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Finance: UK's fiscal company policy

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Chloé Le Cornic

The Brexit announcement made a lot noise. The referendum has led a large number of companies to develop relocation and job relocation plans during the past recent months. To cope with this turmoil and to reassure companies, the government has decided to grasp the nettle by taking measures in favor of the firms present on the territory. What is it all about ? This is what we are going to see here. 

UK's fiscal company policy: a tax rate of 17%

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The corporate tax rate has been steadily declining since 2010. But this is not enough to reassure companies that are afraid of the potential consequences of Brexit. For example, the government, and particularly Chancellor George Osborne, has pledged to reduce the tax rate to 17% by 2020. A measure that should not fail to lead new companies to settle on the territory. As a result, the country will propose the lowest rate among all G20 countries. As a reminder, the tax rate was 28% in 2010 and is currently 20%. According to British Treasury calculations, this 8% drop would have saved businesses £ 15 billion per year.

However, multinationals should see their tax bill increase. Indeed, as from April 2017, the main multinationals will see the maximum amount they can deduct from their taxes by borrowing money from the United Kingdom to invest it elsewhere limited. The Treasury will also introduce rules to prevent complex structures from helping multinationals to avoid paying taxes anywhere or to deduct the same expenses several times in different countries. It will also look to tax revenues from patent exploitations, which are often exported by multinationals to countries with lower taxes or tax havens.

UK's fiscal company policy: what will the consequences be?

These announcement reflect a very perceptible general panic in London, George Osborne is among those who wanted to remain within the European Union and he clearly fears a leak of companies, or at best a freeze on their investments in Britain. In such a climate of uncertainty, this is what many business leaders have already promised. The prospects are not good: The International Monetary Fund estimated for the United Kingdom a growth loss of 1.5 to 4.5% because of the Brexit. The shock will be harsh, with a halt to growth in 2017. Thus, the government would be trying to limit damage by conducting a hyper-aggressive fiscal policy, especially with regards to the countries of the Union. The negotiations with Brussels should be complicated. The improvisation of the British leaders is a fact in a context where they had absolutely not anticipated the victory of the Brexit.

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