Commenting on tax implications of various Brexit announcements and the government’s industrial strategy paper over recent days, Tim Sarson, tax partner at KPMG in the UK, said:
“Recent government statements have largely avoided specific mention of tax. However, there has been much speculation generally on whether the UK would cut taxes and regulation post Brexit to attract foreign investment. While potentially valid as a negotiating tactic, many will view this as a step in the wrong direction. It certainly seems at odds with the Prime Minister’s comments at Davos about companies needing to pay their fair share of tax.
“Multinationals are not clamouring for a lower UK corporate tax rate – particularly given the headline rate is due to reduce to 17% by 2020. Any action viewed as harmful tax competition by EU countries could well prove counter-productive.
“In terms of the UK remaining competitive and an attractive place to invest after we leave the EU, there are factors over and above the corporate tax rate that will be important. If you look at what has been successful in driving foreign investment in the UK over the last decade it has been an ‘open for business’ tax system which includes a package of policies, for example dividend exemptions and the treaty network. It’s also worth remembering that tax isn't the only thing that drives foreign investment. There's also infrastructure, access to markets and talent. The trouble is, as the Prime Minister tacitly acknowledged, those factors attracted investment disproportionately to London and the South East of England.
“There is a real opportunity to use Brexit as an impetus to devolve corporate tax to the regions in order to better spread investment around the country. Addressing regional imbalances is vital to improving the UK’s prospects outside the EU. There is already a precedent for this with Northern Ireland and there is also evidence of tax devolution making a real impact on the spread of investment in many countries including Switzerland, Germany, and the United States. Tax devolution can be one of the pillars of an industrial strategy that take account of places as well as sectors. It’s an opportunity the government should grasp with both hands.”
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