Some want the corporate tax rate reduced even further than planned, as highlighted by the Centre for Policy Studies’ (CPS) lobbying efforts earlier this month. The UK think-tank urged the government to follow the lead of Ireland, which has a corporate tax rate of 12.5%, and move to a rate of around 10%, effectively halving the headline rate. In the shorter term, the CPS wants the rate dropped to 20% as part of the March budget package.
But despite the headline-grabbing claims from the CPS that such reduction is the “only source of a viable economic recovery”, the UK already has a competitive corporate tax rate when compared with its international competitors in the EU and further afield. Once the government’s phased reductions are complete, the UK rate will stand at 23%, a full 10 percentage points lower than the rate in France, for instance.
Other voices in the market feel quite strongly that UK competitiveness rests more on reform of the controlled foreign companies (CFC) regime, rather than on altering the corporate tax rate.
The continuing uncertainty surrounding the CFC regime is distorting business decisions, as well as motivating companies such as WPP, the marketing and advertising company, to relocate abroad (in WPP’s case, to Ireland). Establishing the tax base, and creating an environment with greater certainty, would make the UK a more stable place to do business. Targeted tax incentives could then serve to tip the scales even further in the UK’s favour by offering overseas investors advantages that are not found elsewhere.
The latest round of technical consultation regarding the CFC regime closed on Friday, and the Treasury told International Tax Review today that the decision has not yet been made as to whether further details will be announced before publication of the finance bill.
In any case, the UK isn’t only strengthening its tax competitiveness by what it is doing, but also by what it is not doing.
The UK’s steadfast refusal to bend to the will of French President Sarkozy and adopt a financial transaction tax (FTT) will certainly not have escaped the attention of multinationals.
UK Prime Minister David Cameron has publicly labelled Sarkozy’s proposals to adopt a FTT unilaterally as “mad”, while Financial Secretary to the Treasury, Mark Hoban, reaffirmed the government’s position before a House of Lords sub-committee a fortnight ago.
After a rather non-committal claim that the coalition supported a FTT in principle – but only on the extremely unlikely proviso that it be adopted on a global scale – Hoban’s response to questioning from committee chair Lord Harrison was rather telling.
Lord Harrison asked Hoban, seeing as the government was in full support of a global FTT, what its proposals were for how the revenue raised from such a tax would be apportioned and to what ends it would be put.
The muted response of the Financial Secretary that this would be an issue for the chancellor to decide if such a proposal were ever tabled, made it rather plain that no serious thought had been given to a global FTT, and whether the government truly supports it in principle or not, such a tax won’t be seen in the UK while Cameron remains in office.
Sarkozy has now proposed an implementation date of August 1 2012 for a FTT in France, regardless of whether he receives EU support.
And with Germany, Italy, Spain, Belgium, Austria, Portugal, Finland and Greece all joining the French in urging the EU Council to accelerate work on introducing the tax, the UK could be one of the only major financial centres in Europe without the levy.
Multinational banks will have little trouble relocating their transactional operations outside the remit of an FTT given their mobile nature, and the UK will be welcoming them with open arms.
In addition, at least in the French version of the FTT, it appears that both residents and non-residents will suffer the charges when dealing in French stocks.
If multinationals domiciled in France begin to see a decline in foreign investment due to their listing on the Paris stock exchange, the UK would be one of a handful of alternatives for companies wishing to remain in Europe.
By refusing to enter into the French FTT, maintaining its commitment to the phased corporate rate reduction, and bringing some certainty and finality to the CFC regime as well as the discussions surrounding a general anti-avoidance rule, the UK should remain a competitive hub for business. Any subsidies or other incentives that Osborne elects to include in the 2013 budget would no doubt be welcome additions to this list, but should neither be relied upon, nor viewed as necessary.
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