THE UNITED Kingdom plans to sharply reduce the amount of corporation tax charged to multi-nationals on profits made by operations outside of the UK in a bid to stop the drift of such companies to bases in other countries.
It will also introduce a 10 per cent rate on profits from newly commercialised patents, chancellor of the exchequer George Osborne has said.
Some of Britain’s biggest companies, including global advertising group WPP and Shire, the pharmaceuticals company, recently moved their headquarters to Ireland, claiming the complicated and uncertain nature of company tax law in the UK made it unviable to retain their tax base there.
Though Mr Osborne was careful not to mention Ireland in the House of Commons – alluding instead to Belgium and the Netherlands as countries which have become more attractive for UK-based multinationals – Treasury sources later briefed journalists that the changes would encourage some of the British companies who moved to Ireland in recent years to move their tax-base back to Britain in a move which could cost the Irish exchequer tens of millions in lost revenue.
“These tax measures will make us the most competitive place in the world,” Mr Osborne told MPs.
A Treasury document published yesterday said: “In recent years too many businesses have left the UK amid concerns over tax competitiveness. It’s time to reverse this trend. Our tax system was once viewed as an asset. And it needs to be an asset again.”
In the recent UK budget, Mr Osborne announced the top rate of corporation tax would drop by a percentage point every year over the next four years to 24 per cent, its lowest-ever rate. In 1997, the UK had the 10th lowest rate in the EU, but it had dropped to 20th place this year.
The Treasury said the administration of taxes – and not just the rate – is equally important to companies: “Particular concerns have been raised about a lack of clear direction, the frequency of change and, on some occasions, the lack of attention paid to the real impacts on business.”
Under one of the changes planned to come into force in 2012, multinationals would be offered the opportunity to “opt in” to an exemption for profits earned in foreign branches of UK companies in 2011, using “a more territorial” approach to the collection of corporation tax. This would mean they would no longer be subject to UK corporation tax on foreign profits. The Treasury has to achieve a difficult balance, as this could cost it significant revenues.
The introduction of a new 10 per cent tax rate from 2013 on newly commercialised patents has already seen its first gain, with GlaxoSmithKline’s decision to build a £500 million (€593 million) plant in Hertfordshire.
