Sep 2008 08

UK corporation tax still uncompetitive2

KPMG’s new corporate tax rate survey has just been published. It shows that, despite the cut in the UK’s headline corporation tax rate to 28 per cent, the UK still has the 8th highest rate in the 27 EU countries. The global average corporation tax rate is now 25.9 per cent, and the EU average just 23.2 per cent.

Interestingly, the survey shows that for the first time since 1994, no country in the 106-strong sample raised rates last year. It also finds that corporate tax competition in the EU has been particularly strong over the past decade, moving average corporate tax rates from the highest to the lowest of any group of countries in the OECD. 

While it is true that tax is not the only important factor affecting competitiveness, and corporation tax is not the only tax businesses face, the importance of maintaining competitive corporation tax rates is once again underlined today with the news that London hedge fund Krom River is moving to Switzerland, in large part due to tax. The FT reports:

"Krom was not affected by the tax changes on non-domiciled foreigners living in the UK, but its partners were worried that aggressive tax inspections – a common industry complaint – could disrupt its business.

"The move will also reduce the partners’ personal taxes from a top rate of 40 per cent in the UK to about 10 per cent and replace a London commute with easy access to the outdoors.

"“The UK is great for foreign managers because they are non-doms, but it is not so great for British managers,” said one hedge fund executive.

"David Butler, a partner at consultant Kinetic Partners, said that hedge funds were attracted by the low tax in Zug, along with the quality of life, clean air and skiing.

"“It is not the regulatory regime, it is the tax,” he said. “And they think the tax is going to get worse. The financial position of the UK is such that more revenue has to be raised.”"

This is hugely significant. Not only are UK taxes already uncompetitive, but executives think they are going to rise – the very worst position for the UK to be in.

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  • Bob

    It’s not just millionaire hedge fund managers who are playing the non-dom card.
    I work for a well known company that’s making its UK engineering staff redundant as fast as it can print the P45s. They are replaced by non-EU staff who, being non-domiciled, are granted a dispensation from UK tax while they’re living in the UK. They can even reclaim VAT when leaving the country.
    The non-EU staff do a good job and, thanks to the generosity of HMRC, my employer can give them the same net pay as a British worker while paying them a substantially lower gross salary. No troublesome PAYE, NI, sick pay, or pensions to worry about either.

  • http://www.economicsforaroundearth.com Charles Pierce

    I was interested to find this blog. 20 years ago I had a book published on different economic concepts to point the way to a sustainable world economy. Someone who liked the book recently contacted me to suggest that I update and re-publish it as a blog. She set up the blog, and the book is nearly complete on the blog in a series of postings. Here is the link:
    http://www.economicsforaroundearth.com
    With all good wishes,
    Charles Pierce