UK tax competitive?

The UK continues to top the league of the most attractive tax regimes for large businesses, although the gap with other European countries is narrowing, according to research report Harris & Co accountants Northampton who specialise in dealing with tax for small and medium sized businesses.

In the firm’s seventh annual survey of tax competitiveness the UK is the number one choice, with Luxembourg, Ireland and Switzerland also gaining in popularity. Overall, the survey results suggest simplicity and stability are ranked as more important than a low effective tax rate.

Jane McCormick, head of tax at KPMG in the UK, said:

‘The dial seems to have moved on the UK’s tax regime from it being an actual deterrent to business and economic activity just five short years ago when some PLCs were emigrating, to it now being positively attractive, especially when viewed in the context of the UK generally being seen to be a very desirable place to live, work and do business.’

However, the findings also suggest that media and political debate around multinationals and tax is having an impact, with 88% of FTSE 100 respondents and 67% of FTSE 350 respondents saying this is likely to reduce investment in the UK. Executives in foreign owned subsidiaries were more neutral, with 80% saying it had no effect and the remainder equally split on whether it made them more likely to reduce their UK investment or, conversely, to increase it.

In response to public discussion over businesses" tax arrangements, over half of those polled said they either had or would become more transparent in their tax reporting. The remainder felt they were already sufficiently transparent. None said they would become less transparent.

Three quarters of the sample said that they supported the general aims of the OECD’s action plan to tackle ‘Base Erosion and Profit Shifting’ with the sentiment even more marked in the FTSE 100 where it was 97% in favour. The three most important areas for the OECD to address were identified as transfer pricing, digital economy and intellectual property. Country by country reporting has also grown in acceptance since 2012 although almost half of respondents said it should not be introduced at all.

However, the survey suggests that changes to taxing rights to focus on where customers are based could have the effect of reducing UK tax revenues. A quarter (25%) of FTSE 100 companies said they would expect to pay more tax overseas and less in the UK if there was a shift in the tax base to focus on where customers are located by changing the ‘permanent establishment’ definition or moving to a more destination based tax.