The FT has this morning reported that:
An Obama administration crackdown to stop US businesses pursuing takeovers that let them escape the country's high corporate tax regime was dealt a sharp rebuke on Thursday, after two deals paved the way for more companies to move their domicile to Europe.
In separate transactions, three of Coca-Cola's European bottlers agreed a $27.5bn merger to form the region's largest distributor of Coke products, while fertiliser maker CF Industries acquired assets from rival OCI for $8bn including debt.
Both will create new UK-based companies in so-called tax inversion deals, highlighting corporate America's desire to move its tax base overseas.
It's the last sentence that is key to my argument. Since 2010 George Osborne has created a deliberate, high risk, and extremely aggressive tax competition policy for the UK, using the title Britain Open for Business. The strategy has been based on three key planks.
The first has been to move the taxation of UK based groups of companies from something that approximated to a tax charge on worldwide income to one that very definitely only brings UK source income into tax. A deliberate blind eye is turned to whatever happens elsewhere.
Second, it has been based on the UK's continuing light touch regulation when compared to some other countries.
Third, large company tax rates have been slashed from 28% to a newly announced low of 18%.
The three in combination are classic tax haven behaviour: all tax havens turn a blind eye to whatever happens outside their domain, all have light touch regulation and all use a low tax rate as their calling card.
The trouble is the UK is not some micro state. It is a major economy with a financial services sector that has a proven track record of abuse that is in need for radical reform if it is to stand up to scrutiny. And the UK cannot afford to just skim the cream off the top of profits artificially relocated to be recorded here: we have a real need for corporate tax revenues and as I have shown the UK's approach to corporation tax will cost it £27.8 billion over the next five years - money we cannot, according to the government, afford as we have a deficit to clear in their opinion, and which artificial relocation of a few people working in a head office will not replace.
So what is this all about?
First it is about a dogmatic belief in tax competition.
Second it is about undermining the creation of an international accord on tackling tax abuse, to which lip service is simultaneously being given.
Third, it is about a deliberate policy of increasing inequality, because that is what motivates tax haven governments: there can be no other explanation for their behaviour.
Fourth then it is about a deliberate ploy to shift the burden of tax from capital onto labour.
And fifth, as a result, it is about using the power of elected office to increase private wealth at cost to the state.
In the process it is about engaging in a process of economic warfare to undermine the well-being of supposed partners - which is very clearly how the US will see this.
The consequence is all too obvious: these are actions to increase economic, social and political instability. At a time when there is desperate need for all of them to describe the policy as wrong-headed is to be kind to it. It is not even an act of wanton folly. It is actually an act of aggression for which we might well have to pay a price.
That price will be economic: as the sorry history of Jersey reveals, being a tax haven does not pay and it very definitely does not clear deficits.
It will be social as Cayman reveals when it relies on charity to provide free school meals for its children who live in poverty.
And it will be political: the G7 has put much store on beating tax abuse. If the UK undermines that process the opportunity for cooperation on other issues will be dramatically reduced.
The UK cannot afford tax warfare. Nor can the world. George Osborne is promoting it. We should all be worried.
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“It is a major economy with a financial services sector that has a proven track record of abuse”
Some would say it has a proven record of *criminal* abuse, in many cases amounting to conspiracy to pervert justice.
Nice to see the UK gov is now taking several leaves from the mafia book of accountancy.
The willful blindness of this government is staggering, I have said many times they don’t do detail but to deny even the possibility of consequential damage is negligent. The myopic, short term view Osborne displays is dangerous. Tax havens should not be tolerated.
A huge part of the immigration problem does not start in Calais but in Africa. What has this to do with UK tax policy? An example –
One company, Associated British Foods, used tax havens to avoid Zambian tax. “… we found the company had used tax haven conduit companies to legally avoid enough Zambian tax to put 48,000 children in school. Zambia is a nation where almost half of children fail to complete their education.” Richard Miller, Guardian 14 May 2013 The situation is repeated all over the African continent.
The consequent cost, which is huge, is passed to the ordinary taxpayer elsewhere. When faced with the impossibility of any route out of abject poverty and illness Africans do what any parent would do for their children leave and their homes to find somewhere better. As they migrate their passage stimulates the criminal economy, causes disharmony between nations between peoples. At each stage additional costs mount as navies are deployed, migrant camps are built and legal systems come under pressure.
Obviously the solution is beyond the gift of any single government to provide but I am damn sure that adopting one of the main contributory causes as ‘vital to the national interest’ is delusional and dishonest. Osborne should be making every effort to bring about tax harmony and prosecute those who profit from the misery of others. The stimulation of African markets would give opportunity but is dependent on education and health, on stability of governments. Support for tax avoidance/evasion creates chaos, corruption and ultimately will drop a huge bill in our laps. At which point the corporations will adopt a new national allegiance and leave us to clean up the mess.
https://flipchartfairytales.wordpress.com/2015/08/06/africa-is-getting-richer-so-expect-more-migrants/
“The first has been to move the taxation of UK based groups of companies from something that approximated to a tax charge on worldwide income to one that very definitely only brings UK source income into tax.”
I am amazed at your approach. You have made this false claim before. I have given chapter and verse on the reality. You then simply repeat your falsehood.
To say that UK companies are taxed on only UK source income is just 100% wrong. UK companies are taxed on world-wide income.
And you claim George Osborne is responsible for a major change in group taxation. The change in 2009 to the taxation of dividends received from overseas subsidiaries (which arose from an ECJ ruling and not a move by George Osborne who wasn’t even in power at the time!!) had comparatively little effect bearing in mind that before than credit was given both for underlying tax paid on profits out of which dividends were paid and also any withholding tax.
I can’t work out if you are ignorant or mendacious. Either way the thought that anyone is relying on you for advice on formulating tax policy is rather scary.
Karl
You are blatantly wrong
The whole world knows you are wrong
HM Treasury documents say you are wrong
George Osborne would disagree with you
Read the 2010 Corporation Tax Roadmap
So neither ignorant or mendacious. Just factually accurate
But you are a definite time waster
And further comments from you will head for the bin as a result
Richard
Richard,
It appears you and Karl are talking past each other. You say
“The first has been to move the taxation of UK based groups of companies from something that approximated to a tax charge on worldwide income to one that very definitely only brings UK source income into tax.”
Which is nearly correct – it’s not ‘UK based groups of companies’ that are being treated differently, it’s ‘UK based groups of companies *with controlled foreign companies*’ that are being treated differently – an important difference.
So when Karl says
“To say that UK companies are taxed on only UK source income is just 100% wrong. UK companies are taxed on world-wide income”
he is right – UK companies are taxed on worldwide income.
What’s a Friday without a bit of pedantry?
Darren
You are wrong
And I am right
The changes include the change in treatment in dividends from non-UK companies
I meant precisely what I said
And Karl is just wrong
Richard
If you can show me where UK tax law says that a UK tax resident company is taxed only on UK sourced income I will accept that I am wrong.
But you will not be able to show that because it is not the case.
I reproduce (for a second time) a quote from HMRC’s website.
“If your company is based in the UK, it pays Corporation Tax on all its profits from the UK and abroad.”
So, I think you are wrong and HMRC think you are wrong.
If you think it is wasting your time to be told you are factually wrong it says much, which I hope your legion of currently blind followers will see.
If you choose not to publish this it says much for your intellectual cowardice.
I know all that
And I also know exactly what Osborne and the Treasury have said: by changing the law on CFCs, foreign dividends and offshore Treasury functions they have made sure UK groups are only taxable on UK source income, and issue that has been discussed extensively in international tax literature
Please do not waste your time commenting again
One of Paul Krugman’s ideas that I find less than convincing, is his belief that for a country to have its own currency is an unmixed blessing. I remember back in 1980, at a time of high inflation, Geoffrey Howe and Margaret Thatcher, on the basis of textbook Chicago economics, jacked up interest rates. This might have been a good idea in other circumstances but not when the country had just become self-sufficient in oil. The effect was to cause the pound to leap in value. Overnight good British industries became totally unable to compete, Swathes of the north of the country became industrial deserts.
Relatively recently, the Euro/Pound exchange rate was less than €1.10. Today it is over €1.40. A good German company would have had trouble competing at €1.10 to the pound. A British company may still be doing a good job, but at €1.40 its prices are 30% higher and now it cannot compete.
The Government was crowing about recent GDP figures, but when you look in detail, you can see this beginning to happen. Ironically, the Greek crisis is wonderful news for ordinary German workers. Without it, the Euro would have risen to make their industries uncompetitive. The workers thrive, and it is the German bankers who have sleepless nights.
This is a longwinded way of agreeing with you that the Government strategy is not just irrelevant, it is directly harmful. Indirectly destroying real jobs in favour of financial tourism.
When I was a scientist working on DNA damage, there was a strange phenomenon called the radiation bystander effect. When an alpha particle hits a cell, it releases so much energy that the cell is completely destroyed. But surprisingly, neighbouring cells which have not received radiation are also killed. Perhaps the bystander effect could transfer usefully to economics.