Withdrawn17May2019A guide toUK taxationBUSINESS

ithdrawn17May2019Aninternationallycompetitivetax offerWContentsForeword01Executive summary03The UK corporate tax regime08Innovation and creativity12Other taxes16Tax policy-making20Tax administration22Invest in the UK – contacts24

A guide to UK taxation01ForewordThe Government’s goal is to make the UK the best placein the world to locate an international business.We have one of the most open economies globally, a highly skilled workforce,access to capital markets and first-class infrastructure.The UK now also has a highly competitive corporate tax system.2019Since 2010, the Government has undertaken a comprehensive review of theUK tax system, consulting with business on the direction and design of ourreforms. We have made tax policy simpler, more transparent and thereforebetter suited to a globalised trading world and to modern business practice.We believe that the corporate tax system can and should be an asset for theUK, improving the business environment and helping to attract multinationalcompanies and investment.We are committed to creating the most competitive tax regime in the G20,and we are delivering on this ambition.MayThe corporation tax rate is currently 23 per cent and will be reduced furtherto 20 per cent by 2015 – the lowest it has ever been in the UK, the lowest in theG7 and joint lowest in the G20. The UK has completely changed the basis onwhich it taxes overseas profits, moving from a system of worldwide taxationto a broadly territorial system where the focus is on taxing profits in the UK.ithdrawn17We have also made changes to ensure the UK is the destination of choicefor creative and high-tech industries. The Patent Box reduces the cost ofcommercially exploiting intellectual property. The UK offers generous andflexible credits against the cost of Research & Development (R&D), with a new,internationally competitive ‘above the line’ R&D credit introduced for largecompanies. We are also introducing significant tax reliefs to support our creativesectors: the new animation, high-end television and video games tax reliefs willbuild on the success of the existing film tax relief system, which last yearprovided over 200m of support to 320 films.WThe Government’s reforms are shifting perceptions of the UK tax regime.With a clear strategy for reform, based on principles that underpin a modern,transparent, efficient tax system, the UK provides the certainty needed forlong-term financial planning and investment.The Government is sending out the signal loud and clear that Britainis open for business.George Osborne MPChancellor of the ExchequerLord GreenMinister of State for Tradeand Investment

A guide to UK taxationWithdrawn17MayWelcometo the UK201902

03A guide to UK taxationThe UK tax regimeExecutivesummaryThe UK Government is committed to creating the most competitive tax regimein the G20 and has reformed the corporate tax system to make it moreattractive to international businesses.The corporation tax rate has already been reduced from 28 per cent to23 per cent and will be cut further to 21 per cent in 2014 and to 20 per centin 2015. This is by far the lowest in the G7 and the joint lowest in the G20.2019There are new flexible and competitive rules for taxing the profits ofmultinationals – including a modernised Controlled Foreign Company (CFC)regime – as well as an extensive treaty network, making the UK an attractivelocation for headquarters, regional holding companies and global or regionalbusiness hubs.There are highly competitive reliefs for innovative and high-tech industries:— New ‘Patent Box’ rules mean that a corporation tax rate of just 10 per cent willapply to profits from the development and exploitation of patents and certainother intellectual property in the UK.ay“Government is focusing oncreating the conditions forprivate sector investmentand growth. This meansa competitive and stabletax system which providesbusiness with the confidenceto invest and expand.”— An internationally competitive ‘above the line’ R&D (research anddevelopment) credit.The UK corporation taxrate has been reducedfrom 28% in 2010 to23% in 2013. It will befurther lowered to 21%in April 2014 and to20% in April 2015.G20 corporation tax rates 2015*MHM TreasuryThe Corporate Tax Road Map,November 2010awn17— Generous tax reliefs for animation, high-end television producers andvideo games.WithdrG20UKRussiaSaudi ArabiaTurkeyKoreaChinaIndonesiaCanadaSouth Based on announced plansSource: KPMG Global Tax Rates %34%35%38%40%

A guide to UK taxation 20% 1,516billioncorporation taxfrom April 2015. The rate iscurrently 23% and will be 21%from April 2014201904UK GDP 201117MayThe world’s 6thlargest trading nationPopulation:ithdrawn63,200,000WOver 70airports and40 major ports4Four of the world’stop ten universities#1The UK is the topdestination inEurope for FDIJoint lowestcorporationtax rate inthe G20from April 2015 based onannounced plans

A guide to UK taxation05The UK: destination of choice for international investmentThe UK has a long history as a trading nation and is the sixth largest in theworld today1. The Government is acutely aware of the importance of remainingcompetitive and continues to focus on the UK’s appeal as a location for globalinvestment. Underlining this is a commitment to the modern internationalprinciples of fair and open trade.2019With extensive air, rail, port and road networks, and as a member of the EU,the UK provides ready market access to Europe. The UK also has a highly skilledworkforce and four of the top ten universities in the world2. In addition, thecountry has a world-class business infrastructure, with a legal system knownfor its clarity and ability to handle commercial disputes. English law is widelyused in international contracts.An overseas business investing in the UK can register a company, set up bankingfacilities and start trading very quickly – and receive the same support from theUK Government as any domestic firm.ayThe World Bankranks the UK thirdin Europe, andseventh in theworld, for ease ofdoing businessawn17MBecause of these factors, the UK is the top destination in Europe forforeign direct investment. In the World Economic Forum’s 2012-13 GlobalCompetitiveness Report, the UK rose to eighth place for overall competitiveness,while a recent study carried out by KPMG International ranked the UK as thelowest-cost destination among established markets in which to do business3.Top European locations for new inward investmentprojects with HQ operations, 0%43%UK14%Ireland14%GermanySource: Financial Times fDi Markets database, percentages shown ofa total 199 new inward investment projects with HQ operations in 20121. UNCTAD, 20112. QS Top University p-201213-qs-world-university-rankings3. KPMG’s 2012 Competitive Alternatives

06A guide to UK taxationLondon Global Financial Centres Index 2013 rankingas a financial centreLondon807New York787Hong oston711Seoul710Frankfurt703698Toronto100696200 300 400 500 600 700 800 900M0ayChicagoSource: Global Financial Centres Index 2013, Z/Yen Groupawn17 ondon’s excellence in financial and business services makes the UK an idealLlocation for international activity. The UK has consistently attracted moreheadquarter operations than any other location in Europe. Furthermore,nearly 40 per cent of the world’s currency exchanges take place in the UK4.ithdrThe UK’s dynamism is not limited to financial services. Car manufacturers areperforming strongly, the UK has attracted major R&D investments from a rangeof the world’s top life sciences companies, and ‘Tech City’ in East London isfostering innovation in the high-growth information technology sector.WThe UK acts as the hub of the world’s trading nations; from American marketsto the west and Asian markets to the east, and as a gateway to Europe. In 2012,Chinese investment into the UK came through a diverse range of sectors,including utilities, aviation, food and clothing.As the London 2012 Olympic and Paralympic Games demonstrated, theUK takes great pride in offering a warm welcome to all and the opportunityto compete against the best in the world – in business as well as sport.4. Triennial Central Bank Survey on ‘Foreign exchange and derivatives market activity’ last conductedby the Bank for International Settlements in April 2010

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08A guide to UK taxationSince 2010 corporate tax policy has been reformed to deliver the policyobjectives of lower tax rates and a broad tax base, focused on taxing profitsgenerated in the UK.Delivering reform: the Corporate Tax Road MapIn 2010, the Government published the Corporate Tax Road Map setting outthe UK’s strategic approach to tax reform. The road map sets out the followingprinciples in order to give business the certainty it needs to invest in the UKand to provide a clear and consistent direction for reform:2019The UKcorporatetax regimeThe UK Government’s aim is to create the most competitivecorporate tax regime in the G20— A low corporation tax rate with few reliefs and allowances tominimise distortions— A stable tax system which avoids unnecessary changes to tax legislationay— Tax policy which is aligned with modern business practice— Tax legislation which minimises complexityM— Tax administration which maintains a level playing field for taxpayers17— A transparent and consistent approach to policy-making, engaging fullywith taxpayers in the development of policyThe road map set out our ambitions for reform in four areas:awn— A focus on reducing the main corporate tax rate— A territorial tax system— The Patent Boxithdr— Improving R&D tax creditsThe Government is now delivering on all of these policy commitments inconsultation with business.WReductions in the main corporation tax rateThe main rate is currently 23 per cent and will drop further to 21 per cent in April2014 and to 20 per cent in April 2015. The UK does not have any additional localtaxation on companies’ profits. The UK’s main corporation tax rate is the lowestin the G7 and will be joint lowest in the G20.

A guide to UK taxation09A territorial tax systemThe UK has moved from a system of worldwide taxation for UK companiesto a broadly territorial tax system, where the focus is on taxing profits earnedin the UK. The key planks for this new approach are a dividend exemption,an elective branch exemption and a reformed Controlled Foreign Company(CFC) regime.The purpose of the UK’s CFC rules is to protect the country from the artificialdiversion of UK profits to overseas companies that are controlled from theUK and located in low-tax jurisdictions.2019The UK’s CFC rules exempt profits earned in controlled overseas companiesfrom UK tax, unless they have been artificially diverted from the UK. The newrules were applied from 1 January 2013.ayM17Corporate income tax (top combined rates)*UK vs G20, 2010-15ithdrEMEA tax directorof a global technology firmKPMG UK Tax CompetitivenessReport 2011Multinationals moving to the UK are able to make use of a one-year exemption,to allow any restructuring necessary for them to be able to take advantage ofthe other available exemptions.awnOver the last couple ofyears I have noticed greaterwillingness on the part ofgovernment to talk to us, tounderstand our issues anda greater realisation thattalking to business canactually help both parties.Special rules apply to overseas finance profits, earned by a CFC from loans tooverseas companies. In broad terms, the rules allocate 25 per cent of the netprofit to the UK, giving an effective tax rate of five per cent from 2015. In certaincircumstances, full exemption will apply, for example where the overseasfinance company was financed through a rights issue of shares, or where thefunds used to make loans were generated outside the UK.35%UKG20 AverageW30%25%20%15%10%5%0%20102011201220132014The combination of the main rate and any surtaxes, surchargesor municipal taxes that might apply*Source: KPMG Global Tax Rates Online2015

10A guide to UK taxationA new elective tax exemption for overseas trading branches of UK companiesallows a choice between potential loss relief (and taxation of profits, with doubletax relief) and exemption for both profits and losses.A complete exemption from tax on dividends in almost all circumstances wasintroduced from 1 July 2009. Unlike some other countries, the exemption is100 per cent, there is no rule limiting tax deductions for expenses and no holdingor minimum underlying tax rate requirement.2019At the same time, the UK continues to offer generous tax rules for interestexpense, with no restriction for the funding of overseas investment. The currentGovernment re-committed to this policy in 2010. The rules are subject to thearm’s length principle, where finance comes from related parties. There is alimitation where the deductions claimed in the UK exceed worldwide third-partyinterest expense, and there is also provision to protect against abuse.MayThe UK hasconsistentlyattracted moreHQ operationsthan any otherlocation in Europe17The UK as a holding company locationawn— The tax changes in the UK over the last few years mean that the countryis now a highly attractive location for a headquarters or holding company.— It offers an attractive corporation tax rate, combined with dividend andcapital gains exemptions.Withdr— The UK is unusual in not having an outbound dividend withholding tax and,under the country’s wide treaty network, withholding taxes on interestand