Overall: In moving beyond the political and cultural debates surrounding Brexit, the United Kingdom is now presented with one of those rare opportunities to more fully hit the “reset” button on many of its economic policies, including taxation. While part of the goal will undoubtedly be to strive for simplification, we have seen from the recent US example in enacting TCJA that this laudable objective can be difficult to attain in today’s complex economic environment. The British government has put forward lofty and bold ambitions, as it must, and hopefully this will indeed lead to greater future investment.
Regional Corporate Tax System: As we see from experience in the U.S., having regional differences in corporate tax rates can indeed be conducive to attracting and retaining business investment, both domestic and foreign. The ability to compete on overall cost of doing business through favorable tax policies can generate significant regional employment and dramatically change the fortunes of those living there.
R&D Credits: In today’s world of ever-changing technological development, R&D and innovation will remain at the forefront of business for decades to come. I see MNEs giving great weight to the impact of R&D tax credits or other similar incentives as key factors in deciding where to locate such important people functions. Together with attractive corporate tax rates and a highly educated work force, the ability of the UK to rethink its policy towards such incentives is a great opportunity to further encourage MNEs to invest there in such “clean” industries.
Digital Tax: The decision on whether to move forward with a unilateral digital tax could have significant negative repercussions. It will be necessary to negotiate new trade agreements and securing favorable terms could have far-reaching implications for the UK economy. Although a digital tax may seem appealing as a means to raise short term revenue to help pay for other economic policies, such a tax may also draw the ire of U.S. trade representatives and unnecessarily add further complexity to those negotiations. We have already seen recent examples where the U.S. government is willing to invoke trade penalties when seemingly discriminatory tax or other unilateral economic measures are imposed and one has to wonder whether now is the optimal time to implement a digital tax in the UK. It may be better served to first see through the OECD process on this hot topic and address other core taxation principles in the immediate aftermath of Brexit.