04 April 2017

KPMG: UK remains attractive place to do business but loses ground over Brexit

The UK retains its position as the 2nd most competitive tax regime, but it has dropped to 5th amongst the non-UK companies surveyed. Research points to possible net outflows of business functions. Executives cite Brexit as having the greatest impact on investment and business activities in 2017.

The UK has lost ground in KPMG’s annual rankings of both tax competitiveness and appeal as a destination for Foreign Direct Investment (FDI) largely as a result of Brexit uncertainty. This is according to 100 of the largest UK listed companies and foreign owned subsidiaries and 60 companies from across the other G7 nations surveyed.

As in 2015, the Irish tax regime tops the rankings with 74% of UK companies selecting it as one of their ‘top three’ and the UK again taking second place. What is noticeable however, is the widening gap between Ireland and the UK which was just 1% in 2015 but has grown to 9% in the past year.  

Added to this, amongst the 60 non-UK companies surveyed this year the UK fell from first to fifth place in the rankings.  Not only does this demonstrate a sharp decline in perceptions of the UK’s tax regime, there also seems to be a clear divide in sentiment between UK versus non-UK businesses. [...]

Non-domestic businesses cite particular sensitivity to disruptions in trade deals and tariffs, an end to the UK’s access to the single market, and the mobility of skilled labour as reasons for concern. This indicates that the Brexit vote has raised questions about the UK’s overall appeal and the competitiveness of its tax regime versus other, comparatively more stable, European peers. [...]

No wholesale departures but we could see a possible net outflow of activity as a result of Brexit  

Reassuringly, the research shows that companies are not planning to withdraw their entire operations from the UK. In fact the number of respondents considering taking business functions out of the country is broadly unchanged in comparison to the 2015 survey.  

What is striking however, is that businesses seeking to move functions into the UK - a crucial source of inbound FDI - has dropped materially for both UK and non-UK participants this year.  Added to this, executives cite Brexit as having greatest impact on investments and activities in the next 12 months and suggest it could ultimately lead to substantial reductions in investment and high-value activities, such as capital expenditure, employment and R&D investment. [...]

The Brexit effect

In the 2015 study, ‘political stability’, ‘availability and cost of skilled labour’ and ‘access to a single market’ were identified by UK and international companies as being among the top five strengths of the UK versus its international competitors. This sentiment is echoed in findings this year. 

At the time this research was undertaken, 46% of UK respondents and 41% of non-UK respondents identified their preferred Brexit scenario as being the UK joining the EEA, retaining full access to the Single Market and accepting the free movement of people. The second most popular was for the UK Parliament to vote not to trigger Brexit, severely delaying or preventing Brexit from taking effect. Clearly these scenarios are no longer viable options. However, what these responses do demonstrate is the desire from business for minimal disruption on exiting the EU, and for continued efforts to maintain a competitive tax system. [...]

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