FTSE 350 prefer Ireland to UK as top tax regime

Ireland has knocked the UK off the top spot as the most competitive tax destination, according to KPMG’s annual survey of Britain’s largest businesses

However, the UK has increased the number of times it is mentioned in the companies’ top three competitive tax regimes.

The KPMG Annual Survey of Tax Competitiveness 2014 reveals that fewer FTSE 350 companies than ever before are planning on moving their tax residence out of the UK.

Only 1% are actively considering a move, compared to last year’s 5%, while 37% have considered and dismissed the idea. Rather, an increasing number of foreign-owned subsidiaries are looking to transfer to the UK, and some companies are considering relocating either their central IP holding function or their regional head office to the country.

“This year, respondents’ perception of how attractive Ireland’s tax regime is compared to other countries jumped significantly, with Ireland most frequently cited among the top three most attractive tax regimes overall,” said Chris Morgan, KPMG’s head of tax policy, said.

“Perceptions of the UK’s attractiveness improved slightly versus 2013 but not enough to retain the top spot in the 2014 rankings.”

He pointed to the apparent loss of attractiveness that the Luxembourg, Switzerland and Netherlands’ tax regimes had suffered over 2014 and suggested this was because of the significant proposed changes in tax regimes (especially in Switzerland), increased regulatory scrutiny on tax issues and concerns about tax rulings and EU State Aid issues (in the EU countries).

“While Ireland has also come in for criticism from some quarters on its tax policies, it appears that companies accept its very clear cross party commitment to retaining the low rate and believe that Ireland will introduce further measures like an intellectual property box regime to maintain its competitiveness.”

The survey shows that British companies now see tax as an integral part of running responsible businesses. Over a third (38%) are already more transparent in the way they report tax while 44% said they would be more transparent in the future.

FTSE 100 companies lead the way, with more than half saying that transparency was now part of their tax policy.

A majority of the companies (76%) also see the benefit of the OECD’s Base Erosion and Profit Shifting (BEPS) action plan although many are worried about the potential compliance burden of country-by-country reporting.

According to the survey, what companies really want to see in their local tax environment are stability and simplicity. In particular, they want the corporate tax rate go down to 20% as promised by the government, a move that they consider more important than a reduction in business rates.

They do not approve of tax devolution and they opposed an allowance for corporate equity.

Morgan added, “According to our survey, stabilising and simplifying the tax system are the two most important measures to prioritise to drive growth over the next year.

“However, given that simplification would inevitably involve change to the system, there is a natural tension between these factors.  The general sentiment seems to be that it makes sense to allow recent changes made to the tax system to ‘bed in’ before introducing any additional measures.”

Interestingly, tax professionals take a different view to the companies. A survey, published last week by Deloitte, rated the UK as the best European tax regime to do business in, rather than Ireland, and the tax experts ranked the Netherlands second.