Following the vote in favor of Brexit, Chancellor George Osborne announced this week that the government might look into dropping corporate tax rates to 15 percent in an effort to keep businesses headquartered in the UK.
In an interview with the Financial Times, Osborne asserted that the UK must assure the world that the country is "still open for business" and will remain a "super competitive economy" despite the Leave vote on June 23rd.
About this decision Osborne said, "We must focus on the horizon and the journey ahead and make the most of the hand we've been dealt."
By cutting the corporate tax rate to 15 percent, the UK will boost its chances of competing with the Republic of Ireland’s 12.5 percent rate and ensure that businesses do not move away from London and the rest of the country.
Besides this tax cut, Osborne announced an additional four initiatives in this five-tiered plan to boost the country’s economy in light of the recent Brexit vote.
This plan, according The Guardian, also includes “ensuring support for bank lending; a push for more investment in China; a focus on delivering the northern powerhouse: and maintaining Britain’s fiscal credibility.”
WTO and OECD Express Concerns on Corporate Tax Cut
In an interview with the BBC, former Director-General of the World Trade Organization, Pacal Lamy, asked Osborne to think carefully about how this move would be construed by Europe.
"The UK is already activating one of the weapons in this negotiation, which is tax dumping, tax competition. I can understand why [Mr Osborne] does that, because obviously investors are flowing out from the UK, and he wants to provide them with some sort of premium that would make them think twice before they leave the United Kingdom,” Lamy said.
He added, "And I'm quite convinced that at the end of the day, if you want a proper balanced win-win relationship in the future, starting with tax competition is not the right way psychologically to prepare this negotiation."
OECD’s Head of Tax, Pascal Saint Amans, expressed similar concerns to those listed by Lamy.
In a memo uncovered by Reuters, Saint Amans said, “The negative impact of the Brexit on UK competitiveness may push the UK to be even more aggressive in its tax offer,” adding that “a further step in that direction would really turn the UK into a tax haven type of economy."
He also stated that the UK, following the shock Brexit vote, may not be able to sustain a tax cut of this magnitude as it would put too much pressure on its public finances.
Corporate Tax Cuts is the Right Move for Others
On the other hand, Jonathan Isaby, CEO of the TaxPayers' Alliance, welcomed this initiative and urged Chancellor Osborne to slash the UK’s corporate tax even further.
"The Chancellor is absolutely right to be considering a big cut to Corporation Tax, as it would show that the UK is ready to seize new opportunities in the global economy,” he said.
“But Mr Osborne must be bold and cut the rate to 10% as soon as possible to really demonstrate that we are open for business, with competitive conditions to match our talented workforce. It's crucial that our politicians have a positive vision for British taxpayers outside the EU, and meaningful tax cuts to boost growth and prosperity are an excellent first step," Isaby added.
Is Closer Corporate Tax Alignment with the EU the Better Option?
At the end of the day, however, Chas Roy-Chowdhury, Head of Taxation at Association of Chartered Certified Accountants (ACCA), believes the UK will more closely align with the EU’s tax policy.
In a Business Insider article, Roy-Chowdhury said, "Any tax policy will be closely aligned with what the EU does because that will create much greater certainty for businesses. So while the Brexiteers (anti-EU campaigners) may be talking about all this autonomy, I think the reality is there will be very close alignment with the EU.”
Where do you think the UK is headed in terms of its corporate tax? Drop us a line in the comment box.