UK tax competitiveness hype branded 'misleading'

Reports on the competitiveness of the UK tax system that have been wheeled
out lately have become almost as ubiquitous as cricketer auto-biographies after
the 2005 Ashes.

It seems that no-one can resist pulling together some numbers on why the UK
tax system is at a ‘tipping point’ and requires urgent reform to ensure that the
UK remains an attractive place to do business.

Ernst & Young, The Institute of Directors, the Confederation of British
Industry, Grant Thornton and others have all released such studies in the lead
up to the Budget. The arguments in each of these reports have carried a similar
ring.

The whole lot claim that the UK corporation tax rate of 30% is too high and
that the local system has become too complex. This was driving business away to
other jurisdictions such as Ireland and Luxembourg, where tax regimes were
friendlier.

The question is whether these reports offer a genuine reflection of tax
competitiveness or amount to nothing more than business groups lobbying for an
easier ride.

One person adamant that the latter is the case is Richard Murphy, head of Tax
Research Limited. On the issue of the corporation tax rate, Murphy said it was
misleading to compare the UK to smaller states.

‘The Netherlands and Ireland have low tax rates, but their populations are
tiny when compared to the UK. There is not the same opportunity in such
countries to run real economic activity. The money taxed is not earned there, it
is generated elsewhere and then moved,’ Murphy said.

He added that the business infrastructure in countries with low tax rates was
generally inferior to that of the UK, and that the UK rate was in line with
countries such as Germany, Spain and the United States.

On the question of complexity, Murphy said businesses were complex
organisations used to executing detailed transactions. The complexity of the
system was there to provide business with options to pursue different types of
finance.