Oxford University Centre for Business Taxation
Read Michael Devereux, Judith Freedman and John Vella's report on "The Tax Gap for Corporation Tax"
Business taxation under the Coalition government
At a conference on “Business tax: the coalition years and the next parliament ” on 12th February 2015 the Oxford University Centre for Business Taxation presented a report on the results of the government's aim to be the most competitive economy in the G20.
The report, written by researchers in the Centre for Business Taxation and edited by Senior Research Fellow Giorgia Maffini, details the roller coaster of business tax reform that has been the hallmark of the current government since 2010. The report considers the effects of the various reforms on the competitiveness of the economy, including the reduction in the main rate of corporation tax from 28% to 20%; general capital allowance reduction; Annual Investment Allowance expansion; reform of tax credits for research and development; the patent box introduction and amendment; the new CFC regime; the Bank Levy and the new Diverted Profits Tax.
HMRC's relationship with business
At a conference on “Tax risk management: new approaches to tax compliance” on 15th May 2014 the Oxford University Centre for Business Taxation presented selected results from a survey on the relationship between HMRC and business.
The report, written by researchers Judith Freedman, Francis Ng and John Vella, details the responses to a 2013 survey on the relationship between HMRC and businesses sent to around 1,800 companies with 30 follow up face-to-face interviews. The survey follows on from a previous survey conducted by two of the three researchers in 2008. The 2013 survey covered co-operative compliance issues including the risk rating process and relationships with HMRC staff as well as dealings with tax disputes and the Litigation and Settlements Strategy.
Structures and processes in tax policy-making
This report documents an international study of the tax policy-making process. The objective of the work was to make a comparative analysis of the structures, processes and governance in this important area of government activity, where there has been little work to date, and enable good practice to be identified. We believe this study will help inform thinking among governments and other interested groups in both developed and developing countries; and provide them with benchmarks against which to measure their own arrangements and a methodology through which to do so. Good structures, processes and governance do not automatically lead to good policy, but we believe getting these elements right will make the achievement of better policy outcomes more likely and reduce the risk of avoidable policy failures.
Review of DOTAS and the tax avoidance landscape
In summer 2012 the National Audit Office (NAO) commissioned the Oxford University Centre for Business Taxation (OUCBT) to draw up an academic review of the Disclosure of Tax Avoidance Schemes regime (DOTAS) and the tax avoidance landscape. The academic review formed part of the evidence base behind the NAO’s report: “Tax avoidance: tackling marketed avoidance schemes” (November 2012). The NAO’s report “examines the effectiveness of the DOTAS regime and HMRC’s response to marketed tax avoidance schemes, particularly those used by large numbers of individuals and smaller businesses.”
The review produced by the OUCBT consisted of three papers on tax avoidance generally, DOTAS and the Tax Gap. These papers, with minor amendments, are being made available here as a matter of public record.
Nothing stated here should be taken to represent the views of the NAO.
Corporate tax ranking 2012
This report assesses the competitiveness of the UK corporation tax regime at the beginning of 2012. One motivation for such an assessment comes from the UK coalition agreement, which stated that: “Our aim is to create the most competitive corporate tax regime in the G20, while protecting manufacturing industries.”
In a 2011 report, we assessed how close the government was to achieving its objective, both on taking office and after its proposed cuts in the corporation tax rate. We assessed competitiveness using two measures of effective tax rates: an effective average tax rate (EATR) and an effective marginal tax rate (EMTR). We concluded that in 2011 the UK ranked 9th in the G20 on the EATR, and only 15th on the EMTR. The relatively poor ranking of the EMTR reflects the low allowances available in the UK for capital investment, particularly in industrial buildings. This is a particular concern given the last part of the government’s aim, to protect manufacturing industries.
This 2012 report updates the comparison with other G20 countries to 2012. Perhaps not surprisingly, the UK’s rankings have not changed, despite a reduction in the corporation tax rate of 2 percentage points. This is partly because other countries have also reduced their rates, but also because the reduction in the UK rate has not yet been very large. The G20 may not be the most appropriate group of countries with which to compare the UK. As an alternative, we also compare the UK with countries that are members of the OECD. The results of this comparison show the UK in a less flattering light. The UK ranks 22nd out of 33 OECD countries for the EATR, and 31st out of 33 for the EMTR. This poor ranking is again mostly due to the lack of generosity of allowances for capital expenditure: amongst the 33 OECD countries, only Chile has less generous allowances. But in addition the UK’s tax rate is relatively high when compared to OECD countries. The UK’s tax rate of 26% at the beginning of 2012 was only the 17th lowest rate in the OECD.
This report also documents reforms that have been enacted and proposed in G20 and OECD countries in 2011, 2012 and up to 2015. A number of countries have proposed and enacted reforms to corporation tax. The most common reform has been a reduction in the statutory rate, as in the UK. Taking into account such reforms, we also evaluate the position that would occur by 2015 if all projected reforms, but no others, took place. Compared to all countries in the G20 and the OECD, in 2015 the UK would have a ranking of 16th out of 41 countries for the EATR, with a rate of 20.3%. It would have a ranking of 32nd out of the 41 countries for the EMTR, with a rate of 18.9%. Even after the implementation of the planned cuts to corporation tax, then, the UK will not be particularly competitive relative to other countries in the G20 and OECD. Finally, given the large number of recent reforms to corporation tax around the world, we investigate the extent to which the economic and financial crisis may have given renewed impetus to competitive pressures between countries to reduce effective rates of corporation tax. We compare the spate of recent reforms to similar reforms over the last thirty years. Broadly, the number and size of recent reforms is consistent with earlier periods. Rates of corporation tax have been declining for 30 years, and this decline is continuing. However, there is some evidence of a greater response to competitive pressures amongst G7 countries.
G20 corporate tax ranking 2011
The UK government has stated that it aims to ‘create the most competitive corporate tax regime in the G20’. In support of this aim, 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.
This report assesses the current competitiveness of the UK corporate tax system relative to other G20 countries. We measure competitiveness using two widely employed indicators: the effective average tax rate (EATR) and the effective marginal tax rate (EMTR). Theory and empirical evidence indicate that the EATR is relevant for the location of discrete investment projects, while the EMTR is relevant for the level of investment, given its location. Both the EATR and the EMTR depend on the statutory tax rate and the definition of the tax base; the EMTR depends more heavily on the tax base.
These measures are based on an analysis of the parameters of the corporation tax regimes in each of the G20 countries. Our key findings for 2011 are that:
the UK has an 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 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.
But the trends of the last decade suggest that other countries will also change their tax system. Since 2002 the UK has lost competitiveness to other countries. The UK was 4th in the EATR ranking in 2002. It fell to 9th in 2011, despite a small reduction in its own EATR as the main rate was cut from 30 percent to 28 percent. However, most other G20 countries reduced their EATR more aggressively than the UK. For the first time in ten years, in 2011 the UK EATR exceeded the average of other G20 countries.
This trend is even more dramatic for the EMTR , where the UK was below the G20 average in 2002 and is far above this average today. The reduction in capital allowances contributed to raising the UK EMTR from 20 percent in 2002 to 22.8 percent in 2011, despite the reduction in the tax rate.
These results suggest strongly that reforms that cut the tax rate but also cut allowances are not enough to maintain, let alone improve, the competitiveness of the UK corporate tax system. Such reforms mainly redistribute the tax burden between companies, rather than making the tax system as a whole more competitive. The government has also emphasised its intention to make the UK more attractive as a location for manufacturing. For that objective, a policy of cutting capital allowances is misguided.
Overall, our results suggest that the UK corporate tax system has lost competitiveness during the last decade. Reversing this trend and making the UK corporate tax system the most competitive in the G20 is a very ambitious objective. To get anywhere near achieving it, UK corporate tax policy has a long way to go.
Transparency in reporting financial data by multinational companies
Report of a group chaired by Michael Devereux
In its first meeting in May 2010 the OECD Informal Task Force on Tax and Development identified the issue of transparency in financial reporting as being potentially important in helping development efforts in lower income economies, on the grounds that greater transparency could provide necessary information for holding both governments and multinational enterprises more accountable regarding tax revenues and payments.
This report was commissioned by the Task Force, with a view to examining in more detail the case for greater transparency. The report was submitted to the Task Force for its meeting in April 2011.
There are already in the public domain a number of initiatives to promote greater disclosure of tax information by multinational enterprises. The report reviews and discusses them, as well as the central issues involved in the debate about transparency in financial reporting. It tries to answer some of the fundamental questions about the objectives of greater transparency, how it can be better achieved at least cost, and to what extent it could achieve its objectives. The purpose of this report is to identify and clarify issues, and not to take any positions or to make recommendations.
The report is the product of a group, chaired by Michael Devereux, Director of the Oxford University Centre for Business Taxation. The group included representatives of the OECD , business, NGOs and academia. The group also received comments and advice from a broader group, the OECD Sub Group on Transparency in Reporting Financial Data by Multinational Corporations.
This report reflects a broad consensus amongst the group regarding the issues involving transparency of reporting by multinational companies. The report does not represent the views of the Oxford University Centre for Business Taxation, the OECD, or any other organisation.
The Group responsible for the preparation of this report consists of:
- Mary Bennett OECD
- Michael Devereux Oxford University Centre for Business Taxation (Chair)
- Judith Freedman University of Oxford
- Martin Hearson ActionAid UK
- Chris Lenon Rio Tinto
- Glen Loutzenhiser University of Oxford (Secretary)
- David McNair Christian Aid
- William Morris GE
- Richard Parry OECD
- Douglas Shackelford University of North Carolina
- Susan Symons PricewaterhouseCoopers
- Roberto Schatan OECD (Secretary)
In addition, the Group received support and advice from:
- Sameena Arshad KPMG
- Asim Siddiqi PricewaterhouseCoopers
The economic effects of EU reforms in corporate income tax systems
Study for the European Commission Directorate General for Taxation and Customs Union
Joint report with the CPB Netherlands for Economic Policy Analysis
This report adopts an applied general equilibrium model for the EU27 to study the economic implications of a common corporate tax base in the European Union, either or not combined with consolidation and formula apportionment. The analysis of the common corporate tax base (CCTB)centres around the issue of base broadening versus rate reduction. It emphasises the trade-off between, on the one hand, a low effective marginal tax rate, which minimises distortions in investment and, on the other hand, a low statutory corporate tax rate, which minimises multinational profit shifting to outside locations. This report adopts an applied general equilibrium model for the EU27 to study the economic implications of a common corporate tax base in the European Union, either or not combined with consolidation and formula apportionment. The analysis of the common corporate tax base (CCTB) centres around the issue of base broadening versus rate reduction. It emphasises the trade-off between, on the one hand, a low effective marginal tax rate, which minimises distortions in investment and, on the other hand, a low statutory corporate tax rate, which minimises multinational profit shifting to outside locations.
Corporation tax in the United Kingdom
This report presents new information on the anatomy of corporation tax liabilities and payments in the United Kingdom. It uses two complementary company-level data sources: anonymised corporation tax data provided on a confidential basis by HMRC, and financial accounting data from the FAME database. Each data source has advantages and disadvantages, but by combining them we are able to provide a detailed description of the distribution of corporation tax in the United Kingdom.
Effective levels of company taxation within an enlarged EU
European Commission, with Christina Elschner, Dieter Endres and J Christoph Spengel
Tax avoidance, tax evasion and tax expenditures in developing countries: a review of the literature
Research carried out for the UK Department for International Development (DFID).
This report reviews existing empirical work on the impact of tax evasion and tax avoidance on tax revenue raised by developing countries.
Alternative systems of business tax in Europe: an applied analysis of ACE and CBIT
Research carried out for the Directorate General Taxation and Customs Union of the European Commission.
This report explores the economic implications of an allowance for corporate equity (ACE), a comprehensive business income tax (CBIT) and a combination of the two in the EU. We illustrate the key trade-offs in designing ACE and CBIT in the presence of tax distortions at various decision margins of firms, such as its financial structure, investment, profit allocation and discrete location. Using an applied general equilibrium model for Europe, we quantitatively assess the effects of ACE, CBIT and combined reforms in EU countries. The results suggest that ACE is welfare improving as long as corporate tax rates are not used to cover the cost of base narrowing. CBIT typically reduces welfare by exacerbating marginal investment distortions. When governments adjust statutory corporate tax rates to balance their budget, however, CBIT reforms become more attractive while ACE reforms are welfare reducing in a number of countries. European coordination of reforms mitigates fiscal spillovers within the EU and renders ACE reforms more, and CBIT reforms less, attractive for welfare. A combination of ACE and CBIT reforms can be designed to be revenue neutral and welfare improving through smaller financial distortions.
Effective tax rates on investment in the EU, 1998-2007
Research carried out for the European Commission
Comparing practices in R & D tax credits evaluation
Research carried out for the European Commission