There is continuing talk in the press about the UK becoming a Singapore style tax haven to challenge the EU. It's pure fantasy. As I explained on LBC earlier this week, to reduce our government spending to the 17 or so per cent of GDP that Singapore thinks appropriate we would need to close state education, the NHS and considerably raise our retirement age, none of which are going to happen.
There is, however, another good reason for thinking this is folly. That is because the EU could, quite reasonably, retaliate. The easiest way for it to do this would be by imposing withholding taxes on payments made to the UK. In other words, before money ever reached the UK to be taxed at our low rates tax would have been settled at a higher rate in its EU country of origin.
To what types of payment might withholding races be applied? For an easy precedent for such a list I had to look no further than Singapore. There the following types of payments must have withholding tax deducted at source when paid to non-resident companies:
- Interest, commission, fee in connection with any loan or indebtedness;
- Royalty or other payments for the use of or the right to use any movable property;
- Payments for the use of or the right to use scientific, technical, industrial or commercial knowledge or information or for the rendering of assistance or service in connection with the application or use of such knowledge or information;
- Payments of management fees;
- Rent or other payments for the use of any movable property;
- Payments for the purchase of real property from a non-resident property trader;
- Structured products (other than payments which qualify for tax exemption under section 13(1)(zj) of the Income Tax Act);
- Distribution of real estate investment trust (REIT).
I don't wish to be unsubtle, but as a way of directly attacking the UK financial services centre, which would inevitably be at the heart of a UK tax haven, those seem like a pretty good list of opening weapons.
Singapore may have something to teach us after all. What it suggests is that to assume we can become a tax haven and get away with it unchallenged might be a decidedly risky assumption. Or an act of gross folly. Which is hardly the basis for a viable Plan B.
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Wouldn’t this automatically happen if the UK actually leaves the EU, in the sense that the IRD & PSD would no longer include them/be applicable to them? It might be more important to have some sort of agreement between EU member states to not then close tax treaties with the UK in which WHT rates would again be lowered.
IRD?
PSD?
IRD = Interest & Royalties Directive
PSD = Parent-Subsidiary Directive
Two of the most fundamental bits of EU law that govern cross-border taxation within the EU.
But not widely known and so best not referred to by abbreviations on a site like this where most are not in technical tax
IRD = Interest & Royalties Directive
PSD = Parent Subsidiary Directive
Those would of course cease to apply to the UK, following Brexit, unless an arrangement is included in the exit deal.
In absence thereof, we would go back to the individual tax treaties. The UK already has treaties with most, if not all, EU countries. It remains to be seen how much appetite there would be to renegotiate those.
I have to say that I find the vacuum in which our politicians and press work is incredible. They thinking nothing of cause and effect. Typically neo-liberal – that is for sure. They can only see as far as their noses. And they are meant to be in charge of policy and explaining things to the public.
Is it possible for a large country to be a tax haven? Seems to me it is a strategy only adopted by small countries that can exploit larger neighbours.
Very difficult to see UK becoming more like Singapore.
Singapore is Asia’s global trading hub. It is also unique in that 80% of all housing is provided by the state.
http://www.hdb.gov.sg/cs/infoweb/about-us/our-role/public-housing–a-singapore-icon
and has the largest percentage of journeys undertaken on state funded transport infrastructure.
It is a masterpiece of central planning. Is that what Hammond has in mind?
Excellent point….
It’s an excellent point, indeed. And I know that Hammond’s predecessor would’ve entirely ignored it: ‘his’ country was only a handful of oligarchs and bankers.
As I understand it the Republican Party in the USA is specifically pushing for the USA itself to become a tax haven for corporations.
If sales to companies outside the USA were non-taxable in the USA I couldn’t think of a better tax haven in which to set up a company. Admittedly US domestic sales would be taxable, but if you were able to offset your global cost of sales I don’t see that being a major problem.
The US also has a huge number of tax treaties and I can’t imagine many people wanting to take them on.
This is the Ryan tax plan
It strikes me this is more example, like the absurd suggestions we were going to stay in the single market after any Brexit (and where is Boris lately?), of the Tory government desperately trying to keep plates spinning impossibly in the air rather than admit to what we all know is the inevitable reality. They field endless processions of preposterous suggestions rather than face up to – to what? Political doom, I can only suppose, when the party splits. Without a unified party to represent them, will this finally mean the end for Britain’s fabled Establishment?
Of course, the EU is in a weak position if it were to demand the UK not become a tax haven post-Brexit, given its member includes, Luxembourg, the Netherlands and Malta.
Tax habpvens have always been hypocrites
More like the UK, being out of the EU, will be in a weak position. The EU can’t use these measures against members, but it can against non members. Moral arguments are non arguments. EU members that some see as tax havens will be safe because they are members.
Yes, that list will do nicely: am I right in saying that these are all measures that have actually been implemented elsewhere?
I recognise a couple of them and they all look workable.
In a negotiation with rational participants, any of them would be a credible threat.
The political angles are interesting: leaving aside the non-rational participant with delusional cabinet ministers, we should consider the competing interests of others.
Firstly, Germany: they want orderly markets and taxes paid on time. Tax shelters and money-laundering can and will be stopped!
Not all Germans (in particular, not all German Bankers) are on board with this; but that’s their position.
Most European countries will tend towards this view; some, with a little persuasion from Berlin. Among the latter, leading politicians face a choice between German pressure and their own desire to move the proceeds of corruption cost-effectively.
Oh dear. We might hear about that, if anybody overplays their hand and finds another ‘Mossack Fonseca’ case splashed in the media and facing prosecution.
The French want markets and market participants in Paris, and they’re all in favour of money laundering when it’s conducted discreetly by French bankers. Tax evasion, less so: but it does go on, and the authorities are, at best, selective in enforcing French and European law.
Some European countries are actively engaged in laundering and tax evasion. They have two conflicting interests: they do not want to be ‘collateral damage’ in a sweeping crackdown; but they also want to reap the gains when their competitor in London is excluded from the marketplace.
One of them will make hypocritical noises about ending bad practices in London.
Ireland is now caught in that: they desperately need assistance from the rest of the EU to help them with the catastrophic effect of our devaluation on their agricultural exports to the UK, but they have positioned themselves as a ‘competitive’ destination for a tax-efficient company in Europe.
We’ll see how that plays out.
The banks in London will split between going full-on ‘Cyprus’ and the ones who move lock, stock, and barrel to the Continent. Specifically, to Paris: and they will be lobbying (and threatening to go to Frankfurt or Dublin) in a bargain about how much regulation will be imposed on their less-savoury but more lucrative business activities.
We won’t see or hear a word of that.
But we might infer a little, or a lot, by listening to what’s said and done about the Swiss.
Indeed, where can the banks go where they’ll be able to carry on openly looting the way they do here? I understand the UK is unique in this regard. I can’t see bankers wanting to go anywhere, frankly, and given how much power they hold over government, I’m sometimes surprised Brexit is even being discussed at all. Does this indicate that May(hem) is even more terrified by the extreme political right, the Kippers, than I’d understood her to be? Can she possibly be even more scared by them than she must be by the City? Something isn’t adding up here…
Indeed. It doesn’t add up: and there’s nobody home when you ring Conservative HQ, no matter how much money you can offer.
“The lights are on, but there’s nobody home”: a phrase that turns out to be useful in too many ways.
The short answer is: this is driven by a small number of media owners who command the big parties, and a small number of mere millionaires paying ridiculous little sums into the fringe parties – and UKIP is still, organisationally, a fringe party.
Neither can be bought, for any sum: fringe parties run on leafletting and lunacy, and *you can’t buy mass media coverage in Britain*. You have to be Rupert Murdoch, the Barclay brothers, or a descendent of Lord Rothermere.
And that’s where it adds up.
Don’t bother asking where the public interest is in all of this: you and I will differ in opinions of where it ought to be, but those arguments are moot when it is invisible, inaudible, and essentially unknowable to most of the participants.
There are existing tax havens inside and outside of the EU that have high standards of living. Ireland have increased their tax take by becoming one. So if the UK lowers it’s corporate taxes there is plenty of evidence to suggest a corresponding increase in tax revenue.
Respectfully, we have cut the rate and the take from large companies (the ones inpacted) has fallen
There is not an iota of evidence to support your claim
To be blunt it is nonsense
Actually the tax take at the full rate increased between 13-14 and 14-15 from c £122,000m to c £133,000 and the largest 1% of companies now pay 52% of all CT. All the figures can be found in HMRC publications on their website.
I’m not saying No2EU is right but it also has clearly worked in Ireland.
That’s at least an iota of evidence. Certainly it seems rude to dismiss his thoughts as nonsense
I have looked at that data many times
We have never collected £133bn of corporation tax
Sorry – but this makes little sense and certainly is not evidence
Sorry. Dangers of looking at documents on a small smartphone scheme. The proper numbers of £122,262,000 and 133,000,000 refer to taxable profit. The tax rate fell and taxable profits increased as did the tax take.
Total CT take increased from £39,950m to £43,712 after allowances such as DTR
And Ireland remains an iota. Tax rates down. Tax take up.
And the economy recovered post 2009
Did you control for that?
And the incentive to incorporate that low tax rates create at cost to income tax yield?
I thought not
Yes but i am not talking about a comparison between 2009 and 2015. I am talking about 2 consecutive years. And in these years the percentage of total CT paid by largest 1% of companies increased even after the small rise in the economy is factored in.and of course the growth in incorporation has been among the very small companies. The idea that there has been a growth in incorporations of the very largest of companies makes no sense at all.
I have at least offered some figures capable of review. You have not offered one iota of evidence to support your arguments
I have plotted it several times on this blog
And I have made the point repeatedly that the only tax without a rising yield on the UK is CT and that is because of rate cuts
The evidence is unambiguous
If there is a Laffer curve CT in the UK is far from its peak rate and a cut in rate reduces yield all other factors controlled for
Having thought about it further overnight- dad I know- wouldn’t the UK simply also introduce withholding taxes? That would pretty much negate taxes lost.
And of course corporation tax makes up a small proportion of the total tax tavke. I really can’t see any justification for doom laden predictions of having to reduce government spending to Singapore GDP levels.
Ha. Sad – not dad
You don’t realise how these things integrate then
Or that tax is not just about revenue raising but about implementing social policy
So what is the social policy this represents? Inequality?
No. It’s just that you said that the EU could retaliate against low UK tax rates by imposing withholding and this would reduce UK tax take and cause Singapore style GDP and I said that was not the case as the UK could also impose withholding
. You mentionef nothing about inequality in your original post.
It seems that as you have no answer to my rebuttal of your point you want to change the subject.
Believe it or not I do not think any blog post I write is the definitive or all encompassing comment on any issue
If you do then I really think you’d better think again
And also take your lowest common denominator straw man arguments elsewhere
I have ample time for arguments and remarkably little for fools and you can’t argue