Brexit fears fail to dent UK tax appeal

Brexit uncertainties have not diminished the tax advantages of the UK as yet despite concerns about future trade deals and a drop in inward investment 

The Irish tax regime tops the rankings, with 74% of UK companies selecting it as one of their ‘top three’. The UK has retained its second place with 65% singling out the country followed at third by Luxembourg with 42%. There is a widening gap between Ireland and the UK which was just 1% in 2015 but has grown to 9% in the past year. 

In a KPMG survey of tax and finance professionals at 100 UK listed companies and foreign owned subsidiaries shows that the UK has lost ground this year.

The UK has lost ground to Ireland despite reducing the corporation tax rate to 19% for the 2017/18 tax year versus Ireland’s 12.5%. Luxembourg is still number three although the combined corporation tax rate is 29.22%.

For non-UK companies, the UK fell from first to fifth place in the rankings. Non-domestic businesses cite particular sensitivity to disruptions in trade deals and tariffs, an end to the UK’s access to the EU single market, and the mobility of skilled labour as reasons for concern.

Not only does this demonstrate a sharp decline in perceptions of the UK’s tax regime, there also seems to be a clear divide in sentiment between UK versus non-UK businesses. 

Robin Walduck, tax partner at KPMG in the UK, said: ‘The material change this year is that finance executives are now grappling with the question of how Brexit might impact current and future investment in the UK. It’s in this area we see a striking divergence between the views of UK companies and their G7 peers, providing some insight as to why the UK has started to fall out of favour. 

‘For companies already investing or located in the UK, their perspective is that it is an attractive place to do business and executives are broadly confident about the country’s future prospects.

‘For those on the outside looking in, the picture is looking less positive and businesses are markedly more bearish. As Brexit negotiations get underway, this begs the question whether UK respondents are being too bullish with misplaced optimism, or if non-UK respondents are being too quick to discount the UK.’

KPMG’s research shows that companies are not planning to withdraw their entire operations from the UK, as the number of respondents considering taking business functions out of the country is broadly unchanged in comparison to the 2015 survey.

However, there has been a significant drop in businesses seeking to move functions into the UK amongst both UK and non-UK participants this year.  Added to this, executives cite Brexit as having greatest impact on investments and activities in the next 12 months and suggest it could ultimately lead to substantial reductions in investment and high-value activities, such as capital expenditure, employment and R&D investment.

Tim Sarson, tax partner at KPMG in the UK, said: ‘It’s clear, the potential disruption of leaving the EU and ambiguity over the UK’s future economic prospects now weigh heavily on executives’ minds. Taken together with companies’ views on migration of business functions this points to a possible net outflow of activity from the UK in 2017 and beyond.’

KPMG’s annual survey has been running for more than a decade. Over half (56%) of the companies interviewed had a turnover of at least £1bn, while 22 were members of the FTSE 100, with another 21 in the FTSE 250.

The KPMG report - Succeeding in uncharted waters: assessing the competitiveness of the UK is available here.  

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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