By Eric Sylvers and Jenny Gross
The global race to lower corporate taxes is speeding up.
Britain, already an attractive destination for multinationals, is trying to sweeten the deal with a promise to have the lowest corporate tax rate out of the world's 20 biggest economies. This comes as countries compete for the jobs, investment and bragging rights that come with hosting the world's increasingly mobile corporations.
The U.K. was already reducing corporate taxes when Prime Minister Theresa May officially endorsed a pledge, made under the previous Conservative government, to go even lower on Monday.
Meanwhile, U.S. President-elect Donald Trump promoted the idea of a 15% headline corporate tax rate forU.S. companies--down from 35%--on the campaign trail.
A cut is far from a done deal in the U.S. and both countries face political and fiscal hurdles to such moves. But they come in a long tradition of using the tax code to discourage companies from moving operations offshore. To a lesser extent, countries like the U.K., Ireland and Canada have also used corporate tax to lure foreign companies to set up shop on their shores.
For Britain, the pressure to keep businesses happy has been intense since the Brexit referendum. Shortly after the June vote to leave the European Union, the government of then-Prime Minister David Cameron floated the idea of cutting corporate tax to 15% from 20%, as a way to help ease the worry in U.K. boardrooms.
Ms. May took the reins from Mr. Cameron, but her commitment to the tax overhaul wasn't clear. But in a speech on Monday she unequivocally endorsed the idea--though she didn't name a specific rate.
In a poll shortly after the Brexit vote, Britain's Institute of Directors, an organization for company directors and senior business leaders, found that more than one-fifth of responding members were considering moving some of their operations outside the U.K. With her support for lower taxes, Ms. May is giving such executives a reason to pause.
It may also draw interest from overseas companies looking for a tax-friendly location. In recent years, a raft of mostly U.S. companies have sought out European addresses--typically through deal making--to help lower their tax bills.
The U.K. was already among favorite destinations for this so-called inversion play. The proposed lower tax bill would normally make that still more attractive.
But even before the referendum, the maneuver was losing favor because of a counteroffensive in the U.S. President Barack Obama toughened up on the rules that made such moves attractive and Mr. Trump's proposal to lower U.S. corporate taxes makes it look even less appealing.
Britain's corporate tax rate has inched down in recent years and is slated to fall 1 percentage point a year, to reach 17% in 2020. That would be above Ireland's 12.5%, but well below most other large economies.
However, financial considerations could make it difficult for Ms. May to make a large cut.
"Britain has a large deficit and is very constrained on how much tax cutting it can do," said Charles Beer, managing director of an independent tax advisory in Britain.
"A small rejiggering such as moving up to next year the cut to 17%, is a possibility, but it's hard to see how they can do a major move down."
Write to Eric Sylvers at firstname.lastname@example.org and Jenny Gross at email@example.com
(END) Dow Jones Newswires
November 21, 2016 12:49 ET (17:49 GMT)
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