U.K. Chancellor of the Exchequer George Osborne delivered his latest budget, which proposes to eventually cut the country’s corporate tax to 17%, the lowest in the Group of 20 major economies.
The U.K. plans to cut the corporate tax to 19% in 2017 and to 17% in 2020, supporting investment in the U.K., and “ensuring the U.K. has by far the lowest rate in the G-20,” Osborne said in his annual budget speech to parliament.
The budget also proposes:
Targeting Interest Deductions
In his annual budget speech, Osborne said the U.K. will deliver a low-tax regime to attract MNEs but ensure that they pay taxes in the U.K. He explained that some MNEs deliberately overborrow in the U.K. to finance activities outside the country, and then deduct the interest expense from their U.K. profits.
“So, from April next year, we will restrict interest deductibility for the largest companies at 30% of U.K. earnings, while making sure firms whose activities justify higher borrowing are protected with a group ratio rule,” Osborne said.
In addition, he indicated that new rules will be established to stop the complex hybrid structures that allow some MNEs to avoid paying any tax anywhere (“double nontaxation”) or to deduct the same expenses in more than one country (“double dips” or “triple dips”).
Reality of the Global Economy
The chancellor spoke of strengthening the U.K. withholding tax on royalty payments (for access to intellectual property rights) that are made to low-taxed jurisdictions. He also addressed the idea of modernizing the way the U.K. treats losses by letting companies use losses in more flexible ways. Like other countries, the U.K. would limit to 50% the maximum amount of profits that can be offset by losses, he said.
Mr. Osborne stated that these U.K. corporation tax reform measures, among the many others set forth in Budget 2016, will create a modern U.K. tax code that better reflects the reality of the global economy.