Member Article

The UK Budget announcement on 15 March 2023 is foreseen to include the creation of 12 low tax zones.

It is understood these will work in tandem with the 10 freeports the creation of which has already been announced (further free ports are foreseen to be created). Low tax zones and free ports are examples of special economic zones (SEZ). A business that establishes in a SEZ receives benefits, such as lower taxes, subsidies, government resources, pre-built relevant infrastructure et al. For the immediate area in which a SEZ is located there can also be benefits, including increased employment and economic development. It is to obtain these broader benefits that a SEZ is established by governments, typically in areas of lower economic performance compared to the country as a whole.

However, there can also be competition issues for those not located in a SEZ. Examples are:

• Uneven playing field: A SEZ located business will likely have benefits not available to competitors in the same industry located outside the SEZ. This creates an uneven playing field. This creates an unfair competitive advantage for the SEZ located business. Additionally, this market distortion might result in established businesses shifting to a SEZ, resulting in no net gain for the country.
• Market reliance: A successful SEZ might create clustering of a sector in and around the SEZ, but this can mean the concentration of businesses in the area are over-reliant on the SEZ. This distortion in the competitive landscape can mean the sector is vulnerable to shocks, for example, a change in government policy or external factors such as exchange rate movements or more competitive importers.
• Negative externalities: The lower costs faced by businesses located in a SEZ can have a negative impact on businesses outside the SEZ, including business outside the sector that the SEZ is focused on.

A business that believes it is facing unfair competition from a SEZ located competitor needs to consider, as a starter:

1. What specifically is the benefit the competitor receives that creates the unfair competitive situation?
2. Does the benefit constitute a subsidy as defined in the Subsidy Control Act?
3. Has the authority that granted the benefit obtained authorisation from the Competition and Markets Authority?

 

https://www.ft.com/content/c02ee264-79e1-454f-a774-062e8246476d

 

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