In the aftermath of the referendum, George Osborne said that the UK’s corporation tax rate might need to fall even further, to a rate of 15 percent, to encourage investment into a post-Brexit UK. The rate, which is currently 20 percent, is set to fall to 19 percent from April 2017 and then 17 percent from April 2020 under already enacted legislation.
Whilst Philip Hammond has not committed to a reduction, we could see headline rates fall further, if the government wants to enforce an open for business message.
The international tax environment, already in the midst of serious change as a result of the OECD’s crackdown on multinational avoidance, could now be on the verge of turmoil if Donald Trump presses ahead with his tax plans.
US companies hold US$ billions offshore. They have done this because remitting back to the US has a high tax cost. If Trump introduces a profit repatriation tax rate of only 10 percent, less than a third of the current rate of 35 percent, the consequences could be momentous, with unprecedented monies flowing into the US domestic economy. The plan also includes a reduction in the main rate to 15 percent, moving the US from one of the highest tax jurisdictions in the world to one of the lowest.
We have talked about the UK government slashing corporate tax rates over recent years, but nothing of this scale. Whatever Philip Hammond may have been thinking before, he might now have to accept that the US may be about to claim the prize as having the lowest rate in the G7.
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