The FT misses the target on tax competition

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The FT ran a story on tax competition today. Because FT stories are difficult to access, and because this seems important I have prepared my own link to it on the basis that public information needs seem to require it.

The story is far too one sided. It is also quite simply wrong, for two reasons. First of all the facts are wrong. Secondly the economic reasoning is wrong.

Let's deal with the facts first. As UK national statistics show that corporate profits as a share of GDP have increased on average from 21.5% to 22.5% since 1999, while the proportion paid in corporation tax has fallen from 15% to 14.1%. As a result, corporation tax paid as a proportion of GDP has been almost exactly fixed at 3.2% over this period. In other words, the UK is not more expensive for companies now. It's facilitating them in making ever increasing profits, and is asking for less in exchange for it. The tax rate is falling.

Secondly, the economics are flawed. The FT says:

Each percentage point cut [in the corporation tax rate] would cost the Treasury about £1.5bn ($2.8bn, €2.2bn) - a relatively small amount given that corporate tax revenues have grown from £32bn to £48bn over the last five years.

This assumes that corporation tax is meant to be a fixed rate contribution to the Exchequer. It is not. It is paid as a percentage of profits (and as noted, a falling one at that). It is absurd to say the rate can be cut because the total paid has increased. There is no economic logic to this.

Next, let's look at the politics. I've already hit this issue this morning when dealing with KPMG's recent comments on the OECD. But Chris Wales' comments fall into much the same category when he is reported as saying:

Chris Wales, former chief adviser on tax policy to Gordon Brown, chancellor of the exchequer, predicts that most EU countries' corporation tax rates will end up at about 15 per cent.

Let's be clear. He doesn't predict this. He's working to achieve this. That's something very different indeed, and turns what appears to be objective comment into political aspiration on behalf of capital. I've written about Wales before, and I can make this comment on his aspiration in this respect because I've discussed this issue with him.

The reality of the matter reported by the FT is that the world's capitalists do not want to pay tax. To put it another way, they want others to pay it for them. That means they are seeking to shift the burden from the rich to the poor, the mobile to the immobile, from the haves to the have nots. And in the process they want to undermine the state, which is the foundation of our democratic way of life. Take this quote:

As British companies become more international in their outlook, they are increasingly unsympathetic to the idea that the Treasury has a moral claim to a share of their worldwide earnings. John Cullinane, president of the Chartered Institute of Taxation, says: "There's too much of a Maginot line mentality in endlessly trying to protect our tax borders."

Put another way, that means companies want to roam free, unaccountable and not paying wherever they might be. If the UK does not protect its tax borders it will be fleeced. Which is exactly what big business wants to do, as this quote shows:

In practice, companies pay little tax on overseas profits to the UK Treasury. But the rules on foreign earnings are complex, inhibit tax planning and are widely loathed by businesses. Some tax experts think it is time to abandon the principle of worldwide taxation, which dates back to the introduction of income tax in 1799 to pay for the war against the French forces under Napoleon. They want to move to a "territorial" system, which taxes only domestic profits. This system, which is used in the Netherlands and some other European countries, makes it easier for multinationals to minimise the tax bills of their overseas subsidiaries.

As I proved when I did an analysis of "territorial" taxes when researching flat taxes for the ACCA, these are a tax avoiders charter. Which is also shown by my recent work for Global Witness on Mittal Steel. Of course business want them, for precisely that reason.

My conclusion? The FT has repeated the right wing dogma of big business that seeks to undermine the state. It should have sought to be more balanced. Incidentally, an article in the Guardian today did achieve a better balance on this, and not just because they quoted me.