Tax reform must focus on improving UK competitiveness - CBI
Controlled Foreign Company reform risks being constrained by cumbersome antiavoidance measures
The CBI today welcomed the Government's commitment to making the UK the most competitive corporate tax system in the G20 by a phased reduction in the corporate tax (CT) rate to 24%.
The leading UK business organisation also supports the commitment to deliver balanced and competitive Controlled Foreign Company (CFC) rules, but said that it had concerns that proposals for Controlled Foreign Companies (CFCs) could be overly complex and constrained by cumbersome anti-avoidance provisions.
In its submission to the Government's consultation document Corporate Tax Reform: delivering a more competitive system, the CBI said that it welcomes a phased reduction in the main corporate tax rate. However, after first consolidating public finances which is the priority, this rate ultimately needs to go lower than 24% to make the UK truly competitive relative to other G20 countries. But, in the shorter term, the Government must also focus on reducing the effective tax burden on companies.
The CBI supports the proposed introduction of Patent Box which will complement the existing R&D Tax Credit scheme by making the UK a more competitive location for holding and exploiting intellectual property. But there needs to be more joined up thinking across the whole lifecycle of innovation to make the UK tax regime among the most competitive for IP.
John Cridland, CBI Director-General, said: "The main purpose of tax reform has to be improved competitiveness, making the UK a more attractive location for inward and outbound investors. Encouraging companies to base their operations in the UK will create jobs and growth. The Government's commitment to move towards a lower corporate tax rate will help this, but at the same time it must address the effective tax burden on businesses which currently makes the overall system uncompetitive."
"The Government also needs to address international perceptions that HMRC is very aggressive in its treatment of Controlled Foreign Companies. We recognise the need to maintain the UK tax base, but anti-avoidance measures must be proportionate to the perceived risk, and targeted at specific abuse. A heavy-handed scatter-gun approach could deter outbound investment."
"We welcome the introduction of the proposed Patent Box, but more joined-up thinking across the lifecycle of innovation is needed to make the UK tax regime amongst the most competitive in this area. There is also a need to examine measures to incentivise development of intellectual property beyond the research stage, covered by the R&D Tax Credit, but prior to the creation of a patentable product."
The CBI submission also highlighted the need for Government to remember some of the broader issues of tax competitiveness such as how policy is made, the complexity and stability of the tax system and personal taxation for key mobile employees. The 50p tax rate is seen as a barrier to attracting some of the best talent to the UK.
This is a particular issue in knowledge-intensive sectors, such as: research and development, design and innovation, and professional services. If people with these essential skills are deterred from coming to this country, then activity cannot be built around them, which undermines investment and entrepreneurship.