Speech to the International Fiscal Association
By the Paymaster General, UK
(Continued from Unit 4)
One approach is for countries to introduce anti-avoidance legislation to counter the use by their residents of overseas discriminatory regimes. For example, the UK, like some others, has Controlled Foreign Company legislation. Greater transparency and exchange of information will assist countries in developing appropriate anti-avoidance measures. But this kind of approach does not offer a complete solution.
The Government therefore supports steps by the international community to promote the rollback of anti-competitive discriminatory practices and attaches great importance to the work of the OECD and the EU in this area.
We fully support the OECD's work in the Forum on Harmful Tax Competition which has identified 47 measures in member countries as potentially harmful. In addition we continue to actively support the work on the EU Code of Conduct6 on business taxation as part of the tax package. In November 1999, the Code of Conduct Group, which I chair, reported to ECOFIN on its assessment of 271 measures, 66 of which it had found to be harmful.
The Government firmly believes that the rollback of such discriminatory practices, coupled with greater transparency and exchange of information, are the necessary preconditions for strong and fair competition which in turn will release the dynamic forces in the economy.
But simply acting to curb anti-competitive practices will not be enough. In a world of open markets and massive coital flows, no country or group of countries can afford to operate as if insulated from what the rest of the world does and ignore fair lax competition and the need to remain competitive.
The UK is committed to ensuring that fair tax competition is allowed to flourish. And by competing fairly we intend to ensure that the UK has a highly competitive and efficient tax system that will support our long-term aim of achieving high and stable levels of growth and employment.
The UK has long been a hub for global business. There are many factors that make the UK particularly attractive and the natural location for business, including our sophisticated financial markets, our strong trading links with all parts of the world and the status of English as the global language of business.
The tax system must complement these attractions. It must not stifle business but should empower it to compete in a global marketplace. The system we inherited in 1997 needed urgent reform to meet our objectives. We have therefore embarked on a series of reforms to enhance both competitiveness and fairness, to build a system that will better respond to the changing needs of business and that will provide a stable framework into the medium term.
We have cut the main rate of corporation tax from 33% to 30%, the lowest ever rate. Outdated elements of the tax system have been swept away. We abolished Advance Corporation Tax (ACT) which affected the structure and investment decisions of many multinationals. And we also abolished payable tax credits on dividends, removing a distortion that encouraged companies to pay out dividends rather than to retain them for investment.
We have tackled the issue of withholding taxes. These can impose a high burden on business, often resulting in one company withholding and another reclaiming tax. Where we have been able to conclude that these rules are unnecessary, such as for intra-UK corporate interest payments, Eurobonds and gilts, we have abolished them.