Are you betting on a competitive corporate tax regime?

Monday, September 06, 2010 | Posted by: Francesca Lagerberg
Categories: Business advice, Tax | Tags: tax, offshore, tax avoidance, tax havens, corporation tax, relocation, migration, patent box, CFC, competitive, foreign branch profits, controlled foreign company, tax rate

When the coalition government gained power, one of its stated aims was to make the UK’s corporate tax regime the most competitive in the G20. However, despite that announcement, William Hill has decided that it will join the long list of companies who have moved overseas in recent years in order to save tax. The question is, where should companies place their bets?

The Chancellor, George Osborne, hit the ground running in his new job by announcing at the Emergency Budget in June 2010 a drop in the main rate of corporation tax over the next four years as well as launching several consultations to engage businesses and professionals over proposed changes to how businesses are taxed in the UK.

The challenge facing the Government is the inherent complexity of the current UK tax system and how this compares unfavourably to other tax jurisdictions. The previous Government went some way to improve the competitiveness of the UK tax system. However, the overall perception from businesses is that what we have is more complex than it has ever been. At the same time, other territories have reduced their corporation tax rates and created more attractive tax regimes for easily mobile assets such as intellectual property and trademarks.

In today’s globalised world, multinationals can move assets and business functions with relatively little disruption. So, if a jurisdiction imposes uncompetitive tax rules, these large corporates can simply vote with their feet and relocate elsewhere, taking their slice of the UK tax take with them. This has been seen over recent years with Shire, WPP , Kraft, and McDonalds being just some of the big names who have relocated business functions overseas, giving the lack of competitiveness of the UK tax system as one of their main reasons for moving. In fact recent research has found that one in 5 companies has considered relocating for tax reasons.

So what changes are the Coalition Government considering bringing in?

In addition to the reduction in the main rates of corporation tax, it intends to reform:
• the controlled foreign company regime benefits  (a change which has been rumbling on for many years now but is often cited as being a major draw-back to the UK’s competitiveness)
• the patent box regime (announced at the 2009 Pre-Budget Report)
• improvements to the taxation of foreign branch profits.

In addition, it intends to generally simplify the UK tax system, assisted by the introduction of the Office of Tax Simplification, and engage with businesses and tax professionals, aided by the creation of the Business Forum on Tax and Competitiveness and the Tax Professionals Forum.

Making the UK tax system as commutative as other jurisdictions is going to take time and in the mean time companies will have to decide whether to place their bet with the coalition government, and hope that the UK will become a more attractive place for businesses in the future, or follow in the footsteps of William Hill.

Other recent posts by Francesca Lagerberg on tax issues:
* The European VAT rules changed on 1 January…are you up to speed?
* Highlights (or lowlights) from today’s Pre-Budget Report - more questions than answers?