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UK’s tax regime remains competitive

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The overall appeal of the UK’s tax regime has weakened only slightly over the past year, according to KPMG’s Tax Competitiveness Survey 2018. The survey involved interviews with 77 of the UK’s largest listed companies and subsidiaries of multinationals, and a further 58 non-UK companies from across the G7.

Half of all respondents named the UK as one of the three most competitive tax systems in the world, behind Ireland (with 62%). Among non-UK companies, the UK ranked joint fifth with Switzerland, behind Luxembourg, Singapore, Netherlands and Ireland.

However, the UK has closed the gap with Ireland since last year, thanks to a strong showing in business services, property, transport, engineering/construction and aerospace.

The proportion of UK companies that are committed to keeping their tax residency in the UK was 76% in 2017, the highest proportion since the KPMG study started 12 years ago. However, there is a net balance of more firms looking to move certain business activities out of the country. Functions including finance, group services, manufacturing, intellectual property and regional head office are more likely to be relocated out of the UK.

Where decisions are to be taken over the location of holding companies and investment holdings, the responses show a trend towards moving into the UK.

Among senior tax decision makers, 42% identify Brexit as the factor they believe will have the greatest impact on their investment decisions in the next 12 months. The number of companies saying Brexit has made them more likely to move their tax residency has also increased from 2% to 10%.

Stability was the most commonly identified factor for UK companies in assessing the attractiveness of a tax regime (79%). Predictability of actions taken by the tax authority carried similar weight (78%). The rest of the world was more likely to look to a low effective tax rate (90%) and then stability over the years (86%).

For 19% of respondents, reducing the headline rate of corporate tax to 17% should be a priority for the government to drive growth in the next 12 months.

Melissa Geiger, head of international tax at KPMG in the UK, said: ‘The UK has largely maintained a business-friendly tax regime compared to many of its rivals. This survey shows that once a business starts operating in the UK, they tend to recognise the attractiveness of the country’s economic and tax environment and are likely to keep their base here. That stickiness is important. The tax rate in the UK is low and competitive, but is also being paid, which is good news for the Treasury.’

Issue: 1399
Categories: News