Brexit presents ‘real opportunity’ to devolve corporate tax, says KPMG partner

Brexit presents a “real opportunity” to devolve corporate tax to the UK regions in order to “better spread investment around the country”, Tim Sarson, tax partner at KPMG, has said in a statement.

The comments were made following the release of the government’s industrial strategy green paper, and recent Brexit announcements.

Sarson said: “Addressing regional imbalances is vital to improving the UK’s prospects outside the EU. There is already a precedent for this with Northern Ireland and there is also evidence of tax devolution making a real impact on the spread of investment in many countries including Switzerland, Germany, and the United States. Tax devolution can be one of the pillars of an industrial strategy that take account of places as well as sectors. It’s an opportunity the government should grasp with both hands.”

KPMG also commented on speculation on whether the UK would cut taxes following the UK’s exit from the EU to attract foreign investment.

“While potentially valid as a negotiating tactic, many will view this as a step in the wrong direction. It certainly seems at odds with the prime minister’s comments at Davos about companies needing to pay their fair share of tax,” commented Sarson.

“Multinationals are not clamouring for a lower UK corporate tax rate – particularly given the headline rate is due to reduce to 17% by 2020. Any action viewed as harmful tax competition by EU countries could well prove counter-productive.”

The government’s green paper released this week sets out plans to drive growth across the whole of the UK, rather than concentrated in London and the South East. The paper outlines key challenges to the improving economic growth and living standards in the UK, including maintaining a competitive advantage over leading economies and increasing productivity. It also identifies the following 10 pillars through which to drive the strategy forward:

  1. Investing in science, research and innovation;
  2. Developing skills;
  3. Upgrading infrastructure;
  4. Supporting businesses to start and grow;
  5. Improving procurement;
  6. Encouraging trade and inward investment;
  7. Delivering affordable energy and clean growth;
  8. Cultivating world-leading sectors;
  9. Driving growth across the whole country; and
  10. Creating the right institutions to bring together sectors and places.

Sarson said: “In terms of the UK remaining competitive and an attractive place to invest after we leave the EU, there are factors over and above the corporate tax rate that will be important. If you look at what has been successful in driving foreign investment in the UK over the last decade it has been an ‘open for business’ tax system which includes a package of policies, for example dividend exemptions and the treaty network. It’s also worth remembering that tax isn’t the only thing that drives foreign investment. There’s also infrastructure, access to markets and talent. The trouble is, as the prime minister tacitly acknowledged, those factors attracted investment disproportionately to London and the South East of England.”

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