When the Coalition Government took office, it announced a fundamental reform of corporation tax. A core underlying principle was 'competitiveness' – the recognition that, in a global market, businesses are mobile and tax has a major influence on where they locate. Half way through its term of office it is worth seeing how the Government has done so far.
The good
On the plus side, corporation tax rates have come down, they will reduce further and the reduction is further and faster than originally planned. However, headline rates are just one element in the total tax competiveness picture. For instance, the UK's controlled foreign companies (CFC) rules were identified as a key deterrent to businesses locating here. Fiendishly complex, they were perceived as no longer fit for purpose. It was the CFC rules that influenced a number of companies to move their tax base out of the UK. After two years of consultation and hard work, the rules have been comprehensively reformed. While the rules are still complex, they do nevertheless deliver a regime that UK-based multinational corporations can operate within but that also protects the UK tax base from artificial diversion of profits abroad. It is worth noting that some businesses that left, for example WPP, have announced that they will be returning, citing CFC reform as the key factor. This is all good.
The bad and the ugly?
On the debit side though, personal tax rates remain high, deterring many entrepreneurs and senior executives from locating here. The tax environment is also highly uncertain, with ever more complex legislation, the impending General Anti Abuse Rule and inconsistent decisions in the courts. The one thing businesses hate more than anything is uncertainty. So it is a mixed picture. Some good progress has been made but, in other areas, we seem to have gone backwards. A cautious 6/10 perhaps?
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