Corporation Tax » Tax Research UK

The FT joins the small chorus opposed to corporation tax devolution

Corporation Tax, Ireland, Uncategorized 1 Response »

Aug 242011

I have become one of the most vociferous opponents of reduced corporation tax rates for Northern Ireland. I did not intend to be so. I just thought it was poor idea and wrote a report about it for the UK and Irish trade unions.

I’m pleased to note that the FT has now joined the small but effective chorus opposed to this move, saying in an editorial today:

Owen Paterson, the secretary of state for Northern Ireland, says that giving the province the right to vary its corporate tax rate would be “the economic equivalent of the peace process”. Mr Paterson’s enthusiasm has helped the issue up Britain’s political agenda; the government is now completing a consultation on it. Given Northern Ireland’s high levels of joblessness and welfare dependency, the local appeal of the proposal is understandable. For the UK as a whole, however, it raises more problems than it solves.

As it then notes, those problems include senseless tax competition, not least with Scotland and of democratic accountability. As it concludes:

These complications are a heavy price to pay for a reform that will produce at best marginal economic benefits. George Osborne, the UK chancellor, has pledged to await the outcome of the consultation on Northern Ireland’s corporate tax rate before deciding on Scotland’s. He should tell both to go back to the drawing board.

Too true.

But better still, just scrap the idea.

It’s time for Northern Ireland to get real on corporation tax

Corporation Tax, Europe, Ireland, Uncategorized Comments Off

Aug 192011

The Belfast Telegraph featured an article yesterday where a KPMG partner in Belfast argued Ireland will never give up its low tax rate whatever Merkel and Sarkozy say and that Northern Ireland’s tax rate must be cut as soon as possible.

KPMG are heavily invested in the plan to make Northern Ireland a tax haven so I am not surprised by the comments. They are, of course, amongst the very few who would gain from this plan which would be massively onerous for the ordinary people of Northern Ireland.

In response the Belfast Telegraph reported:

But anti-poverty campaigner and blogger Richard Murphy said that harmonisation was “inevitable” and called for Ireland to “stop looting other European economies”.

“There is no way this tax competition can continue while the Eurozone is so desperate for cash, it is now not a case of ‘if’ but ‘when’,” he said.

“Ireland will be picked on, it can bluster all it likes but harmonisation will happen. We must question why Northern Ireland is so desperate to copy a system that is doomed to fail and does not work.

“Ireland has already had preferential treatment, it is time for Ireland to grow up and play its part in the international economy and to stop looting other European economies.”

That about sums it up.

Financial Transaction Taxes and corporate tax harmonisation rates – now we’re talking

Corporation Tax, Europe, Transaction Taxes 24 Responses »

Aug 172011

The reality that banks are out of control and that you can’t run a common market without some degree of commonality in tax has finally dawned on the EU.

Merkel and Sarkozy moved towards a financial transaction tax on EU banks yesterday, which is a welcome and overdue move that needs replication way beyond the Eurozone if the feral banking economy is to be brought under control.

And there are also clear signs that corporation tax harmonisation is on the agenda – which makes a complete mockery of moves in the UK by Northern Ireland and Scotland to move against that necessary pre-requsitie for a level playing field for business.

Both moves are in the right direction. Of course the devil will be in the detail. But these are obviously correct initiatives at this time.

As much as the move being made towards balanced budgets, to which i will turn next on this blog, is the wrong one.

Unite Scotland – Economic Brief – Corporation Tax

Corporation Tax, Scotland, TUC 3 Responses »

Aug 162011

Unite published the following briefing written by me on corporation reform tax in Scotland this afternoon:

What is corporation tax?

Corporation tax is the tax due on a company’s profits.

What’s the big deal with corporation tax now?

Corporation tax is right at the forefront of economic debate at present, especially in Scotland. The Scottish Government is to argue for powers to be given to Scotland to change its corporation tax rate so that it does not have to charge the same rate as the rest of the United Kingdom.

Northern Ireland is also arguing for the right to set its own corporation tax rate. Northern Ireland looks like it will reduce its corporation tax rate to 12.5% for all companies. The current rate in the UK as a whole is 26% of large companies who earn more than £1.5 million profit year and 20% small companies. Northern Ireland is set in this rate because the Republic of Ireland has a 12.5% corporation tax rate.

It looks as though the Scottish Government might want to match any tax rate that Northern Ireland sets, in which case Scotland could have a 12.5% corporation tax rate.

Is this good news for Scotland?

It is claimed by those supporting reductions in corporation tax rates that these cuts will have beneficial effects on the economy. The argument is that one or all of these things happens:

Existing businesses in the country have their tax rate cut so they have more money left to invest in new jobs;
Because the tax rate has been reduced the return from running a company is increased and so more new businesses are created, which in turn means more jobs;
Reduced tax rates encourage foreign companies to relocate to the country because they can make a bigger, overall, rate of profit as a result – this brings in new investment, and that in turn creates new jobs.

No one, least of all a trade union, wants to turn down the opportunity of new jobs. If these promises could be delivered then such a change might be good news for Scotland.

Can the promise of new jobs be delivered?

This is where the problems begin to arise, and there are lots of problems:

There is no guarantee that existing companies in Scotland will invest their increased after-tax profits in new jobs – they might just pay them out to their shareholders. The tax increase would in that case simply make some of the better off people in Scotland better off still.
While there is some undoubted evidence of a link between lower corporation tax rates and higher rates of employment, the relationship between the two is very weak indeed. Research has shown that only 7% of additional employment can be explained by low corporation tax rates in the countries that have them. In that case there are many better, and more cost-effective, ways of creating new jobs. Grants remain one such option.
It is undoubtedly true that for a while the Republic of Ireland appeared to benefit from having low corporation tax rates that increased employment. This process has, however, come to an end. The Irish economy has collapsed, unemployment has risen, people are emigrating, major employers have left including companies like Dell computers, and hardship has followed on. If the model did work – and that is highly questionable – it doesn’t any more.

But isn’t it worth a try?

There is always an argument for taking a risk when there is no cost in doing so. Unfortunately, if Scotland cut its corporation tax rate there would be a considerable cost, no one is quite sure what it would be, as yet, but there are complex European rules that would have to be adhered to.

This would mean that the amount of money granted to Scotland by the Westminster Government would have to be cut by the same amount as the corporation tax cut. No one has ever calculated precisely the total value of corporation taxes paid by Scottish companies, and no one is sure how they could precisely calculate this figure. But, it is presently estimated that Northern Ireland will lose £300 million a year if it cuts its corporation tax rate. It is safe to assume that the cost to Scotland would be much more, and could run into billions of pounds a year.

But if the right number of jobs were created wouldn’t it still pay to take that risk?

We can only decide that by looking at the evidence. The best, and most optimistic, evidence currently available comes from those promoting this reform in Northern Ireland. They have suggested that losing a grant of £272 million a year from Westminster will generate 4500 new jobs a year in Northern Ireland. But note the cost: that’s almost £61,000 a job. Average pay in Northern Ireland is about £22,000 a year.

A generous estimate of the amount of tax that each new job will generate is £8,000 a year. Northern Ireland is allowed to claim credit for that additional tax paid, but it will still be losing £53,000 a year on the jobs created in the first year.

Now admittedly, presuming those jobs continue to the second year the loss in that year will only be £45,000 per job created. But on this logic (which those promoting this idea have accepted as correct) and assuming no jobs are lost it will take up to 15 years for this cut in corporation tax to be paid back in terms of extra revenue earned from new jobs created in Northern Ireland. Put in that context this is a risk not worth taking, and a cost that’s unreasonable for each job created.

So is there any remaining reason to cut corporation tax in Scotland?

Not that we can find. But we can find lots of reasons why Scotland should not cut its corporation tax rate. For example, as the UK’s Chartered Institute of Tax has pointed out, any such change would massively increase the administrative hassle for companies which were trading in both England and Scotland. In fact, the additional costs of proving that a business has allocated their profits correctly between the two nations could more than offset any tax saved.

And on top of that England would have to pass laws to prevent profits being artificially relocated to Scotland. This would make it harder for companies to relocate to Scotland. We might actually see obstacles being put in the way of investment in Scotland just because we have a lower corporation tax rate. That would be a particularly perverse outcome of any such change.

Finally, and most importantly, there is the issue of social justice. The fact is that, as has been proven time and again, societies work best when they are equal. The most likely outcome of cutting corporation tax rates in Scotland is that the richest in our community will get richer, whilst the rest of us will become worse off. Scotland will be worse off because of the cut in services that would result from the reduction of the grant from Westminster. Inequality in Scotland will, in all probability, rise. This is an outcome that we can’t accept as being just, fair or good for Scotland as a whole.

This special economic brief has been produced in cooperation with Unite Scotland by tax expert Richard Murphy, in response to the launch of the Scottish Government’sCorporation Tax Discussion Paper, ‘Options for Reform’ .

Scotland starts move towards beggar they neighbour tax policy from which only large companies will win

Corporation Tax, Scotland 8 Responses »

Aug 162011

As the BBC in Scotland have reported:

The Scottish government is to unveil its plans on taking control of corporation tax.

Finance Secretary John Swinney will confirm a move to lower the headline rate of business tax and to give tax breaks to small firms.

Excluding north sea oil, corporation tax generated £2.6bn in revenue for Scotland in the year to 2010.

But Mr Swinney sees making a reduction in the charge as a way to add fresh revenue and attract new businesses.

Mr Swinney is a sadly deluded man.

I have explained why this policy would not work for Northern Ireland, here. In Northern Ireland the argument for it is that the land border with the Republic justifies it. In Scotland there is no justification for it at all bar the economic madness of supply side neoliberalism that says if only government got out of the way then everything would be rosy in the world, the economy would floiuyrish and the rivers would flow with milk and the land would be awash with honey.

Except there’s no evidence for that. And wise people know it. As the BBC also note:

[T]he Institute of Chartered Accountants in Scotland said that changes to the rate of corporation tax - the main rate currently stands at 26% – could leave the government short of money to fund public services.

And as PWC warned recently:

The implications of cutting Scotland’s rate of corporation tax are “highly complex”, PricewaterhouseCoopers (PwC) has warned.

PwC warned EU tax rules meant cutting corporation tax in Scotland would result in a reduction in the block grant, equivalent to the loss of revenue to Westminster.

PWC are right on this occasion. The rules are clear: pound for pound Scotland has to lose grant from Westminster to match corporation tax lost by cutting its rate so the only way it can win is if for reason no one can explain cutting the rate (which is already low, particularly given there aren’t that many large companies left in Scotland) is going to suddenly increase the profits earned in Scotland.

Of course this is Laffer curve theory – theory which has never been proven to work for anyone but big business -w ho will gain from this move, you can be sure, just as throughout Scotland ordinary people will lose by having their services cut.

But it’s worse than that. As the BBC also noted:

In addition, it could start a tit-for-tat war over corporation tax rates with the other home nations.

Too right it will. And at the very least the complexity of moving to Scotland will become enormous – because HMRC in the rest of the UK will not be challenging all relocations on the grounds that they are tax avoidance – and rightly so.

So we’ll now have HMRC Scotland at war with HMRC England and Wales with HMRC in Northern Ireland potentially lobbing in its tuppence worth too.

Whilst the Tories will of course demand rate cuts for England too.

And where will this lead? To less funding to close the deficit, more cuts, an increase in the income and wealth gaps, more chaos in society and diminishing social cohesion. Which is just about the last range of outcomes we need right now.

The SNP’s policy on this issue comes from the economics of the madhouse. The trouble is they plan to release the mayhem, that’s intended to create on the UK economy. It’s an act of gross irresponsibility on their part. But worst of all it’s a betrayal of the ordinary people of Scotland to try to turn that country into a tax haven right now, at cost to those who need strong government and not business run amok with greed. I sincerely hope the people of Scotland turn on them in retribution. Because if there’s any silver lining in this it’s the fact that this must surely considerably increase Labour’s chances north of the border.

A look at the world’s new corporate tax havens

Conservatives, Corporation Tax, Ethics, Tax Havens, USA 4 Responses »

Aug 152011

CBS broadcast a programme with the above title this weekend.

As they point out the US loses $60bn a year to tax havens from its big corporate sector alone.

And it’s all just a game – using places like Zug, in Switzerland.

Except the game has consequences; real consequences for real lives blighted by cuts in the USA.

And the same is true here in the UK where I estimate the total loss to tax havens to be up to £18 billion a year.

Corporations say they have to do this. That’s not true. No one under any law obliges anyone to play such abusive games – except to trigger the bonus schemes of company directors – which are a prime cause for this activity.

The US can’t afford this abuse.

We can’t afford this abuse.

But are we hearing from David Cameron and US politicians that this abuse is high on their priority list? No, we’re not.

Because our politicians are frightened of these corporations. And they’re not frightened of imposing cuts.

It’s a sad sign of their moral malaise that this is the case.

The rot in the UK starts at the top.

It looks the same in the US too.

And until the rot at the top is cut out nothing will get better.

With the Tories at the helm the corporate ship will remain docked off Cayman

Cayman, Corporation Tax, Economics, Tax avoidance 3 Responses »

Aug 082011

There was a stunningly good article in the Guardian on Saturday that I missed (well, it was my mother-in-law’s 80th, and these things take some organising). It was by Patrick Collinson and concluded:

When governments around the world are teetering into bankruptcy, and households are more indebted than ever, you don’t have to be a Marxist to acknowledge that the share of the national pie taken by profits is unsustainably high.

The City knows it. I was at a Mayfair asset management group this week, where fund managers were chewing over the risks of a steep rise in corporate tax rates. But they also expect corporates to indulge in as much profit-hiding as they possibly can. Expect more fake domiciling in Ireland and elsewhere.

We don’t need personal tax rises, we need to raise corporate tax and tackle the dodgers. But with the likes of the Tea Party and the Tories at the helm, the corporate ship will remain docked permanently off the Cayman Islands.

No wonder people are angry. The corporate looting of the UK goes on, unabated with official sanction.

Hat tip: False Economy

Podcast: Why are companies coming back to the UK?

Conservatives, Corporation Tax, Podcast, Tax Havens 9 Responses »

Aug 032011

This is an experiment – and I know it’s too long at 11 minutes.

But is the idea worth pursuing?

Podcast: Play in new window | Download

If we can tax offshore gambling it’s time to tax all offshore activity George – so why the dual standard?

Accounting, Corporation Tax, Secrecy jurisdictions, Tax Havens Comments Off

Jul 182011

As the Guardian has reported:

The chancellor, George Osborne, will fire the starting gun on the Treasury’s new tax grab of offshore gambling profits by making a statement to the House of Commons.

The move, squeezed into the House’s schedule on Monday, just before the start of the summer recess, follows a statement on the same topic last week by the heritage minister, John Penrose. He announced that every betting company offering wagers to British punters will have to obtain a UK licence – news that was widely seen as a precursor to the UK beginning to tax offshore operators.

So suddenly the government finds it can tax offshore transactions. I welcome that, of course.

So let’s have some further essential changes to make sure this always happens.

Let’s make sure that all VAT abuse through the Channel Islands ends, now.

Let’s ensure that all interest paid to an offshore entity is subject to a tax deduction at source – without exception (yes, including payments to banks wherever their head offices may be incorporated).

Let’s ensure all rents paid offshore are always subject to tax withholding at source.

And let’s scrap the appalling reforms to UK tax law introduced by George Osborne that actively encourages the use of offshore by multinational corporations and offers them massive tax savings if they do so – surely one of the most bizarre decisions by a Chancellor of the UK, ever?

And it’s time to say that all the farcical claims to be offshore made by so many multinational corporation subsidiaries by asserting board meetings are initialled at meetings in far flung places are just a charade and that all the entities in question are actually resident here in the UK where so obviously the decisions are really taken.

The people of the UK are fed up with scams. Let’s stop the offshore one.