The UK remains one of the most attractive destinations for business, according to over 100 of the largest UK listed companies and foreign owned subsidiaries participating in KPMG’s annual review of the UK’s tax regime, when compared to international competitors. Despite Ireland just taking the top spot again in 2015, the UK has significantly closed the gap.
The UK has built on its 2014 score in terms of the frequency with which UK respondents cite it as being in their top three most competitive tax regimes. The Netherlands score also improved, however Ireland, Luxembourg and Switzerland all lost ground in the rankings as the table below shows.
For the first time this year, 65 non-UK companies in six countries (India, China, Japan, Australia, Canada and the USA) were also surveyed and asked to select their ‘top three’ most competitive tax regimes. The majority of respondents included the UK in their ‘top three’, placing the UK alongside Luxembourg as the most popular tax regime for non-UK companies.
Robin Walduck, tax partner at KPMG in the UK, commented: “When we first published this survey a decade ago the attractiveness of the UK’s tax regime was in question as a number of high-profile companies had announced plans to relocate business activities out of the UK. The dial has moved since then with the number of companies looking to relocate falling sharply. Now, the UK is generally seen as an attractive place to live, work and do business and has shown a renewed ability to attract and retain some of the world’s most valuable companies.”
Looking beyond tax – the UK is viewed as an attractive destination for inbound investment
This year, for the first time, companies were asked about their attitudes to foreign direct investment (FDI) and their future plans for investment into the UK. Respondents identified the main strength of the UK for inbound investment to be ‘political stability,’ as well as highlighting ‘macroeconomic stability’ and ‘access to a single market’ as appealing features. However, as the figure below illustrates, respondents give mixed responses on the availability and cost of skilled labour in the UK: while many see this as one of the UK’s major strengths, a similar proportion view this as a weakness.
According to Robin Walduck: “These insights reinforce the positive FDI results that have emerged over the last year, which include large increases both in the value and total volume of FDI projects in the UK.
“It’s important to note also that, while the fieldwork for this research was conducted in the autumn of 2015 - prior to the EU Referendum date being announced - there is a fairly clear indication from both UK and non-UK companies that access to the EU single market is viewed as a strength of the UK which attracts inbound FDI. However, this was one of a number of strengths cited by business, and with the in/out vote now set for 23 June this year, there will no doubt be further and more detailed analysis on the significance of access to the single EU market in terms of attracting inbound investment.”
It’s not all about the headline tax rate – stability, simplicity and predictability are key
According to this year’s study, UK companies’ perception of a country’s tax competitiveness depends more on the regime’s stability, advance warning of major changes and simplicity than specifically on headline tax rates.
This year, ‘stability’ is identified as the key factor for companies considering the attractiveness of a country’s tax regime, while ‘low effective tax rate’ remained in fourth place in terms of importance for the third year in a row. ‘Advance warning of major changes’ has also become increasingly significant over the last five years and is the second most common factor mentioned this year. ‘Simplicity’ follows closely in third place.
Robin Walduck added: “Before 2013, a ‘low effective tax rate’ was consistently one of the two most important considerations for companies. This year, while the planned reductions to the rate of UK corporate tax are the most welcomed of all upcoming policy changes discussed with respondents, findings show that UK companies actually place more importance on the simplicity, stability and predictability of a tax regime rather than on headline rates.”
Businesses are supportive of tax transparency and the OECD’s base erosion and profit shifting (BEPS) initiative
Tax transparency and responsible tax behaviours have become central themes in both political and public tax debates in recent years. This year, more than one-third of UK companies indicated they have increased their tax transparency over the last 12 months, and almost half believe they will become more transparent in future.
Robin Walduck said: “These findings follow a dual trend we have seen as the transparency debate has become increasingly prominent: that many UK companies are engaging with the tax transparency debate and are actively working on improving the transparency of their tax reporting as a result.”
2015 also saw the OECD’s project on base erosion and profit shifting release its final recommendations for governments to consider and implement. This year’s study reveals that while 53% of companies agree that certain changes should be made with regards to transparency and don’t oppose the OECD country by country reporting template, there is still uncertainty over recent developments promoting mandatory public disclosure.
Robin Walduck added: “While it’s evident that overall support of the companies for BEPS remains high, concerns around the BEPS country by country reporting, interest deductibility and permanent establishment action items highlight the need for Governments to continue engaging with and supporting companies as tax transparency – and its implementation into formal tax policy – continues to evolve.”
He concluded: “It’s clear that the package of tax policies introduced over the past five years has resonated with companies and has also elevated the UK’s tax regime to a position where it credibly competes with the regimes of other major international economies. This new strength and stability should bolster the UK’s ability to both retain business functions and attract international companies to relocate into the UK. However, the sentiment among senior tax executives overall is that the UK should focus on sustaining and building upon recent improvements to the tax regime, rather than pursuing any major reforms.”
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Notes to editors
KPMG’s Annual Survey of Tax Competitiveness 2015 is based on interviews conducted with 102 senior tax decision makers in the largest UK listed companies and foreign-owned subsidiaries and 65 companies from across India, China, Japan, Australia, Canada and the USA. These interviews were conducted between September and October 2015 by Gulland Padfield, the specialist consultancy.
The sample size of UK Companies and Foreign-owned Subsidiaries is similar to that of the 2014 study.
54% of the companies interviewed had a turnover of over £1bn. 16% of the companies interviewed were members of the FTSE 100, with another 32% in the FTSE 250.
For further information please contact:
Jess Liebmann, KPMG Corporate Communications
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M: 07551 135778
Erfan Hussain, KPMG Corporate Communications
T: 020 7694 4208
M: 0776 804 3447
KPMG Press office
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KPMG LLP, a UK limited liability partnership, operates from 22 offices across the UK with approximately 12,000 partners and staff. The UK firm recorded a revenue of £1.96 billion in the year ended September 2015. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 155 countries and has 174,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.