Finance Weekly News Update March 11, 2017 – March 17, 2017

U.K.’s Corporate Tax Allure Outweighs Brexit Concerns, CEO Says

Primary Topic – international finance and taxes
Ainger, John
Bloomberg.com

Key words and Definitions

Foreign exchange – the process of exchanging one currency for units of another currency.

Tax haven – a country or region that provides favorable tax treatment in order to attract businesses or high net worth individuals.

Brexit – the recent vote by the United Kingdom to exit the European Union.

Summary: Key Points in the Article

The United Kingdom’s Chancellor of the Exchequer, Philip Hammond, recently indicated the U.K. was still committed to lowering corporate tax rates to 17 percent by 2020. The corporate tax rate in the U.K. is currently 20 percent but the government wants to ensure that large international firms remain in the U.K. post-Brexit. However, the lower tax also appears to be enticing firms to relocate headquarters to the U.K.

Robert Walters, the CEO of a London-based staffing and outsourcing firm, touts the benefits of the U.K. as a location for international business. Among the benefits he listed are low tax rates, the existence of an educated workforce, and a devalued currency. All of these factors make the U.K. a prime location for international firms seeking greater efficiency.

Thinking Critically Questions

  1. Why is the corporate tax rate important to a firm?
  2. How is Brexit expected to impact firms?
  3. How can this relocation decision be evaluated by the firm?

Multiple Choice Questions

  1. The United Kingdom promised to lower its corporate tax rate to by 2020.
    a. 17%
    b. 20%
    c. 25%
    d. 9%
  2. Which of these firms plans to move its non-U.S. tax base to the U.K?
    a. McDonald’s Corp.
    b. Wal-Mart Corp.
    c. Sears, Inc.
    d. none of these
  3. The tax rate that firms should use to evaluate projects is the:
    a. marginal tax rate
    b. average tax rate
    c. investor tax rate
    d. none of these