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UK Budget 2011 Report - Will It Fuel Growth?
Billed as a "budget for growth" by the Chancellor George Osbourne and designed to reinvigorate the UK economy, the budget has been welcomed by many business groups.
It comes at a critical time with the UK economy starting to show signs of improvement despite the downwards revision of growth forecasts. The UK Chancellor stated at the outset of his speech that this would not be "a tax- raising budget" and there are some favourable measures. David Pert Taxand UK
Key highlights are as follows:
- Surprising additional 1% drop in the corporation tax rate to 26% from April 2011 with a phased reduction to 23% in 2014.
- Additional increase in the balance sheet bank levy to neutralise the above corporation tax rate reduction.
- The rate of the supplementary charge levied on profits from UK oil and gas production will increase from 20% to 32% from 24 March 2011.
- Controlled foreign company reform announcements extended to include a finance company partial exemption that results in an effective UK tax rate of one-quarter of the main corporation tax rate on profits derived from overseas group financing arrangements.
- Confirmation that the patent box regime (10% rate for royalties) will be introduced.
- UK has overtaken India as the country with the most pages of tax legislation. In response 43 minor tax reliefs are to be axed taking out 100 pages of tax code.
"The reduction in the corporation tax rate is a significant change and may improve the perception of the UK as a location for business operations." George Koutouras, Taxand US
"The UK has made steps in the right direction for corporate taxation in general. This makes the apparent witch-hunt for Banks all the more bizarre as these were traditionally major contributors to UK exchequer. It may also dampen the enthusiasm of multinationals as it signals that yesterday's friend may quickly become today's pariah .Given the initiatives around the patent box and foreign finance income, the UK position towards the recent EU CCCTB proposals will also be interesting to follow." Keith O'Donnell, Taxand Luxembourg
"The 2% cut in the corporate tax rate is a welcome measure, coupled with the announcements of a reform of the CFC rules. These measures should further the UK's ability to retain multinational interest for all but the banking industry." Martin Phelan, Taxand Ireland
"The UK continues to fine tune its use of taxes as a steering tool to attract certain businesses. Whereas a simple reduction of tax rates benefits all, certain incentives are applied more selectively. In line with the current public opinion, it seems the price is being paid by the banks and the oil & gas sector." Arianne Jerey-Hener, Taxand Germany
"Controlled Foreign Company reform, simplification and the Corporation tax rate drop are steps in the right direction and may stem the flow of businesses exiting the UK for more favourable tax locations. The patent box may provide a strong incentive to keep R&D activities in the UK but a 10% rate may not be enough to attract new business." Marc Sanders, Taxand Netherlands
Read the full newsletter from Taxand UK detailing the Impact of the Budget on Corporations With UK Operations
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