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UK tax competitiveness: KPMG notes a ‘change for the better’

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The UK’s ‘tax competitiveness’ has improved the most among 14 major economies during the past two years, according to KPMG International.

The firm assessed the impact of all business taxes and calculated each country’s ‘total tax index’ or TTI – a measure of total taxes paid by corporations, expressed as a percentage of total taxes paid by corporations in the US. ‘The lower the TTI, the more attractive the country from a business tax perspective,’ the firm said.

The UK was ranked the sixth most attractive, ahead of the US and the four other European countries analysed. The firm found significant variations between major cities and concluded that Manchester was ‘more attractive than London’ from a tax perspective.

Chris Morgan, Head of Tax Policy at KPMG in the UK, said: ‘This is good news for UK plc and an endorsement of the government’s tax policy. The significant change for the better is partly due to reductions in the [rate of corporation tax]. It is also due to lower industrial property values in 2012 which have resulted in a reduced burden for other corporate taxes.’

The new controlled foreign companies rules would make it ‘far more attractive’ to locate international businesses here, and the patent box regime would see profits deriving from patents taxed at ‘a very attractive rate of just 10%’. But business still had some concerns on tax, he said.

‘It is far from clear how the proposed new general anti-abuse rule will operate for example. As currently drafted it could impact genuine commercial transactions which are implemented in a tax efficient way.  Also, despite the reducing headline rate of corporation tax, some businesses operating in capital intensive industries have been left worse off in terms of the effective rate of tax they pay because the overall rate reduction is offset by the loss of industrial buildings allowances and the reduction in the general rates of capital allowance.

‘They would very much welcome any move to restore some sort of allowance for capital expenditure, especially in key industries such as infrastructure and manufacturing.’