CONCERN is being voiced that Inland Revenue proposals to encourage

multinationals to set up international holding companies in the UK may

be thrown off course by a Customs and Excise proposed policy on the

recovery of Value Added Tax.

A consultation paper was promised by former Chancellor Norman Lamont

in his last Budget, outlining a scheme for dealing with surplus Advance

Corporation Tax arising out of dividends paid by UK companies out of

foreign profits, with a special scheme to encourage multinationals.

But it now appears that at the same time as those proposals Customs

and Excise is proposing to alter its previous interpretation of the

existing VAT law. With effect from 1 October this will deny holding

companies the ability to recover VAT on their costs.

''It seems strange that while one Revenue department is proposing a

direct tax regime to attract companies into Britain, another one is

indirectly undermining that effort,'' commented Mr John Fuszard, senior

VAT manager at accountants Ernst & Young's Glasgow office.