The UK Government has stated that it aims to have the most competitive corporate tax regime in the G20. It has announced that it intends to reduce the main UK corporation tax rate from 28 percent when it took office to 23 percent by 2014.

Research by Oxford University Centre for Business Taxation at Saïd Business School, University of Oxford, shows that the UK corporate tax system is currently ranked 9th in the G20 for effective average tax rates (see Table below).

The government’s reforms would improve the UK’s ranking to 5th – but only if no other G20 country also reduced its effective rate.

The main problem for the UK is that allowances for capital expenditure are the lowest in the G20. While the UK has the 5th lowest tax rate, this rate is therefore applied to a broad definition of profit, implying that the effective tax rate is much higher. Reforms which reduce allowances as a way of paying for rate reductions mainly redistribute the tax burden between companies, rather than making the tax system as a whole more competitive.

The findings are announced in a new report ‘the G20 Corporate tax ranking 2011’ which will be presented at the Oxford University Centre for Business Taxation Summer Conference at Saïd Business School on July 11th. An electronic copy of the report is available on request from cbtevents@sbs.ox.ac.uk.

Table 1. Ranking of effective average tax rates, 2011
Shows the estimated ranking of the G20 countries for their EATR (effective average tax rate) at the beginning of 2011.