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Survey on UK Competitiveness: Slicing the Foreign Investment Pie
There is a strong correlation between reductions in effective tax rates and increases in foreign direct investment (FDI). We are constantly reminded of the Government's flagship competitiveness measure to cut the rate of corporation tax to 23 per cent by 2014. However, it is clear that this initiative alone will not have the desired effect. Taxand UK recently surveyed a number of Tax Directors (primarily UK based multinational groups with turnover in excess of ?1billion) to understand the impact fiscal policy has on a country's competitiveness.
36 per cent of multinational groups surveyed stated that they have considered relocating headquarters in the past three years. However, only 3 per cent have actually relocated.
Much recent fiscal policy has been aimed at appeasing those who would look to move elsewhere. The delivery of a Controlled Foreign Company regime is viewed by many as welcome as other factors. However, persistence with the 50 per cent rate of income tax, could yet prove to be damning.
45 per cent of respondents confirmed that the UK tax system was important to the decision of where to relocate operations, with 10 per cent stating that it was critical and 13 per cent saying the UK tax system was not an important consideration.
42 per cent of respondents stated that the reduction in the Corporate Tax rate was the most positive aspect of the UK tax system. Contrary to the 23 per cent of respondents who criticised the approach of the UK tax authorities, 30 per cent of respondents said the approach of the tax authorities to risk and audits was the most positive aspect of the UK tax system.
Fiscal policy is clearly a factor in comparing the competitiveness of one jurisdiction to another, but it is still just one factor out of many that will include, among other things:
- Labour market conditions
- Environment for trade
- Price competitiveness
- Legislative framework in general
- Availability of finance
The UK government has introduced some measures to improve competitiveness. However, the changes have not gone far enough to detract from the negative perception of the UK tax system, which is still characterised by inconsistencies and complexities.
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