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Tax Competition: A Guide For High Growth Businesses

9 Oct

Increased competition between countries to attract businesses is resulting in very favourable tax rates around the EU. But with Brexit threatening to significantly impact the UK’s relationship with the EU, this could be about to change – what does this mean for businesses?

What is EU Tax Competition?

It is up to the governments of individual EU member states to set tax rates that they feel offer the best value to domestic and foreign investments. This leads to competition between countries as they attempt to undercut each other’s tax rates in order to attract investment and avoid capital leaving their economies.

For example, the Republic of Ireland has attracted high levels of foreign investment through low levels of corporate tax while using EU funds to pay for the necessary infrastructure improvements.

Tax competition can be of significant advantage to high growth businesses looking to invest in countries with tax arrangements favourable to them.

The increasing integration of the EU prior to the Brexit vote had led to growing calls for tax harmonisation – the process by which the tax rates of countries are brought closer into line to reduce competition.

How has Brexit affected this?

The Brexit referendum result has led to increased insecurity across the EU. It is possible that the instability following the decision could have the effect of deterring further tax harmonisation efforts. The EU may become more responsive to calls for greater autonomy over tax rates in order to prevent further rifts between member states and Brussels.

The future of tax competition across the EU may also be significantly affected by the outcome of the UK’s exit negotiations. EU leaders have suggested that the UK will not be able to negotiate a deal that allows it to undercut EU member states with very low tax rates. Until the terms of the UK’s exit become clear it is difficult to determine the potential impact on the future of competitive tax rates.

However, it is important to note that tax competition does not always lead to the countries with the lowest tax rates being the most attractive to businesses. 

Sweden topped the Forbes 2017 ranking of the best countries to do business in despite a high level of taxation. This is partly due to a range of other factors such as its lack of bureaucracy, strong infrastructure and extremely high standard of living.

How Dua & Co can help

As experienced accountants in Watford, Dua & Co are here to offer your expert advice on tax affairs. We know that high growth businesses want to be as informed as possible before making major decisions and key investments.

Arrange a free initial meeting to discuss our tax planning and tax strategy services. Our team of highly qualified accountants are on hand to make sure you know everything you need to about your tax arrangements.

Please get in touch to find out how we can help your business grow further.

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