AS2012: Corporation tax drop a pleasant surprise

by Kevin Hindley, Alvarez & Marsal Taxand

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06 Dec 2012

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Chancellor of the Exchequer George Osborne

THE CHANCELLOR gave me a pleasant surprise yesterday with the announcement that the main rate of corporation tax would be reduced to 21% from April 2014.

It has long been known that it is his policy objective to reduce the main rate and to unite it with the small companies' rate at 20% so the reduction is not a surprise from that perspective. What is surprising is the commitment shown to that policy against the current economic backdrop.

Over recent times, accusations of multi-national tax avoidance have grabbed headlines. However, there is another story unfolding in the background which is arguably much more significant, although it does not necessarily get into the press.

Five years ago, when I first started proposing the UK as a holding company jurisdiction, it was difficult to be taken seriously. These days there are a number of multi-national companies that are looking to do precisely that. More and more often, I have conversations with my clients about locating some or all of their holding and trading activities in the UK.

Some say that there is an indirect correlation between inward investment and corporation tax rate. What is absolutely clear is that a commitment to a low corporation tax rate sends a signal overseas stating that the UK is open for business. Well done to Mr Osborne. Only 1% to go.

Kevin Hindley is a managing director at Alvarez & Marsal Taxand.

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