The Government has instructed Skadden Arps Slate Meagher & Flom to advise on its closely-watched negotiations with US tax authorities over changes to taxation of non-domiciled residents.

In an unusual move, Skadden provided an opinion for the Treasury backing the Government's attempt to avoid double taxation of US 'non-doms' in the UK following the controversial introduction of a £30,000 charge for those wishing to retain their tax status.

The opinion, which features in the 2008 Budget Notes, gives support to the Treasury attempt to avoid double taxation for US non-doms by arguing that the charge, which will kick in after seven years working in the UK, will act as a tax, not a levy.

Skadden's opinion said it was likely that the charge would now be treated as tax by the US Treasury and tax authorities. However, it does not expect that individuals will be able to claim full tax credit.

The opinion states: "We expect the US Treasury and Internal Revenue Service will in due course provide authoritative guidance on some or all of the issues analysed above… It is our view that under current US law and in the absence of such guidance [the proposed non-dom tax] should be treated, for US federal income tax purposes, as a foreign tax creditable against US federal income tax."

The opinion comes in place of a clear accord with US authorities over the issue but will raise hopes that an agreement can ultimately be struck. US citizens represent the largest proportion of non-doms in the City – including a number of US-qualified lawyers practising in London – so the agreement will be seen as a significant win for advisers in the Square Mile.

A number of law firms, including Macfarlanes, Withers and Charles Russell, have lobbied alongside the Society of Trust & Estate Practitioners, to alert the Treasury to problems with double-taxation in the US.

Despite a fierce campaign against the non-dom charge, which advisers argued will damage the City by driving senior staff to other financial centres, chancellor Alistair Darling (pictured above) resisted calls to delay the measure's introduction. However, there was some relief from today advisers when Darling gave a verbal commitment that there would be no further taxs on non-doms throughout this Parliament or the next.

Elsewhere, the Budget presented little surprises for business, with controversial reforms to capital gains tax, which lift the rate to 18%, still coming into force.

Editors' blog: Taxing non-doms and other outrages

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