A recent annual survey carried out by KPMG has indicated some worrying results surrounding the UK tax system as a whole. The findings revealed that 14% of the 50 of Britain’s largest organisations that took part in the survey suggested that they would strongly consider re-locating abroad.
The 2008 results showed that in total, the number of companies thinking about moving doubled (compared with figures collected over the same period in 2007).
Head of tax at KPMG, Sue Bonney spoke about the effects such decisions will have on the UK industry: “If the trickle of companies leaving is to be prevented from becoming a flood, further action is needed and quickly.”
Despite the UK having a more appealing and equally competitive corporation tax system (in comparison to France and Germany), other nations such as Ireland, the Netherlands and Luxembourg have the upper hand with a tax base that actively encourages a growth in investment opportunities.
Industry experts are saying that swift action needs to be taken in order to ensure that companies remain on British soil. This is a dire situation that the government will have to address because to allow this to continue could weaken an already struggling economy.
Action being taken by the government
With several larger organisations already intending to re-locate abroad, George Osbourne the shadow chancellor of the Conservative party has written directly to Labour chancellor Alistair Darling to address ongoing issues surrounding corporation taxation.
The letter not only blamed government officials about the severe state of affairs surrounding corporation tax and UK businesses, but Osbourne also suggested a further drop in rates from 28% to 25% as well as the potential for further future cuts.
In response to this, the UK government indicated that the tax system is competitive in comparison to other countries. This may well be true but this is bearing in mind that in Ireland, the corporation tax is only 12.5%.
It was back in 2007 that Gordon Brown decided to cut the tax rate from 30% to 28% but with other countries offering both competitive rates and better investment opportunities, room will certainly need to be made for further flexibility in lowering a figure that some are arguing is still too high.
At the time of the drop, Gordon Brown commented on his decision to cut tax rates: “Having continued to look carefully at the requirements for a modern corporate tax system for the global economy I propose the following changes that reflect the increasing importance in investment decisions of R&D, skills, intellectual property and environmental innovations.”
He added: “I have decided to cut mainstream corporation tax from April 2008 from 30p down to 28p – at 28p a rate lower than America, Germany, France, Japan, and all of our other major competitors.
Fact: The Conservatives say that the UK currently has the 19th lowest figure for corporation tax and should a drop to 25% be considered then it will become the 12th lowest.
UK firms re-locating
With so many companies strongly considering the possibility of re-locating abroad, this is starting to become an ongoing problem as several mainstream industry leaders have already taken the step towards operating in alternative countries.
The list does appear to be growing and these are just a few of which have already re-located:
- Charter
- Google UK
- Henderson Group
- Yahoo
- Regus
- Electronic Arts
- Procter & Gamble
- Colgate
It is believed that this may only be the tip of the iceberg and with rumours of international bank HSBC considering similar possibilities, we may not yet be over the worst and this does cause concerns for an ever dwindling economy.
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