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UK CEOs Most Sceptical About Tax Harmonisation

by Robert Lee, Tax-News.com, London

10 April 2008


While UK business leaders view the tax regime as the most important area of regulation that the government could potentially improve, many more are opposed to the idea of increaseing harmonisation of tax regimes compared to their global peers, according to a new report by PricewaterhouseCoopers.

PwC's 11th Annual Global CEO survey found that only one in four UK CEOs favour the idea that government should drive the convergence of global tax and regulatory systems, compared to over half (53%) of the 1,150 CEOs surveyed. And despite the Labour government's claims on tax simplification, almost all (91%) UK CEOs do not believe that the UK regulatory burden has decreased.

The 11th PwC survey was based on interviews with CEOs in 50 countries during the last quarter of 2007. The UK sample comprised 69 companies, 49% of which were private companies, with 45% listed on one stock exchange, and 6% listed on more than one stock exchange.

Commenting on its findings, Richard Collier-Keywood, UK head of tax, PricewaterhouseCoopers LLP, observed that:

“It is not surprising that UK CEOs want to maintain some sovereignty in the tax system. Clearly they are wary of convergence of international tax systems, no doubt fearing this would lead to more complexity, uncertainty and time being spent on dealing with red tape.”

More than 70% of CEOs in Italy, Brazil, India, Germany and Russia, on the other hand, favour convergence, while 17%, globally, oppose it.

Other key findings of the PwC survey are summarised below:

Tax is the greatest challenge

According to UK CEOs, the tax regime (26%), labour laws (20%), planning laws (12%), healthcare (12%) and education (9%) are the top five areas for potential regulatory improvement.

The CEOs from five of the largest 15 countries in the survey also rank taxation as the main area they would most like to see their governments improve: Brazil (40%), Canada (37%), Italy (31%), Russia (20%) and Australia (23%).

Business friendly environment

Very few CEOs believe that their governments are creating a business friendly environment. Only 26% of CEOs around the world believe that their governments are supportive, while 34% are either undecided or prefer not to disclose their views.

Indian CEOs (54%) are most likely to endorse their government for its business friendly measures, whereas Italian (81%), Korean (67%), UK (66%) and Brazilian (60%) CEOs are the most critical.

Reducing the regulatory burden

Only 18% of all CEOs think that their governments have lightened the regulatory burden for business.

However, Asian CEOs are much more positive; 59% of those based in Japan and 53% of those based in India believe that the regulatory burden has declined. CEOs in the UK (91%), Italy (84%) and Brazil (83%), by contrast, do not think that the burden has shrunk.

Conclusions reached in the 'Paying Taxes' study by the World Bank and PricewaterhouseCoopers suggest that there can be a mutually beneficial opportunity if governments simplify tax systems, ease the compliance cost on business, and reduce tax rates.

Innovation

CEOs appear doubtful that government supports business in stimulating innovation. Globally, 41% do not agree that governments help promote innovation. Italian (79%), UK (62%), Brazilian (60%) and Indian (60%) CEOs are the most doubtful. Only 28% of all CEOs, rising to 40% in Korea and France and 43% in Japan believe that their governments nurture innovation.

Integrity

There is almost an even divide about whether the regulatory framework is designed on the assumption that companies will act without integrity. Globally, 29% of CEOs think that governments’ regulatory frameworks assume companies will act in a completely self-interested manner. Korean (57%) and Russian (56%) CEOs are particularly likely to take this view.

However, 38% of CEOs in the UK do not believe that governments make such cynical prejudgements. French (65%) and Italian (59%) CEOs disagree most strongly that the regulatory framework is designed with potential wrongdoers in mind.

Approach of tax authorities

Global CEOs are divided on whether their governments are aggressively changing the tax rules to raise additional revenues. One in three of the total sample believes that the rules are being changed to increase the tax take. This perception is slightly stronger in the UK (45%).

CEOs in India (83%), Brazil (70%), Korea (50%) and Italy (50%) think more positively of government actions. Conversely, over half of CEOs in Australia, Canada, France, Germany, the Netherlands and the US think otherwise.

Richard Collier-Keywood concluded:

"With today’s business operating across multiple tax jurisdictions there needs to be a consistent approach by tax authorities that does not hinder the competitiveness of countries."

"Collaboration both among governments, and between business and government, is essential to ensure that the tax and regulatory framework is fit for purpose. Business can also help this process by being more transparent about all of the taxes that it is required to pay.”

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