UK corporate tax burden damages UK competitiveness; harms
inward investment
Leading business and financial adviser, Grant Thornton, believes
the Government must acknowledge that the current corporate tax
regime is damaging UK competitiveness and strangling inward
investment opportunities for UK plc.
The call from Grant Thornton comes on the back of the
announcement that Shire, the UK's third largest pharmaceutical
group, is to move offshore to escape the country's increasingly
heavy tax burden.
Ruth Dooley, a corporate tax partner at Grant Thornton, believes
Shire's move should have set the government's alarm bells ringing
and will hopefully compel the Chancellor to look at ways to reduce
the high tax burden on UK companies and make the country more
business friendly.
She says, "The UK has a bloated corporate tax burden when
compared with the other European countries and although the UK
corporate headline tax rate was reduced by two percent to 28%, the
UK still sits above the EU-27 average of 24.5% and pales in
comparison to countries such as Ireland which has a rate of
12.5%*."
Dooley says that while other countries have responded to the
challenge of competition by bringing down corporate tax rates in
order to attract business, the UK has not. "You only have to look
at Ireland to see how a government has turned the economy around
and made it into one of the most successful financial centres in
the world," she says.
"Corporates were not at the top of Gordon Brown's priorities
when he was Chancellor and it seems that the current Chancellor is
intent on continuing the trend. But perhaps Shire's move will kick
start the Government into action and give business, and future
business leaders, some compelling reasons to stay or indeed start
their businesses in the UK, rather than to regulate them out of
existence or send them packing to other more tax-friendly
jurisdictions," says Dooley.
Despite the high corporate tax burden, the UK has some very
worthy points. The UK is a less bureaucratic place to do
business than France, Germany or Italy. The UK has also
avoided the regulatory overload that has left the US with excessive
red tape, high costs and little gain. Indeed the UK has been
an unlikely beneficiary of the Enron collapse and the
Sarbanes-Oxley Act as AIM has flourished over the past several
years.
Dooley continues, "Many of the smaller entrepreneurial companies
that would otherwise list on NASDAQ have opted for the much cheaper
and more lightly regulated AIM exchange, but tax rates have a part
to play in maintaining that edge to draw in growth businesses from
both the UK and overseas. To compromise that with more tax
hikes or greater regulation would be to compromise the UK's
competitiveness."
Aside from the headline rate of corporation tax, Dooley
identifies the taxation of controlled foreign companies (CFCs) and
the UK practice for taxation of dividends as being other systems
that add to the level of complexity and tax burden for UK
companies.
Dooley concludes, "The Government has to recognise that by
attracting more businesses to the UK, the tax revenues will rise,
and HMRC has to identify and rectify anomalies in legislation and
business, and their advisers need to engage more fully in the
debate."