- UK appears to have turned a corner on its corporate tax competitiveness, according to a survey from KPMG
- This improvement is driven by reforms to the taxation of foreign profits and the government’s commitment to making the UK tax system the “most competitive in the G20”, says KPMG
- The 50p tax rate is having a limited effect so far on businesses’ ability to recruit senior talent but is “bad PR” for Britain, the survey finds
The UK’s corporate tax competitiveness appears to have finally turned a corner, according to research commissioned by KPMG in the UK.
A survey of 50 large businesses operating in the UK found that Britain’s corporate tax regime’s attractiveness had improved, returning to levels last seen when the same survey was conducted in 2007. In 2007, 28 percent of respondents said that the UK had the most competitive tax system compared to key competitors.
This declined in subsequent years (reaching a low of 17 percent in 2009) but this year it has bounced back to 27 percent, albeit still lagging Ireland, the Netherlands, Switzerland and Luxembourg, but well ahead of the US.
Chris Morgan, head of tax policy at KPMG in the UK, commented: “Our survey supports the assertion that Britain is ‘open for business’, at least as far as corporate tax is concerned. Thanks largely to the reforms in progress around the way in which foreign profits are taxed and the government’s commitment to making the UK tax regime the ‘most competitive in the G20, the UK’s tax competitiveness appears to have begun to improve."
“However, challenges still remain: the complexity and compliance burden remains too high, and the UK’s tax competitiveness is still perceived to be much lower than Ireland, the Netherlands, Switzerland and Luxembourg. Although fewer companies are actively looking at moving their tax residency, they have become more footloose; more firms have not ruled out the prospect of moving their tax residency or particular functions in the future.”
The research threw up a surprising and intriguing result when it came to participants’ views of the controversial 50p top rate of tax. In 2009 when asked whether they thought the new top rate of tax would make it more difficult to attract top talent to the UK, over 80 percent said it would. This year, only 13 percent said that it was proving a barrier to attracting senior talent. However, this bare statistic does not tell the whole story.
Chris Morgan elaborated: “Such a dramatic change of sentiment warranted further investigation so we returned to some of these respondents and found that the message is quite subtle: although the on the ground effect of the 50p rate is relatively minor due to businesses using tax equalisation to compensate for its impact, our sample feels that it sends a message that the UK is not necessarily as ‘open for business’ as might be hoped. Business is looking for reassurance that this top rate will indeed be only temporary and perhaps the Chancellor will take the opportunity to do so in next week’s Autumn Statement.”
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