Fatima Mamadi

In this essay I will discuss the challenges faced by the UK Government in the
fight against aggressive tax planning. I will do this by discussing companies
investing their capital, business tax, and I will look at relevant aspects of the
United Kingdom's Corporate Taxation regime alongside other countries regimes.
Furthermore, United Kingdom's Business tax policies such as income and profit
tax (corporate tax) will be touched upon and I will analyse some of the
advantages and disadvantages for why global companies may or may not wish
to invest their capital and their talent in the UK when they have the option of
investing in other competitive countries, where corporate Taxation rates are
considerably lower and other business related aspects (which will be mentioned)
are taken in to account. I will do this using information from various reports,
tables, charts and surveys to convey my findings. I will then summarise my
findings in the conclusion and suggest future recommendations for the UK's
Taxation regime.

Looking at the Chart above it can be seen that the UK has few positive aspects
compared to negative, in terms of attractiveness for a place to invest compared
to other countries. The UK is and has been well known for its labour relations
with other countries and is known worldwide for the wealth of skilled and
talented employees which is an advantage for companies looking invest,
however the positive features shown are not necessarily the most important
factors which are considered by investors.
"It is essential to pursue careful consultation between HM Government and
business taxpayers to see how we can move forward to a proportionate and
responsive taxation regime that delivers the positive outcomes for the economy
which we all seek". (The impact of...2008).

Fatima Mamadi
As you can see the business tax levels have declined significantly over the last
10 years alongside the level or regulation and personal tax levels. All of these
criteria are more important to investors and so UK is a less attractive place to
invest when correlated with the positive aspects. The UK should keep good
labour relations strong but build on and regulate the negative features to
become more competitive, to allow greater economic growth and a sound
location for investment.

(CBI 2006)

If the UK Tax regulation and government policies remain as they are there will be
a decline in all the UK markets primary locations over the next 5 years as shown
on the charts above, especially in the design(-10%), marketing and brand
development (-15) and service provision (-10). This will mean that market share
will decrease for various industry areas, economic activity will decrease, more
people will lose jobs and less people and organisations will be attracted to invest
in to declining markets.
"Rates of corporate tax are less than 10% in Singapore, Ireland and Belgium. The
UK at 24%, or what is proposed, isn't competitive"(Deloitte 2010).
The UK regulations need to ensure there is an incentive to access their markets
and allow opportunities for organisations to grow by expanding the existing
markets using incentives of business grants, tax reductions and treaties and

Fatima Mamadi
reducing tax on costs such as VAT. If this does not happen investors will look in to
locating their headquarters to other competitive countries where locating would
be more beneficial, notably areas such as marketing and development (-9%) and
service provision (-10%). On the positive side companies investing capital in UK
for production assembly (+9%) and it and admin support (+4%) are set to
increase over the next 5 years.
To conclude my findings shows the UK Tax rate is too high at 50%, the highest,
which is not competitive enough against other countries. Global investors are
looking for a location where high profits can be achieved at low costs, which will
be beneficial for their business to thrive in and where business needs are
addressed. This is a huge factor for the UK governments and tax authorities to
take in to considerations as it is driving away the motivation for both small and
large organisations to invest in the UK as their income would be taxed
significantly more than in other areas such as Ireland or America where the tax
rates are considerably lower. One of the main reasons a company is looking to
invest capital in a new location is to achieve the greatest return on their
investment at the lowest costs. The high VAT rate in the UK means costs will be
high.
Looking at the income tax of individuals in the UK it can also be seen that though
there are some advantages, the high level of Tax means attracting staff for
existing business will be very difficult in the future. Some countries taxation
policies also prevent double taxation by having treaties in place which would
attract organisations which are looking to operate in more than one country. This
is a competitive advantage against the UK for investors. It could in the future
drive current UK incorporated companies to set up their primary business's
elsewhere as there are more benefits in terms of profits to be made as well as
aspects such as government grants given, and more tax deductions given for
business tax and personal Tax. This would have a negative impact on the UK's
economy.
"Independent research commissioned from CRA International by the City Of
London concludes that the UK corporate and personal tax regimes, and the
manner of their implementation, are impacting detrimentally on the
Competitiveness of the UK economy and are beginning to affect Business
location decisions" (The impact of...2008)
There has been a trend in the UK where Tax seems to be getting higher and
higher and it seems as though the government support and try to encourage
this. So for potential investors this would be a growing concern. If they settle in
the UK will the Tax levels keep rising? This is an uncertain answer but looking at
the past trends it does not look like an incentive.
The United Kingdom is deemed to have sustainable corporate tax systems but it
needs to be more then to simply raise revenue, it also needs to be able to allow
businesses to thrive. It should be a place Where companies administration and
compliance costs are low to allow long term decisions about growth to be
feasible and to be competitive enough for them to operate against international
markets. Tax Competition is highly important as are the use of tax rate
reductions/exemptions applied by governments across the globe to encourage
local capital formation. UK businesses need to have a competitive advantage to
other developed countries.

Fatima Mamadi

"There is a need for government to pay careful attention to the tone, application
and long-term impact of any new taxation legislation that they wish to
introduce".
Future recommendations to increase the attractiveness to invest capital in the
UK against other competitive jurisdictions would be to produce various incentives
such as, governments to issues grants given to business's or certain business
industries such as Design, Marketing and development and service provision, as
they are more likely to be used as primary headquarters in other countries over
the next five years (looking at the charts used). Doing this may negatively
impact the UK economy in the short term as cost would be induced, but it would
increase business activities and create more jobs and skills to improve the
economy in the long term. Business Tax rates could be reduces to be more
competitive against other appealing locations or Deductions on business tax for
new established businesses could be reduced competitively for the start-up
year(s) of the business. This again Might not be economically beneficial in the
short term but the economic stability of UK markets will increase allowing room
for employment and greater market share and investment opportunities. The VAT
has just gone up in the UK to 20%, where in countries such as America and
Canada they have no VAT and in Ireland it is significantly less. VAT on certain
products and services such as food and raw materials for specific industries (the
ones we are not doing so well in or not looking to do well in the future) could be
removed. This is the system which Ireland has in place and they have a growing
economy. These steps can only occur if the government coalition and the tax
authorities work together to achieve positive outcomes to benefit the UK
economy now and in the future as an attractive place for business's to invest
their capital.
Other issues to be considered include; The need to access and diversify in to new
markets, Skills, quality of life, political and economic stability, infrastructure,
Personal taxation, regulation, business taxation, grants, loans, planning
restrictions etc.and UK taxation as the underlying issue for multi-national
organisations looking to invest in other jurisdictions.
Bibliography;

Fatima Mamadi

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