Commenting on the Chancellor’s announcement to reduce UK corporation tax to less than 15% in order to encourage businesses to continue investing in the UK following the country’s decision to leave the European Union, Robin Walduck, tax partner at KPMG in the UK, said:
“For a decade now, the UK government has pursued a strategy of ensuring that the tax system is designed to attract foreign direct investment. This has been largely successful and ongoing cuts to the corporate tax rate have been a helpful component. Until today, the proposal was to reduce the corporate tax rate, currently 20%, to 17% in 2020. This represents a considerable reduction from the 30% rate ten years ago, or indeed the 28% rate when the Conservative party entered government in a coalition with the Liberal Democrats. Today’s proposal is to reduce that rate still further, to “less than 15%”, although there is no effective date for this change; it will depend upon official forecasts, so it is a statement of intent rather than action.
“Does this mean there's now a global race to the bottom? The change will certainly bring the UK rate close to Ireland’s own rate, which has remained static at 12.5% for many years. The UK is leading the G20 in reducing the level of corporate tax, and there has been very limited activity in recent years by other G20 members in aggressively reducing their own rates, with the exception of Australia (although even Australia’s proposal to reduce rates from 30% to 25% would only happen over a ten year period from this year) and the United States (although any changes to US tax law will take time and depend upon the outcome of the Presidential election).
“Will this latest cut really make a difference? Whilst from a policy perspective it may help make the UK a “super-competitive economy”, a reduction in rates will likely not be enough on its own to drive FDI. KPMG surveys of clients have consistently concluded that companies want stability, predictability and certainty, both in economic (including tax) and political terms. Whilst the current political and economic volatility prevails and uncertainty over a post-Brexit UK remains, companies may well be reluctant to invest in the UK.”
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