In February 2006 George Osborne went to Ireland and gave a speech that would reward study by those interested in recent political history. What I recall from a conversation very soon afterwards with a breathless member of his entourage in London ( who has, I think, recently been promoted in the ministerial reshuffle) was the overall enthusiasm for the Irish tax system that the Conservatives then displayed. The message was, in effect, a very simple one: " Ireland's got Google because of low tax rates, and we need to do that here" was the message I was given at a time when it should also be recalled that George Osborne was a fan of flat taxation and many other eccentric ideas.
George forgot flat taxes but he did not forget Google, or Ireland. In fact, just as he said he would back then, he has reformed a great deal of UK corporate taxation to not just mimic Ireland, but to actually seek to outdo it in the tax haven offering that the UK has to make.
So, he has cut tax rates, enormously. He has revelled in the creation of what is, effectively, a territorial tax system for groups of companies and has overseen the effective dismembering of the U.K.'s controlled foreign company regime which was designed to prevent tax haven abuse by UK-based multinational companies. Coupled with the patent box regime (a Labour legacy) and his own special regime for group treasury operations based outside the UK, you would think that George's aim was to make sure that no large company should pay tax in this country, even if they might elsewhere. It has worked: just look at Barclay's recent announcements on its global taxes with not a penny paid here but rather more elsewhere.
The aim was summarised in that 2006 speech. This is what he said then in praise of Ireland:
So the low business tax rates generate strong revenues for the Irish exchequer, from the added prosperity and higher income tax paid on the more and better jobs. That in turn encourages the formation of ‘clusters' of industrial expertise which stimulate progress and innovation in those industries, leading to more economic growth. And in a world that is increasingly knowledge-driven, that kind of growth is absolutely fundamental to long-term prosperity.
It so obviously worked for Ireland, didn't it? It's as if George never noticed the subsequent crash and continued, helter-skelter, to import the idea wholesale into the UK nonetheless.
And so let's move to 2o14. Today the FT has reported:
[US pharmaceutical company] AbbVie has sealed its proposed £32bn takeover of Shire, the UK-listed speciality pharmaceuticals company, in one of the biggest deals so far to involve a US company shifting its tax residence overseas.
As they continue:
AbbVie's successful bid also continues the trend of US companies using foreign acquisitions to put their offshore cash beyond the reach of the US taxman — a practice known as “inversion” that is facing increasing political scrutiny in Washington.
AbbVie said that, while its administrative headquarters would remain in Chicago and its listing in New York, the merged entity would be incorporated in the Channel Island of Jersey and have its tax residence in the UK.
Now this is curious. In 2008 Shire left the UK for tax purposes. I reported on the move at the time. Then the object was to avoid any chance of UK tax arising under the then proposed changes to controlled foreign company laws that the Labour government was suggesting that might have hit companies with substantial intellectual property, like Shire, hard. With the power of retrospect, what a shame that Labour did not have the courage to put through those changes which are still so obviously needed to tackle international tax abuse, as the OECD is now saying, but they did not. Shire left anyway, going to Ireland where I gather it has not paid a penny in tax in the intervening years.
And now it's on its way back for tax purposes. Jersey's there to save stamp duty, of course. And tax haven UK does very nicely for all other purposes. Territorial tax is now firmly in place. All those tax haven located funds within the new group can flow tax free back to the shareholders. New profits can be earned from intellectual property rights located either here via the patent box or in low tax jurisdictions without ever having to worry that the UK might ever question the arrangements and the US has lost out on all the tax on unremitted profits denied to it for years.
Welcome to tax haven UK, the place that turns a blind eye to profits made anywhere in the world, and to the simultaneous fact that none ever seem to arise here either. We're happy with the odd dollop of PAYE every now and again; that does us nicely, apparently, just as George said back in 2006. Not that this deal, taking over a company really based in Basingstoke, will actually deliver any more of that either, I am sure.
No, this is just the wondrous world of tax believe that George set out to create to emulate Ireland. You have to say, he's succeeded, but at cost to us all, to and many other nations on earth as well. His cup will flow over the day he leaves parliament, I am sure.
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I thought you had previously commented that tax rules don’t drive behaviour like this? (In the context of high income tax rates and non dom rules). Have you changed your mind?
As is usual, you have not noted what I have said.
I have not for one minute disputed that tax rates have impact upon the artificial relocation of the recording of transactions for the purposes of tax. Equally, I have wholly consistently said that such rates do not actually impact upon the real location of economic activity, which is something quite distinct from the artificial relocation the profits. The distinction is, of course, at the core of the OECD’s BEPS project, so I am hardly alone in noticing the phenomena, but you appear to be ignoring it. Why is that?
The fact that real economic activity is not relocated is, of course, the reason for using a unitary taxation base.
You will note that in this post I note that Shire has not, in essence, ever changed the real location of its activity, and I expect none to be relocated now.
i wonder whether in the medium to long term this might actually help bring the issue to a head and force the Americans to take the issue of tax avoidance more seriously.
there’s no way they can compete on cooperation tax – iirc it’s 40% in the US – given they already have serious issues with poverty (i’m thinking of the ‘tent cities’, the cutting off of drinking water in Detroit, etc). there again it wouldn’t surprise me if they didn’t just follow our lead and to hell with the masses.
apparently the police over there have started buying military hardware. this may simply be because there’s a lot going spare now they’ve pulled out of Iraq and Afghanistan. a more sinister explanation would be that they’re tooling up against their own population in preparation for the next big crash and the riots that will no doubt follow.
“you would think that George’s aim was to make sure that no large company should pay tax in this country, even if they might elsewhere. It has worked: just look at Barclay’s recent announcements on its global taxes with not a penny paid here”
So looking at just one large company proves your case that no large company pays much tax?
In the most recent figures (2013) The 100 largest UK companies paid c£6bn corporation tax, c£4.4bn business rates, c£3.2bn irrecoverable VAT. The there’s the bank levy, petroleum revenue tax, and a host of product and ‘planet’ taxes.
You can’t point at one bank and say that proves that Osborne’s plan that big business should pay not tax ‘has worked’
No, but you know that is not what I am doing. have provided ample evidence here on a broader base, and you know it but continually waste my time
So I will be deleting you from now on
You have had your final warning
Using Ireland as a positive example of anything is a bit alarming. Look at almost everything that has happened in Ireland since about 1994 & you are looking at what would, were it in the 3rd world, be immediately called a “kleptocracy”.
Read Fintan O’Toole then tell me how Ireland is any different from, let alone better than, Nigeria, the Philippines or Libya ?
“In the most recent figures (2013) The 100 largest UK companies paid c£6bn corporation tax, c£4.4bn business rates, c£3.2bn irrecoverable VAT. The there’s the bank levy, petroleum revenue tax, and a host of product and ‘planet’ taxes.”
Is that all? on what turnover/income?
and the rest being income tax, corporation tax, VAT, business rates, plastic bag tax, insurance taxes etc was paid by? On what turnover/income?
To me this would be an interesting comparison..
do this, but I’d thought I’d be provocative. After all these same 100 “people” (the great corporate undead!) seem to exert the greatest influence over our current government, more so than smaller businesses or the enfranchised living population….
Surely it is the case of “no taxation without representation”? 😉
Sorry F- editing
To me this would be an interesting comparison..
I know it will be argued that you can’t do this, but I’d thought I’d be provocative.
Surely, this issue makes the case for a GLOBAL agreement on a minimum overall rate of tax on unearned-income/profit and super-normal-earned-income/profit (i.e. transportable income/profit); personal or corporate.
The whole concept of ‘competition’ on tax rates is a deceit; a race to the inevitable bottom to the point where such income/profit becomes virtually untaxable.
It would HAve to be a GLOBAL AGREEMENT; between at least a critical mass of complying regimes (i.e. those tax regimes who are currently losing out to tax ‘competition’), with:
1. A penal tax rate (equal to the global minimum rate) on all cash-flows (no questions asked) passing between a bank in a complying regime to a bank in a non-complying regime (levied by the sending bank in the complying regime – so no challenge to the ‘sovereignty’ of the non-complying regime).
2. A penal tax rate (equal to the global minimum rate) on all cash-flows (no questions asked) passing between a bank in a non-complying regime to a bank in a complying regime (levied by the receiving bank in the complying regime – so no challenge to the ‘sovereignty’ of the non-complying regime).
Such an agreement would benefit the tax base of the complying regimes, and would make taxation of such income/profit ‘relevant’ again.
A global agreement would be great
But Unfortunaetly I think there is not a hope of it
We have to live with an imperfect world
That’s what ‘they’ said about almost everything you have campaigned for. That’s what ‘they’ said about Mandela and apartheid. That’s what ‘they’ said about Ghandi and the British Empire. That’s what ‘they’ said about the suffragettes and women’s rights.
You say ‘there is not a hop of it’. I say ‘there is not a hope of progress without it’. If it’s the only way forward, then go for it.
We need more unreasonable courageous people (like you).
I’d like to think you’re right
But for now I have to say I do not think global agreement on tax rates possible
I think agreement on tax base more likely and work on that
At the moment we have the weather for a tax haven. But like others I have been in from time to time the interesting thing is what is not there in the economy or public sector. What has gone missing and what goes missing next?
Demetrius
Interesting question!
When we say ‘IP’ we tend to mean ‘IP belonging to those wealthy & well-advised enough to use expensive lawyers”.
If all “IP” were valued, Jamaica would be the richest country in the world.
(I’d love it if every time 2 wealthy youths in Surrey met & said “Like, me bwoy how doing” “so & so, y’know, me bin hanging wi mi man dem”
someone popped up & insisted they pay royalties to Govt offices in Kingston.)