The UK to become a tax haven? What the new political era really means for tax rates

It’s unsurprising that tax is seen as a bargaining chip in Brexit negotiations. Governments around the world have long used tax as a lever to attract business and investment.  Some level of tax competition arguably gives people and businesses choice, and incentivises governments not to tax or spend excessively.  But there are important questions around where you draw the line on low rates, and the potential impact for those nations most reliant on corporate tax receipts.

Squaring these issues will be increasingly important, as tax competition looks set to rise. Regardless of how the Brexit deal pans out, the new US President has made no secret of his plans to change the way businesses are taxed, which is likely to have a ripple effect worldwide.

But while tax reforms seem likely, it’s hard to know how they’ll play out - which countries will gain, which will lose, and so on.

Much attention is given to the headline rate of tax on a business’ profits. While undoubtedly a factor in business decisions on where to locate, there are many others, including language, timezone, and stability. And when it comes to tax, it’s not just about profit taxes. If a company has a big workforce and employment taxes are through the roof, a cut in corporation tax might be by the by. 

Border taxes are another example. These could be a feature of potential US tax reform - we may see pretty expansive changes, creating a truly new blue print. Depending on the scale and level, other countries could respond with changes to their customs duties and indeed their approach to taxing business.

It’s perhaps the sheer volume of taxes worldwide, and more specifically the complicated way they interact that explains why tax remains a concern to CEOs. Some 66 percent of UK CEOs we surveyed are worried that their tax costs will increase – the figure was similar globally.

Whilst tax competition is clearly alive and well, whether it leads to a cut in overall tax rates remains to be seen. And although a more challenging goal than ever, the quest for a simpler global tax system continues.

To find out more about how Brexit could shape the tax system watch our short video and visit Paying for Tomorrow.


View Stella Amiss’ profile on LinkedIn