Novel: global tax?

In the period around this year’s Budget statement there has been debate about
the UK’s drop in the rankings of attractive business locations. The strain in
the relationship between business and the tax authorities is reinforced by HM
Revenue & Customs research.

Not everything is going against the UK. The inflexible nature of labour
markets in continental Europe make the UK look attractive as a source of skilled
labour.

Furthermore, UK social security costs are among the lowest in Europe ­
employer payroll costs in France are nearly four times those applicable in the
UK. And, while we have a pensions’ gap to bridge, it’s nothing like that of our
European neighbours where private funding is not in the same league as the UK.

Nevertheless, there are suggestions that big businesses will relocate their
headquarters. With such a move of top management, decision-making on global
strategy (and UK operations) would disappear offshore.

Generally, there is no arbitrage with VAT rates, but for those businesses
where the tax sticks there could be advantages being based in a lower rate
jurisdiction.

Corporation tax is often focused on as a problem, however. There is no
question that the UK tax regime has become more complex, subject to greater
uncertainty and policed by a more combative tax authority ­ all this at a time
when competing jurisdictions have made great strides in the opposite direction.

The factors that businesses seek in considering if a business tax regime will
not hinder their operations will include: taxation of profits only once; relief
for all business costs; prompt resolution of disputes; a firm platform for
predicting effective tax rates (including no surprises with windfall taxes or
retroactive legislation and the ability to clear in advance transactions with a
business-friendly revenue authority); a tax rate that is not uncompetitive; and
(real) simplicity.

This is not a matter that can be resolved by UK legislation alone. There
needs to be some form of world tax organisation, to promulgate internationally
agreed guidelines beyond that achievable by regional co-ordination.

The current administration has significant influence over policy and, if it
is serious about its initially stated position of being regarded as
business-friendly, it needs to change tack soon.

Ian Evans is UK head of tax at Grant Thornton