December 2, 2013 12:01 am

Business still favours UK tax regime

Britain is still the favourite tax regime of business but its lead over low-tax rivals such as Ireland, Luxembourg and Switzerland has narrowed amid tense debate over tax avoidance, according to a survey.

Two-thirds of the UK’s largest quoted companies said the media and political storm over avoidance was likely to deter investment in Britain, in a sign of nervousness about the risk of reputational damage and a change in government policy.

They also warned that the global anti-avoidance crackdown could backfire for Britain, as one in four FTSE 100 companies said mooted changes to international tax rules would result in them paying more tax to other countries and less to the UK.

But the survey by KPMG , a professional services group, reported a turnround in attitudes towards the current tax regime after a series of tax cuts introduced by George Osborne in a push to make Britain “open for business”.

The result was hailed by George Osborne as a vindication of his policy. He said: “For the second year running, some of the world’s leading companies have ranked the UK number one for tax competitiveness – this is good for jobs and investment in Britain and is clear evidence that our economic plan is working.”

Ten per cent of the foreign-owned companies questioned said they were considering moving their tax residence into the UK. Only 5 per cent of UK companies were considering moving away from Britain, the smallest percentage since 2007, while about 15 per cent of companies have studied the implications of moving but have decided not to leave owing to recent changes.

Businesses were not looking for further changes to the tax system, although it is widely believed that tax relief should be provided to incentivise investment in buildings and infrastructure.

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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.”

Three out of four tax executives questioned said they supported the general aims of the plan drawn up by the Paris-based Organisation for Economic Co-operation and Development to crack down on base erosion and profit shifting by multinationals. Only 7 per cent said they would end up paying more tax in the UK if the crackdown resulted in a shift in taxing rights towards countries where their consumers were based, while 19 per cent of all respondents said they would pay less.

Chris Morgan, head of tax policy at KPMG, said he hoped the government would listen carefully to their warning that some of the mooted changes could result in their paying less, not more, tax in the UK before committing to firm changes in this area.

All of the companies surveyed had a turnover of at least £100m, while 56 per cent had a turnover of more than £1bn. Just under a third of respondents were FTSE 100 companies, half were FTSE 250 companies, and 20 per cent were foreign-owned subsidiaries.

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