The UK government has stated that it aims to ‘create the most competitive corporate tax regime in the G20’. This report assesses the current competitiveness of the UK corporate tax system relative to other G20 countries. Our key findings for 2011 are that the UK has an effective average tax rate (EATR) of just over 26 percent, which ranks the UK 9th of out the 19 independent G20 countries (excluding the European Union), and the UK has an effective marginal tax rate (EMTR) of just under 23 percent, which ranks the UK 15th out of the 19 countries. The weaker position of the EMTR is due to the fact that, although the UK tax rate is relatively low by international standards (in 7th position), the UK is the least generous G20 country with respect to allowances for capital investment. Recent tax reforms that have reduced allowances have tended to raise the EMTR, despite corresponding cuts in the tax rate. The tax reforms proposed by the government to take place between 2011 and 2014 will improve the competitiveness of the UK tax system, if the other countries do not change their tax systems. In this case, the UK would rise to 5th in the EATR ranking, and 14th in the EMTR ranking.
Katarzyna Bilicka, Michael Devereux and Clemens Fuest