The UK is now ranked number two overall in terms of perceptions as one of the world’s most competitive tax regimes with its 20% corporation tax rate, and is closing fast on Ireland, the number one jurisdiction with a 12.5% tax rate, one of the lowest in the world.

The annual review of competitive tax regimes found the UK has built on its 2014 score in terms of the frequency with which UK respondents cite it as being in their top three most competitive tax regimes.

The top five countries were ranked as Ireland, followed by the UK, Netherlands, Luxembourg and Switzerland.

The Netherlands score improved up 3% on 2014, but Ireland (1^st), Luxembourg (4^th) and Switzerland (5^th) lost ground in the rankings.

Switzerland, in particular, has plummeted down the rankings, with only 26% of respondents citing the country in its top three this year. Back in 2009, Switzerland was in the top three with Netherlands and Ireland.

At that time, the UK was only able to muster 16% of favourable responses in the top three, illustrating how government policy to reduce corporation tax rates from 28% over the period have proved a magnet for multinationals.

Global perspective

For the first time, the poll included 65 non-UK companies in six countries (India, China, Japan, Australia, Canada and the US) which were asked to select their ‘top three’ most competitive tax regimes.

The majority of respondents included the UK in their ‘top three’, placing the UK alongside Luxembourg as the most popular tax regime for non-UK companies.

Robin Walduck, tax partner at KPMG in the UK, said: ‘When we first published this survey a decade ago the attractiveness of the UK’s tax regime was in question as a number of high-profile companies had announced plans to relocate business activities out of the UK.

‘The dial has moved since then with the number of companies looking to relocate falling sharply.

‘Now, the UK is generally seen as an attractive place to live, work and do business and has shown a renewed ability to attract and retain some of the world’s most valuable companies.’

KPMG’s survey asked companies about their attitudes to foreign direct investment (FDI) and their future plans for investment into the UK. Respondents identified the main strength of the UK for inbound investment to be ‘political stability,’ as well as highlighting ‘macroeconomic stability’ and ‘access to a single market’ as appealing features (the survey was conducted before the announcement of the referendum on EU membership).

However, respondents gave mixed responses on the availability and cost of skilled labour in the UK, with the audience split down the middle on whether the UK could really provide the right specialist mix of workers.

According to this year’s study, ‘stability’ is identified as the key factor for companies considering the attractiveness of a country’s tax regime, while ‘low effective tax rate’ remained in fourth place in terms of importance for the third year in a row.

‘Advance warning of major changes’ has also become increasingly significant over the last five years and is the second most common factor mentioned this year. ‘Simplicity’ follows closely in third place.

Walduck said: ‘Before 2013, a “low effective tax rate” was consistently one of the two most important considerations for companies.

‘This year, while the planned reductions to the rate of UK corporate tax are the most welcomed of all upcoming policy changes discussed with respondents, findings show that UK companies actually place more importance on the simplicity, stability and predictability of a tax regime rather than on headline rates.’

The survey suggests businesses are supportive of tax transparency and the OECD’s base erosion and profit shifting (BEPS) initiative.

More than one-third of UK companies indicated they have increased their tax transparency over the last 12 months, and almost half believe they will become more transparent in future.

Walduck said: ‘While it’s evident that overall support of the companies for BEPS remains high, concerns around the BEPS country by country reporting, interest deductibility and permanent establishment action items highlight the need for governments to continue engaging with and supporting companies as tax transparency – and its implementation into formal tax policy – continues to evolve.’

KPMG’s report ,The home for business? Assessing the competitiveness of the UK is here