Taxing the immobile
The Treasury has ditched controversial proposals to raise additional tax from companies that locate intellectual property, such as drug or technology patents, in low-tax countries.
But it has simultaneously postponed plans to abolish the tax that companies pay on dividends they receive from their respective overseas operations.
The Treasury's decision to ditch the controversial tax reform is just the latest example of how difficult it is for any government to raise tax from big businesses, since in a globalised world they always have the option of relocating abroad.
That's why the burden of taxation is being shifted in many major economies to taxes that "stick" - notably taxes on consumption and on the income of individuals and small businesses, which find it relatively hard to relocate abroad.
But as the economy slows down, it is becoming harder and harder for the Treasury to increase taxes of any sort - which is why it is considering changing the fiscal rules, which restrict how much it can borrow to fund public services.
Many big companies are likely to welcome the Treasury's change of heart, which is set out in a letter sent in the last few minutes from Jane Kennedy, a Treasury minister, to the employers' lobby group, the CBI, and to the 100 Group (which represents the finance directors of the UK's biggest businesses).
A number of multinationals had warned that their tax bills would rise to unacceptable levels if the Treasury were to tax earnings generated abroad from patents and other forms of intellectual property.
Some threatened to move their headquarters overseas to escape the incremental tax.
A Treasury official said that the government had been surprised by quite how many companies feared they would pay additional tax.
Companies as diverse as the world-leading drinks group, Diageo, and the advertising giant, WPP, had been muttering about moving their domiciles out of the UK to lower-tax countries.
However, WPP's concerns were not about the taxation of intellectual property but about a related reform to rules concerning "Controlled Foreign Companies". It is unclear whether WPP's fears will be allayed.
The shadow chancellor, George Osborne, accused the Treasury of "another u-turn". Mr Osborne claimed that Alistair Darling had made seven u-turns in the year since he became chancellor.
However, the Treasury denied that there had been a U-turn. It said that a proposal had been put out for consultation and that it had responded to what business wanted.
The Treasury had been keen that the Exchequer should benefit from profits earned on patents and products developed in the UK, often with the help of UK government subsidies. It feared that some companies were developing valuable patents in the UK and then registering them offshore for tax purposes.
As a quid pro quo for levying this additional tax, it was offering to exempt from tax all cash repatriated to the UK in the form of dividends from overseas subsidiaries.
UPDATE 17:44: The Treasury hasn't allayed the fears of the likes of WPP and possibly also Diageo. Because the technical notes to the letter sent today by Ms Kennedy imply that Her Majesty's Revenue & Customs still wants to get its mits on earnings attributed to controlled foreign companies in tax havens such as Luxembourg and Leichtenstein.
So the Treasury can't yet be confident that the threatened exodus of British multinationals is off the agenda.