amount of interest deductible in the UK is to be restricted by reference to the worldwide group's total external finance costs.

"While the proposals are still some way off, it is important for companies to be aware of their potential impact now and to monitor future developments, so they can be ready to react when the time comes."

The planned revamp of the tax regime for foreign profits comes at a time of significant change for UK companies with offshore interests. Proposals affecting the way these businesses can use advance agreements to help them plan strategic investments and other changes affecting transfer pricing arrangements are also being considered by HMRC.

Ms Gardner said: "This is a time of change for Midlands businesses with offshore interests and the current proposals could make some tax winners and others tax losers. We are encour-aging companies to assess the likely impact and to participate with these important on-going consultations in the coming months."