Tax Competition IS a Good Thing…

…at least for the largest UK businesses who continue to benefit from the downward trend in the average effective tax rate.

Mobility means that increasingly companies have a choice about where they choose to be taxed or indeed what bits of their income gets taxed at all.

The City of London wants to remain one of the central staging posts for global financial flows and with its uncompetitive tax rates, over the last four years there have been deliberate efforts to bring the rates in line with market demand.

According to UHY Hacker Young the average effective tax rate of FTSE 100 companies now stands at 24.5%, down on 26% last year and 35.8% in 2009.

The UK also plans for reductions in the headline rate, which is now set to hit 21% in 2014. The present 24% headline rate will drop to 23% in April.

Will this be enough…

Perhaps not as other financial centres are not just slashing tax rates but are providing other incentives for businesses such as allowances and reliefs to help corporate execs fulfil their duties to shareholders by keeping costs low, including tax payments.

No longer is ‘efficiency’ the edict only of the factory floor.

With rates not falling fast or low enough; the proposed introduction of a UK General Anti-Avoidance Rule to address what companies still regard as legitimate tax planning; and persistent public discord about the appropriate taxation levels for business

The City may yet have work to do.


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