Introduction
Although the UK has not historically set out to compete with countries such as Holland and Denmark, which set their cap at international businesses with extremely permissive taxation structures, reckoning that the gain from extra employment and trade would outweigh the loss of tax, the UK has nonetheless been an acceptable place in which to have your headquarters, if that was where it needed to be.
Thus, large international companies with listings on the London Stock Market, or which had British origins, could put up with being based in the UK even if it wasn't ideal from a tax point of view, because the rules for the treatment of overseas profits were reasonably flexible. In particular, it was possible to 'mix' highly-taxed profits from some overseas markets with lowly-taxed profits from other markets, generating a blended rate which would offset the maximum amount of mainstream UK corporation tax and reduce double taxation. It was also possible to retain profits in overseas companies in many circumstances without incurring UK taxation.
Over recent years this convenient equation has been thrown into doubt, with the Finance Act 2000 in particular worsening the UK's tax regime for international companies to such an extent that some large ones, such as Vodaphone and BAT threatened to move their base of operations out of the UK altogether.
These threats are not thought to be serious, yet, but pressure from business has nonetheless caused the Treasury to back off some of the measures it had originally proposed. The ongoing discussion between Government and the tax profession, in effect representing international business, has now moved up from worries about the detail of particular taxes to consider the overall subject of the UK's international fiscal competitiveness.
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