George Osborne has accounted a new 8% corporation tax rate for the largest companies in the UK.
I can’t explain it better than the Guardian did:
Multinational companies will get an effective corporation tax rate of 8% for their offshore financing operations under new rules designed to stem the flow of companies leaving the UK for tax reasons.
Tax advisers warned that, despite the changes, companies would continue to leave the UK for a better tax rate. Multinationals including Shire, a pharmaceuticals group, the advertising giant WPP and the building products group Wolseley have moved offshore to be outside the UK's rules.
The government outlined plans today to overhaul the tax treatment of multinationals' complex offshore operations. The rules restrict multinationals from moving assets offshore to avoid tax.
Companies typically like to put finance functions offshore to escape the UK's 28% corporation tax. Offshore financing subsidiaries can lend to the UK group, enabling the company to offset its interest on the debt against UK profits, thus escaping tax on the loan interest in the offshore subsidiary.
The Treasury said that in future, rather than ignoring the structure and deeming the offshore income to be UK income, it would treat only a third of it as UK income. When the UK corporate tax rate hits 24%, that would mean an effective rate of just 8%.
So we’re all in this together are we?
Unless you’re a big business wanting to use a tax haven that is.
When you can have an 8% tax rate.
Words fail me, again, not least because of the abuse that this will unleash — which Osborne could never comprehend if I spent the next year explaining it to him.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
George Osborne is on record as saying how much he admires Ireland and their economy. We’ve had the failed banks, the massive cuts in spending, the targeting of the masses rather than the bankers. Why not through in low CT rates and support for tax abuse through offshore vehicles and the transformation is complete! It would be funny if it wasn’t so sad…
Richard
There is one rule for big business and another for everyone else. Isn’t it time to seriously challenge the anachronism of allowing interest payments on debt to remain 100% tax deductible?
Best wishes
David
Your view of corporation tax is contradictory Richard. On one hand you believe in territoriality – profits being taxed where they are earned. On the other, you apparently want all overseas profits to be subject to UK tax.
For what it’s worth, I think that you are dead right on the first one – any UK profits should be taxed here, and I abhor the “clever tricks” (often little more than evasion) that taxpayers and advisors try to squirrel profits outside the UK tax net.
I think you are wrong on the second one, which I why I am ok with Osborne’s plan. I don’t think we should tax profits earned abroad. It’s for other countries to develop robust tax systems to tax their profits. I do think that we should help them, with information exchange, territorial reporting in their accounts, co-operation in transfer pricing enquiries and we should push for tax havens to automatically provide information, and I hope you’d agree with me on these latter points.
No, it is all taxable at 28%, only 1/3rd will be taxed as it arises offshore and the rest when remitted back to the UK.
Of course there is one rule for businesses and one rule for everyone else, businesses pay corporation tax and individuals do not, but I think I am correct in thinking that the apportionment of one third of the chargeable profits would apply equally to individuals.
@Adam
Not in the slightest contradictory
It is source first
With residence second
Territorial does not come into it – it’s usually a simple invitation to abuse. No wonder the CI like it
@ Alex
The vast majority of revenue to HMRC increasingly comes from income tax and NI contributions (ie from individuals), followed by VAT (individuals again) not from corporations. Significnatly, corporations can deduct interest payments on debt and royalty payments from their taxable income, individuals cannot. Corporations lobby to have all the legal rights of the individual but against having the same tax responsibilities.
Richard,
in light of this policy change, the timing of this report by McKinsey is extremely suspect: http://www.mckinsey.com/mgi/publications/UK_report/pdfs/MGI_UK_growth_and_renewal_full_report.pdf
The report is misguided on too many other levels to mention here; if you can spare the time you will probably have a great deal to comment on. I doubt we’ll agree on most of it but such is life.