Corporate tax rates have fallen in many developed countries since the current UK corporation tax rate of 30% was introduced in 1999. This trend may make it difficult for the UK to sustain a 30% tax rate and remain an attractive location for investment. Decisions of the European Court of Justice may also threaten the government's medium-term projections for corporation tax revenues. 2005 saw two separate increases in the taxation of North Sea oil and gas producers. We explain why it is fear of further tax rises, rather than the level of the tax rate itself, that is likely to have a detrimental impact on investment. The 2005 Pre-Budget Report announced the final demise of the zero starting rate of corporation tax, introduced in 2002. We review the brief history of this curious initiative, and suggest there are important lessons to be drawn.
We present cross-country empirical evidence on the role of natural resources in explaining long-run differences in private investment as a share of GDP in a sample of 72 developing countries. Our empirical results suggest important differences between oil and non-oil resources. While revenue from oil exports tends to increase private (and public) investment, there is also a robust negative effect from a measure of export concentration. After controlling for these two aspects of export structure, there is little additional information in other measures of resource abundance, or in other suggested investment determinants, such as measures of the quality of institutions, political instability or macroeconomic volatility.
We present empirical evidence on factors that explain long run differences in investment as a share of GDP in a sample of 61 developing countries. We find robust positive effects from measures of the quality of political institutions and public sector infrastructure provision, and robust negative effects from measures of natural resource endowments. There is little additional information in measures of political instability or macroeconomic volatility when we control for these factors. Financial development is found to have a positive influence on investment shares only in countries that experienced relatively high volatility.
This chapter cover two topics – corporate tax reform and issues arising from the introduction of the 0% starting rate of corporation tax in April 2002. Since 1997, the government has made some substantial reforms to the UK corporation tax system. In recent years, it has been consulting on further reform. Section 6.1 provides some background to the debate and discusses the main proposals for reform. Section 6.2 looks at a specific tax change – the introduction of the 0% corporation tax rate for companies with taxable profits of less than £10,000. It discusses the incentives created by this tax change for individuals to set up incorporated businesses, and in particular the incentives faced by self-employed individuals to incorporate.
Summary • The government's efforts to tackle tax avoidance have become more high-profile in recent years. Measures to 'protect revenues' announced since the 2002 Budget alone are estimated to be raising about £4½ billion this year. • The traditional distinction between illegal tax evasion and legal tax avoidance (or planning) has been complicated by the efforts of the authorities to have some forms of avoidance seen as unacceptable even if they satisfy the letter of the law. In some areas, the government is now threatening to use retrospective legislation to ensure that taxpayers contribute what ministers regard as their 'fair share'. • The Tax Avoidance Disclosure regime is the most important recent legislative development in tackling avoidance. It appears to have been successful from the government's point of view, judging by the volume of disclosures made and the blocking measures deployed to halt arrangements it sees as unacceptable. • The authorities are also highlighting to senior executives the risk to their reputation of being found to engage in unacceptable tax avoidance, while leaving it unclear exactly what is unacceptable. This may help to raise revenue in the short run, but is also likely to make the UK a less attractive location for internationally mobile companies and individuals.
In this Briefing Note, we first present internationally comparative evidence on the UK's productivity performance (Section 2) and some of the underlying "drivers" of productivity identified by the government (Section 3). We then provide an overview of productivity policy under both Labour governments since 1997, and discuss the recent direction of policy in this 2005 Election Briefing area (Section 4). Finally, we discuss the proposals of the three main parties in the area of productivity policy (Section 5).
This chapter begins with a discussion of four issues in company taxation. First, we assess the recent government consultation document on reform to corporation tax, which looks at possible changes to the rules for calculating taxable income. (This follows a series of reforms to the taxation of corporate profits since 1997, which are discussed in Chapter 9.) In Section 6.2, we look at the taxation of dividends, in the light of the changes to the UK tax system since 1997 and recent proposals for reform in the USA. In Section 6.3, we assess the structure of North Sea taxation following the changes announced in Budget 2002 and in the 2002 Pre-Budget Report. Then, in Section 6.4, we consider an issue that is not on the government's immediate agenda, but one where there might be a case for reform – stamp duty on share transactions. The chapter also looks at innovation policy, following the 2002 Pre-Budget Report announcement of a review into the interaction between universities and business, which will report at the same time as a separate review of the UK's innovation performance. In the final section of the chapter, we examine trends in UK research and development (R&D;) activity and consider current policy towards innovation, including the two new R&D; tax credits.
Despite a long history of reports and initiatives on the harmonisation of corporate income taxes within the European Union, the 15 EU countries still operate their own national corporate income taxes, with only limited co-ordination between them. However, the increasing integration of economic activity is placing greater pressures on these corporate income taxes, as the companies whose profits are being taxed operate increasingly across national borders, both within Europe and beyond. Tax differentials may also be assuming greater importance in company decision-making, as other differences between countries within the EU diminish נa trend highlighted by the adoption of a single currency within the Euro zone. Thus it is not surprising that proposals for greater co-ordination of corporate income taxes are back on the international policy agenda, notably through the development of the EU's Code of Conduct on business taxation. And whatever the outcome of these present policy initiatives, it is unlikely that this issue will go away. The aim of this report is therefore to shed some light on the complex issues that surround this debate. The European Commission's current interest in corporate tax harmonisation is prompted by a presumption that Ѩarmful' tax competition is resulting in a shift in taxation away from taxes on mobile capital and towards taxes on comparatively immobile labour, and by a concern that this development is harmful for employment. However, both the presumption and the concern are open to question. At least so far as taxes on corporate income are concerned, fears of an imminent collapse in government revenues may be overstated. In fact, for the EU as a whole, revenues from taxes on corporate income have increased over the last 20 years, both as a share of GDP and as a share of total tax revenue. Whilst there has been a downward trend in corporate tax rates, this has been accompanied by both a broadening of corporate tax bases and an improvement in underlying company profitability. Even if corporate ...
