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![handle is hein.taxfoundation/ffddgxz0001 and id is 1 raw text is: F OsUksAN DATION
November 14, 2012
No. 336
The United Kingdom's Move to Territorial Taxation
By
Tax Foundation Staff
This is the third case study in a series on territorial tax systems in other countries. The intent of the study is
to see what lessons the U.S. can learn from other countries' experiences and to evaluate the validity of some
of the fears critics express when discussing what would result if the U.S. were to move to a territorial system.
Let it be heard clearly around the world-from Shanghai to Seattle, and from Stuttgart to Sao Paolo: Britain is
open for business. -Chancellor George Osborne, 20111
Like Japan, the United Kingdom's
international tax system looked very similar
to the U.S. model until very recently.
Whereas Japan was primarily concerned
with the trapped foreign earnings problem,
the UK was more concerned with issues
directly related to its firms' competitiveness.
In 2006, Her Majesty's Treasury opened
talks with business leaders with the express
purpose of developing a more competitive
international tax system. Though
competitiveness remained the chief aim of
tax reform throughout the process, other
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Figure I. Unemployment Rate
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motivations included steep compliance costs and ineffective anti-avoidance measures of the older system.2
In 2008, a string of business emigrations prompted intense discussions among lawmakers and businesses
about the competitiveness of Britain's tax system. The New York Times described three particular outgoing
firms as just part of the exodus of British companies fleeing the tax system.3 This publicity breathed life
1 Budget 2011: Chancellor George Osborne's speech in full, THE TELEGRAPH, Mar. 23, 2011,
http//iwww.telegraph.co.uk/finance/budget/801022/Budget-2011 -Chancellor-George-Osbornes-speech-in-fuill.html.
2 See Kevin S. Markle, A Comparison of the Tax-motivated Income Shifting of Multinationals in Territorial and Worldwide Countries
(Oxford University Centre for Business Taxation, Working Paper 12/06, Nov. 2010), at note 7,
http //eureka.bodleian. ox.ac.uk/3199/1/WP 12 06.pdf.
3 Julia Werdigier, British Companies Emigrating Over Taxes, NEW YORK TIMES, Sept. 4, 2008,
http://www.i itiines.corm/2008/09/0 5/b usiness/worldbusiness/ 0 5 tax.hntl.
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