{"id":48321,"date":"2014-10-03T11:59:01","date_gmt":"2014-10-03T11:59:01","guid":{"rendered":"http:\/\/mostafa.openonline.co.uk\/?guid=671b5fab318f2976cd4144a100910d88"},"modified":"2014-10-03T11:59:01","modified_gmt":"2014-10-03T11:59:01","slug":"speech-david-gaukes-speech-to-the-securities-industry-conference","status":"publish","type":"post","link":"https:\/\/mostafa.openonline.co.uk\/?p=48321","title":{"rendered":"Speech: David Gauke&#8217;s speech to the Securities Industry Conference"},"content":{"rendered":"<div class=\"govspeak\">\n<p>Good afternoon, and thank you to the organisers of the Securities Industry Conference for inviting me to speak at this year\u2019s event. <\/p>\n<p>As a minister in a department dealing with one of the biggest tasks of all \u2013 turning round the national economy \u2013 it\u2019s always a pleasure to talk directly to the people involved in making prosperity happen. <\/p>\n<p>We must not forget that rising living standards and well-funded public services depend upon a thriving business sector. And a government that engages and listens to business is a government much more likely to deliver the conditions you need to create wealth. <\/p>\n<p>I\u2019ve been asked to speak about current trends and future objectives in business taxation in the UK.   <\/p>\n<p>So the first trend I would like to highlight \u2013 and this will not come as a surprise \u2013 is a laser focus on competitiveness.<\/p>\n<p>In a global world, tax competition is not something a government can duck or pretend doesn\u2019t exist. Particularly the government of an open economy like the UK\u2019s.  <\/p>\n<p>And competition has intensified in recent years. The average corporation tax rate among OECD countries fell from 32% in 2000 to 25% in 2011. <\/p>\n<p>The government set out our ambition to make the UK corporation tax regime the most competitive in the G20.  <\/p>\n<p>We wanted a tax system that supported economic growth and investment. <\/p>\n<p>And we have made real progress. Since 2010 we\u2019ve cut corporation tax from 28% to 21%. Next year it will fall to just 20%, giving the UK the lowest rate of corporate tax in the G20. <\/p>\n<p>To spur innovation, we\u2019ve introduced the Patent Box \u2013 about which I\u2019ll be speaking more later on \u2013 and the \u2018above the line\u2019 tax credit for Research and Development.<\/p>\n<p>We\u2019ve cultivated a generous environment for oil and gas exploration. <\/p>\n<p>We\u2019re supporting the creative sector through tax reliefs on video games and high-end television and theatre. <\/p>\n<p>And these reforms have not gone unnoticed. Successive business surveys have reflected their positive impact on the UK. <\/p>\n<p>We\u2019re highest in the KPMG\u2019s annual survey on international tax competitiveness \u2013 two years in a row. <\/p>\n<p>And Ernst &amp; Young consider us the most attractive location in Europe for global investors \u2013 particularly in knowledge industries and business services.<\/p>\n<p>In an HMRC survey this year, 9 in 10 businesses said the corporation tax cuts had been good for the UK\u2019s competitive position.<\/p>\n<p>And, as proof, UKTI has reported that the UK attracted more inward investment projects last year than in any year since records began in the 1980s: 1,773 projects, creating 66,390 new jobs. <\/p>\n<p>Of course, the tax reforms are just one plank \u2013 albeit a central one \u2013 of our broader economic strategy. And that strategy is working:<\/p>\n<ul>\n<li>the IMF say the UK will grow faster than any other major G7 economy this year<\/li>\n<li>employment is at record levels<\/li>\n<li>business confidence is high<\/li>\n<li>business investment is picking up rapidly<\/li>\n<\/ul>\n<p>So we\u2019ve taken great strides to make the UK more competitive and better equipped for the global race. <\/p>\n<p>And \u2013 although I\u2019d be wrong to say that the job was anywhere near done \u2013 we have begun to see the results of that action. <\/p>\n<p>The message I\u2019d like you to take away today, therefore, is that the government is committed to making the UK as competitive an environment as possible.<\/p>\n<p>Rightly, the question we continue to ask ourselves is this: How can we make the UK even more competitive? Because I tell you one thing \u2013 in the world we live in, no country can afford to take their foot off the pedal. <\/p>\n<p>The second trend I would like to highlight is an increased public focus on the tax affairs of large companies \u2013 more specifically, the tax they pay. Fairness is the buzzword here.<\/p>\n<p>At a time when countries are facing difficult fiscal positions and taking difficult decisions on spending, and at a time where households up and down the country are having to mirror those difficult decisions in the financial choices they make, it should not be a surprise that voters are angered by stories of companies not paying tax.    <\/p>\n<p>The Chancellor has previously highlighted the government\u2019s concern about some digital businesses paying little or no tax on profits made in the UK.  <\/p>\n<p>Our message is clear. Our side of the bargain is that we will keep taxes as low as we can \u2013 and we\u2019re delivering on this. <\/p>\n<p>The flip side, however, is that businesses need to actually pay those taxes.<\/p>\n<p>Because we want Britain to be a low tax country where people play by the rules. <\/p>\n<p>And I\u2019m pleased to say that the UK is the first of 44 countries to formally commit to implementing the new country-by-country reporting template.<\/p>\n<p>We believe that country-by-country reporting will improve transparency and help identify risks for tax avoidance.<\/p>\n<p>In time, improved transparency between business and tax authorities will also help developing countries in dealing with compliance, as they often lack the capacity to collect this information themselves.<\/p>\n<p>Reporting high level information using a standardised format across all jurisdictions will ensure consistency, give tax authorities the information they need and minimise the additional administration burden on business.<\/p>\n<p>The UK government wants an international tax system with simple and fair rules that ensures all companies pay their share. And that requires action at an international level. <\/p>\n<p>We shouldn\u2019t really be surprised that the current international tax rules need reforming. They were first developed nearly a century ago. <\/p>\n<p>And we need to change them so they continue to support free trade and ensure a level playing field for businesses. But also to address weaknesses where \u2013 for example \u2013 multinationals can use cross-border business structures or finance transactions that exploit differences between two countries\u2019 tax rules.<\/p>\n<p>So driving forward reform on the international stage is another priority area for the UK.  <\/p>\n<p>That\u2019s why we\u2019ve taken a lead role so far on the international stage through the Base Erosion and Profit Shifting \u2013 or BEPS \u2013 project which seeks to address tax avoidance. <\/p>\n<p>And that\u2019s why we\u2019ll continue to work through the G20 and OECD to make sure that this area is properly reformed. <\/p>\n<p>And that work can be broken down into four key areas: <\/p>\n<ul>\n<li>first, the digital economy, where we\u2019re looking at the challenges posed by those businesses that operate primarily online<\/li>\n<li>second, coherence, where we\u2019re looking to ensure that the interaction of domestic tax regimes doesn\u2019t create unforeseen gaps where business can pay no tax at all<\/li>\n<li>third, on substance, where we\u2019re looking to better align taxation with economic activity<\/li>\n<li>and finally on transparency, where our work is focused on ensuring that tax authorities have all the information they need for risk assessment purposes.<\/li>\n<\/ul>\n<p>I\u2019m pleased to say that we\u2019ve now completed phase one of the BEPS project, with our international partners in the OECD and G20 reaching agreement on seven reports of the 15 actions last month. <\/p>\n<p>But there is no time to relax. <\/p>\n<p>The UK will continue to work collaboratively with our international partners to take forward the recommendations from the 2014 reports and tackle the 2015 Action Plans.<\/p>\n<p>And it goes without saying that the UK will continue to ensure that the financial sector\u2019s requirements \u2013 specifically, regulatory requirements \u2013 are taken in to account in the BEPS project. We will be working closely with the sector to achieve this. <\/p>\n<p>While we are focused on BEPS I would like to set a couple of things straight on the Patent Box\u2026<\/p>\n<p>The Patent Box was introduced to encourage innovation and to bring high value science and technology jobs and investments to the UK. It also ensures that the jobs that are already here will stay here.<\/p>\n<p>This policy has been widely welcomed by businesses, and the evidence of growth is already clear. <\/p>\n<p>GlaxoSmithKline has attributed to the Patent Box its additional investment of \u00a3500 million in manufacturing in the UK, along with the creation of 1,000 new jobs and he construction of a new factory. <\/p>\n<p>They have gone as far as to say that the Patent Box has \u201ctransformed the way [they] see the UK as a place to invest\u201d. <\/p>\n<p>And pharmaceutical companies aren\u2019t the only sector set to gain from this. Engineering, life sciences, manufacturing, technology, and defence are all sectors who will see a positive effect from the patent box. <\/p>\n<p>The UK economy will see a positive effect as a result of that.<\/p>\n<p>I reject any suggestion that the UK\u2019s Patent Box facilitates profit shifting. Let me be clear here: categorically, it does not create an opportunity for businesses to reduce their taxes without increasing their value to the UK economy. <\/p>\n<p>To gain the advantages of the Patent Box, a company must either have developed the IP itself, or actively manage the commercial exploitation of the IP. This is a substantial amount of activity for a business to undertake. <\/p>\n<p>If all a business wanted to achieve was to shift their profits in order to receive a lower tax rate, then this simply would not be worth the hassle. <\/p>\n<p>For this purpose, a business can find other countries\u2019 regimes offering lower rates with less activity required.<\/p>\n<p>Although many countries have supported the nexus approach as set out recently by the OECD in its update on the BEPS Action Plan, there has been no consideration of its feasibility or proportionality. We have raised a number of issues that we feel require further attention.<\/p>\n<p>First, we have serious concerns about the nexus approach\u2019s compatibility with EU law. <\/p>\n<p>The restrictions on eligible expenditure could influence the location of business activities within the EU and therefore infringe the freedom of establishment.<\/p>\n<p>Furthermore, by dictating the qualifying commercial structure, the nexus approach is also overly restrictive. This presents significant difficulties for businesses which are not engaged in profit shifting.<\/p>\n<p>It is also inconsistent in its principles. It does not allow acquisitions from third parties, although third party outsourcing is allowed. Introducing these sort of false distinctions could distort commercial decisions.<\/p>\n<p>Considering these complexities, it is not surprising that nexus also requires incredibly detailed tracing of expenditure and income. <\/p>\n<p>This would be a heavy burden to place on businesses and tax authorities.<\/p>\n<p>The UK\u2019s view preference is for well-understood and accepted transfer pricing principles. <\/p>\n<p>These offer a more practical and proportionate way to define the \u201csubstantial activity threshold\u201d that will also fall in line with the OECD\u2019s BEPS Action Plan.<\/p>\n<p>The process to gain an internationally recognised definition of \u201csubstantial activity\u201d is long and ongoing.<\/p>\n<p>The UK is fully engaged with the OECD\u2019s Forum on harmful tax practices and the EU code of conduct group in order to achieve a clear definition\u2026<\/p>\n<p>And for the various reasons I have spoken about today, we believe our approach is the most practical.<\/p>\n<p>The approach we are taking here reflects the government\u2019s commitment to defending the UK\u2019s interests when it comes to policies which we believe will hurt growth and jobs, at a time when we should be doing everything we can to support the economic recovery.<\/p>\n<p>A prime example is the Financial Transaction Tax, proposed by the European Commission last year, and being taken forward by 11 EU Member States.<\/p>\n<p>The government believes that this flawed tax would be damaging to employment and damaging to economic growth. We will not be participating in it.<\/p>\n<p>Not only that, but in our view, the proposed Financial Transaction Tax is unlawfully extraterritorial.<\/p>\n<p>As you will know, we took a protective legal challenge to the ECJ [European Court of Justice] to ensure our rights as a non-participant are respected.<\/p>\n<p>We continue to engage closely with this proposal and the Chancellor has been clear \u2013 if the final proposal does not address our legal concerns, we will not hesitate to launch further legal action.<\/p>\n<p>Because the government will always stick up for the industries which create this nation\u2019s prosperity. Including those within this square mile.<\/p>\n<p>It\u2019s now been over four years since I first walked through the doors of HM Treasury as a Minister. <\/p>\n<p>Four years of tough choices \u2013 I know, Andrew and his colleagues have quizzed me about many of them. I still bear the scars\u2026<\/p>\n<p>But I\u2019m confident that the government has taken the right decisions to create a competitive tax system that encourages growth and investment.<\/p>\n<p>Do I believe that our work is done? Absolutely not.<\/p>\n<p>But we are making concrete progress. There\u2019s a lot of work to come internationally, and I\u2019m well aware that there will be real challenges ahead. <\/p>\n<p>But I\u2019m confident that we are on course to creating a tax system that is competitive and robust and fair \u2013 an environment where countries can compete. <\/p>\n<p>This will be good for individual jurisdictions, good for the public and good for the vast majority of businesses. <\/p>\n<p>Thank you for listening, and I\u2019ll be very happy to take any questions.<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>&#8216;The government has taken the right decisions to create a competitive tax system that encourages growth and investment&#8217;, he explains.<\/p>\n","protected":false},"author":8,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[13],"tags":[],"_links":{"self":[{"href":"https:\/\/mostafa.openonline.co.uk\/index.php?rest_route=\/wp\/v2\/posts\/48321"}],"collection":[{"href":"https:\/\/mostafa.openonline.co.uk\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mostafa.openonline.co.uk\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mostafa.openonline.co.uk\/index.php?rest_route=\/wp\/v2\/users\/8"}],"replies":[{"embeddable":true,"href":"https:\/\/mostafa.openonline.co.uk\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=48321"}],"version-history":[{"count":0,"href":"https:\/\/mostafa.openonline.co.uk\/index.php?rest_route=\/wp\/v2\/posts\/48321\/revisions"}],"wp:attachment":[{"href":"https:\/\/mostafa.openonline.co.uk\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=48321"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mostafa.openonline.co.uk\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=48321"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mostafa.openonline.co.uk\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=48321"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}