Tax does have a bearing on where we locate our business – say CEOs

A country's tax regime has a definite impact on where international companies choose to locate. In our recent report, Building trust and growth 63% of the 1,344 CEOs surveyed worldwide said Government tax policy plays a part in where they choose to operate their business.

The report comes as the UK Government continues to promote the UK as a place for business, with the lowering corporation tax rate to 20% by 2015 an important part of these efforts. The Treasury is also in the US this week, running events to showcase the UK as a place for business and investment.

Decisions on business location are influenced by many things, including customer demand, resources and skills, and political stability. Tax is undoubtedly an important part of the decision mix. When considering tax systems, it's not just the tax costs, but the stability of the regime and compliance burden that matters.

Tax systems have a particular influence on businesses that are more mobile. For instance the research shows that in the asset management sector, 70% of CEOs say tax policy is a key factor in where they operate their business. While for CEOs of mining companies, which must follow available resources, the number is 57%.

The significant bearing tax has on location choice is perhaps not surprising given 70% of CEOs are worried that the increasing tax burden - both cost and compliance - is affecting their ability to grow.

Increasing tax burdens are a serious concern to businesses as they balance their responsibilities to a wide group of stakeholders. There is no limitless pot of money to fund capital investment, R&D, and return to investors, and choices need to be made on how to manage costs and remain competitive. These choices - including where and how to invest - will impact a business' tax footprint across the world.

UK CEOs are slightly more positive than their global counterparts, with 64% concerned about the impact of their tax burden on growth. They are also less negative about the efficiency of their tax system. Just 17% of CEOs globally say the Government where their business is based has been effective in creating an efficient and internationally competitive tax system, compared with 27% in the UK.

CEOs don't think the tax system has changed to reflect how multinationals operate and want to see it updated. But there's concern individual governments will take their own action to deal with outmoded rules, rather than working through coordinated efforts, such as those led by the OECD. The concern is the prospect of a period where international trade can't be done without either double taxation or tax authorities being unable to reach agreement on their respective taxing rights.

Mary Monfries | Partner
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