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 Thursday, 18 April, 2002, 12:08 GMT 13:08 UK
Foreign firms gain 'at expense of UK plc'
Budget reforms may make Britain more attractive to foreign companies, but UK firms are picking up the bill, a senior accountant has said.

Reforms to corporation tax and credits for firms undertaking research have improved Britain's standing as a business location for foreign firms, Richard Collier-Keywood of PricewaterhouseCoopers told BBC News Online on Thursday.

Richard Collier-Keywood, PricewaterhouseCoopers
Mr Collier-Keywood: British companies have been hit
"With overseas companies, a number may now choose to locate themselves in Britain," said Mr Collier-Keywood, chief executive in tax for global and national markets.

But he warned that Chancellor Gordon Brown had offered "relatively little to the pure British-based company".

"The home grown British companies have been hit very hard," he said, referring to the 1% increase in employer contributions to National Insurance.

He estimated that 4-5bn would be added to their wage bill.

Tax reform

New measures that will benefit foreign multinationals basing operations in the UK include tax relief on disposal of substantial shareholdings and a more modern tax system for the treatment of intellectual property.

UK's tax advantages
Tax relief on disposal of substantial shareholdings
Modern tax regime for treatment of intellectual property
R&D tax credit at 25% for large companies
Tax relief on interest for buying participations in foreign companies
Modern system of double tax relief

Following Wednesday's Budget, companies that own more than 10% of another firm - for more than a year - will enjoy full tax relief against any gain on the sale of that shareholding.

The move would further efforts to "build a modern corporation tax regime for British firms operating in a global economy", Mr Brown said during his Budget speech.

PWC's Mr Collier-Keywood argued that the change would also influence overseas companies looking around Europe to find a place to base themselves.

"The tax regime in the UK is now attractive for an American multinational, for example," he added.

Choosing the UK

The pharmaceutical company AstraZeneca also acknowledged Mr Brown's efforts to maintain UK competitiveness.

Jon Symonds, cfo, AstraZeneca
Mr Symonds: UK is more competitive

"There are now a series of incentives to keep companies working in the UK," Jon Symonds, chief financial officer, told BBC News Online.

He added that multinationals could move resources very rapidly to take advantage of the UK tax regime.

Countries such as Germany have found that, thanks to punitive taxes governing the unwinding of cross-shareholdings, firms have preferred to keep poorly performing holdings rather than release the cash for more productive investment.

German Finance Minister Hans Eichel in 1999 announced reforms to the regime.

Mr Symonds believes France and Germany will find it difficult to match the tax incentives now offered by the UK.

Increase in R&D employment

On research and development, Mr Brown revealed a 400m tax credit "specifically to help British manufacturers invest in the technologies of the future".

PWC's Mr Collier-Keywood said the government is trying to increase employment in R&D in the UK.

"It will have the impact of bringing some R&D functions that currently don't take place here into the United Kingdom," he said.

For a firm paying standard rate of corporation tax, the measure will mean a rebate of about 7.50 for every 100 spent on research and development.

However, big UK employers in the pharmaceutical or aerospace industries, such as AstraZeneca, which employs 12,000 people in the UK, will also face a high wage bill following the increase in National Insurance.

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  PricewaterhouseCooper's Richard Collier-Keywood
"The increase in National Insurance contributions is a big hit for British business"

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17 Apr 02 | Business
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