international trade 35


Why the UK has a compelling argument when it comes to International Trade


Twenty years ago, when an overseas business wanted to decide on the location of its European headquarters, there was really only one country that everyone talked about – the Netherlands. Move the clock forward to 2014 and, arguably, the only country that everyone is talking about now is the UK. What has changed and why? Suze McDonald of Baker Tilly considers the answers


There is simplicity when it comes to incorporating a company, as there are no real minimum share capital requirements and the process can be undertaken in 24 hours. There is also access to a strong labour market, a financial services market which is only second to the US, we are an English speaking nation, we have an extensive double tax treaty network and our legal system is one of the most respected in the world. Many of these factors have been in place for many years, so what has changed? Perhaps the answer lies in the evolvement of the UK taxation system.


Currently, the UK has one of the lowest rates of tax in the G20 and this will be dropping to 20% from April 1, 2015. This is almost half the rate of corporate taxation applied to the average large business in the US and has made the UK so attractive that the UK is commonly referred to as a tax haven. In addition we have an extensive double tax treaty network as well as there being no withholding tax on outbound dividends.


The UK has recently introduced the attractive above the line tax (ATL) credit for large companies engaged in research and development work. The ATL credit allows large tax paying companies to obtain a credit to offset against their corporation tax liability while loss making companies engaged in qualifying R&D will be able to claim a refundable credit for the first time. To further encourage innovation, the patent box regime allows certain profits earned from the exploitation of relevant patented inventions to attract an effective rate of taxation of just 10%.


The UK, sometime ago, introduced the foreign dividend exemption, the elective branch exemption and more


THE BUSINESS MAGAZINE – THAMES VALLEY – JULY/AUGUST 2014


Currently, the UK has one of the lowest rates of tax in the G20 currently and this will be dropping to 20% from April 1, 2015


recently changes to the CFC legislation which attempts to only tax profits in overseas jurisdictions if they have been artificially diverted away from the UK.


HMRC introduced legislation 12 years ago which allows UK companies to dispose of their shareholdings in entities in which they have a “substantial“ (10% or more)


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interest, capital gains free, in certain circumstances.


Finally, HMRC have introduced specialist teams to deal with sophisticated multinational groups on matters such as thin capitalisation, financial services arrangements and transfer pricing. These can provide certainty through obtaining agreements with HMRC on the amount of profit attributable to the UK.


The culmination of all of these changes to UK tax legislation has significantly increased the attractiveness of the UK as a destination for international trade. This was demonstrated recently when Pfizer attempted to purchase Astra Zeneca. Pfizer saw the UK as a hugely compelling argument.


It was to use its


offshore cash (which if brought back to the US would suffer tax at the hands of the IRS) to acquire Astra Zeneca and would re-domicile the group to the UK via what is referred to as an inversion to avail itself of the corporation tax rate of 20%, even though the group is listed and managed from the US.


It wasn’t, of course, simply the corporate tax rate of 20% that was attractive to setting up the group’s headquarters in the UK. The fact is that a pharmaceutical giant such as Pfizer could, arguably, be able to reduce its UK effective rate of corporate taxation even lower than 20% by shifting its R&D to the UK to fully avail itself of the ATL credit and patent box regime.


It would


have access to HMRC so as to agree international trade profit attribution, to be able to use the foreign dividend exemption while knowing that any outbound dividends should be free of withholding tax. Finally, it could dispose of its material equity interests capital gains tax free.


Add into the mix the attractiveness of the UK’s excellent communication, road, rail and air infrastructure and the possibility for expats to see Wills, Kate and George at Wimbledon in June, surely it’s a case of when and not if businesses relocate their HQ to the UK.


Details: Suze McDonald 0118-9554226 www.bakertilly.co.uk


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