The KPMG International Corporate Tax Rate Survey
Originally sent: July 19, 2004In today?s bulletin I am focusing on international corporate tax rates. Particularly on European rates.
What relevance does this have to a financial adviser practising in the UK? Well, I think it is relevant for two reasons.
Firstly, some of your clients may wish to consider conducting some of their business overseas if they can save tax by doing so. International tax is a real minefield and you should steer clear of advising your clients to do this unless you have in-depth specialist knowledge of the subject. But you should at least be aware of the situation ? particularly within Europe.
Secondly, market forces operate and determine where companies decide to trade, again, especially within Europe. Our government is aware of those market forces and cannot afford to ignore them completely. Tax rate trends in the rest of Europe may therefore influence future tax policy in this country. However much the government may wish to increase Corporation Tax, it will do so at its peril if corporate tax rates in the rest of Europe are significantly lower than any proposed rates here.
KPMG recently completed a survey of corporate tax rates internationally. The data I am using in this bulletin has been obtained from the KPMG survey. Those of you who wish to check the original data can access it at http://www.kpmg.co.uk/pubs/taxrates_04.pdf.
The first noteworthy point is that there seems to be an overall trend of a reduction in corporate tax rates ? except in the UK! We used to be regarded as somewhat of a corporate tax haven (yes, really!) but now our main rate of 30% is marginally above the OECD average rate of 29.96%.
If we look within the EU, Finland has a rate of 29%, Sweden 28%, and Portugal 27.5%. All below our 30%. Most of the other pre-accession countries have higher rates than us, apart from Ireland, with a whopping 12.5%! Do I hear rumbles of a move to Ireland for some of our clients? Especially with the very flexible pension arrangements available there, under which they would never have to buy an annuity and could pass their pension fund on to their children when they die?
When you look at the accession countries, there is a considerably lower corporate tax rate. Poland is 19% (down from 27% last year), Slovakia 19% (down from 25%), Hungary 16% (down from 18%), and Cyprus 15% (or 10% for smaller companies). Clearly they are all positioning themselves to attract new business from higher rate countries in the EU ? such as the UK.
If it were only the accession countries with very competitive tax rates, maybe our government could feel reasonably secure in ignoring this. Would your clients really feel that comfortable moving to Slovakia? However, it is not only those countries which have more favourable rates than the UK. And the trend to reduce corporate taxation in Europe is continuing. Finland is proposing to reduce its rate from 29% to 26% next year, and Austria wishes to move from 34% to 25%.
Germany, of course, just has to be different, and very complex. In Germany you have a 25% corporate tax rate, a 5.5% solidarity surcharge, and a trade tax on corporate income varying between 13.04% to 20% depending on where in Germany the company is located. Let?s just ignore the Germans. We put our towel on the beach first anyway!
What is my conclusion? Well, it is not really very conclusive, but I do think the evidence is that there is likely to be a further reduction in Corporation Tax unless the Chancellor has his head in the sand. Probably not next year. But, if the trend continues, very likely in 2006 or 2007.
Adviser Breakthrough Training Solutions Ltd. takes no responsibility for loss occasioned by any person acting or refraining from action, or in consequence of any other person acting or refraining from action, as a result of the material in this article.
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