KPMG research: UK turns corner on corporate tax competitiveness

The UK has turned a corner on its corporate tax competitiveness, according to research by KPMG.

The 2011 UK Tax competitiveness survey, which polled 50 large UK organisations, claimed that the improvement is driven by reforms to the taxation of foreign profits and the government’s commitment to making the UK tax system the most competitive in the G20.†

The research said that the UK’s corporate tax regime’s attractiveness had improved, returning to levels last seen when the same survey was conducted in 2007, when 28% of respondents said the UK outshone key competitors.

This figure has declined in subsequent years (reaching a low of 17% in 2009), but this year it has bounced back to 27%, well ahead of the United States, but still lagging behind Ireland, the Netherlands, Switzerland and Luxembourg.

The research also revealed that the 50% tax rate is having a limited effect on businesses’ ability to recruit senior talent. In 2009, when respondents were asked whether they thought the new top rate of tax would make it more difficult to attract top talent to the UK, over 80% said it would. This year, only 13% said that it was proving a barrier to attracting senior talent.

Chris Morgan, head of tax policy at KPMG in the UK, said: “Our survey supports the assertion that Britain is open for business, at least as far as corporate tax is concerned.†

“Thanks largely to the reforms in progress around the way in which foreign profits are taxed and the government’s commitment to making the UK tax regime the most competitive in the G20, the UK’s tax competitiveness appears to have begun to improve.

“However, challenges still remain: the complexity and compliance burden remains too high, and the UK’s tax competitiveness is still perceived to be much lower than Ireland, the Netherlands, Switzerland and Luxembourg.†

“The message is quite subtle. Although the on-the-ground-effect of the 50% tax rate is relatively minor due to businesses using tax equalisation to compensate for its impact, our sample feels that it sends a message that the UK is not necessarily as open-or-business as might be hoped.†

“Business is looking for reassurance that this top rate will indeed be only temporary and perhaps the Chancellor will take the opportunity to do so in next week’s autumn statement.”

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