The UK Government has shown different approaches to introducing tax policy change for business in the past 12 months.
The surprise tax increase for North Sea production in the 2011 Budget and its negative reaction is well documented, yet since 2009 a process of tax reform involving consultation with business has been taking place with the aim of improving UK competitiveness in the international arena.
Industry has welcomed the process of tax reform and the final outputs are now taking shape.
Aberdeen-headquartered businesses that develop and export oilfield technology, skills and products are well placed to be beneficiaries of these changes, the headlines of which are as follows:
The general exemptions for overseas dividends from July 2009 have made it more efficient for Aberdeen groups to bring home cash and earnings.
The corporate tax rate is reducing and in April 2012 will fall (with the exception of UK continental shelf production profits) to 25% and to 23% by April 2014.
From June 2011 UK companies can elect to take their profits from overseas branches out from the charge to UK tax.
From April 1, 2013, a lower tax rate will be phased in for profits attributable to patented inventions, even where those attributable profits are hidden within bundled services. The objective is for the tax rate to fall to 10% by April 2017.
Provisions which seek to capture certain profits in low-taxed overseas subsidiaries are being overhauled and modernised. The new rules will apply for accounting periods beginning on or after January 1, 2013.
A new low tax rate finance company exemption means that, from 2014, UK businesses could lend to overseas subsidiaries at a tax rate of 5.75%. Updates to these measures announced on January 31 mean that in certain circumstances such profits could be exempt in full.
These changes represent significant reform that together can help Aberdeen business.
Large UK headquartered oil service groups will have greater flexibility in removing additional UK tax costs to their overseas trades, to their financing of international businesses and in the movement of cash around its group.
It is also good news for smaller businesses looking to set up or expand internationally.
The tax changes also help remove some UK tax costs to establishing overseas contracts through the most appropriate, usually the most straightforward, operating vehicle.
A third and very important part of our local economy is our overseas-controlled businesses who, in many cases, take advantage of the local knowledge and skill base to use Aberdeen as its operational base for the North Sea and wider regions such as Africa, Middle East and Eastern Europe. With an already well-established operational headquarter presence, it is possible that as a consequence of these changes we will see overseas groups look to the UK (and Aberdeen) as a suitable location for more regional headquarter functions or as a better location from which to manage their intellectual property.
Such changes can bring more jobs to Aberdeen and help maintain its place as an international hub.
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