Much of the discussion on \u00a0Scottish independence has focused on the future of the pound. \u00a0I am not going to decry the importance of money: it is obviously of relevance. However, since as a matter of fact Scotland can, if it wishes, use the pound after it leaves the UK, and as a matter of fact its influence over interest rates and exchange rates, \u00a0whether in a monetary union or not, is going to be minimal \u00a0there appears to have been undue prominence given to this issue.<\/p>\n
In that case is that there is a much more important issue that should be right at the heart of the Scottish independence debate, which has been almost ignored to date. This is the issue of taxation and the union. \u00a0Since, as a matter of fact, it is very likely that Scotland will have significantly more control over its taxation affairs in the future, \u00a0whether it is independent or not, this appears to be a considerable oversight, \u00a0especially as it is a matter of some significance to us all whether we north or south of the border.<\/p>\n
Whether or not Scotland votes for independence is yet to be decided. For that reason, right now, I will only consider the situation where Scotland does, in due course, come an independent state. The considerations will be different - and potentially at least as troubling - if devomax follows a No vote, but one blogpost has to limit its \u00a0ambitions.<\/p>\n
The scale of the tax problem facing a new Scotland, and for that matter, a new Rest of the UK (RUK), \u00a0will be enormous in the case of a Yes vote. Some of these will be purely administrative: take for example the fact that quite a lot of tax is administered north of the border \u00a0on behalf of taxpayers in RUK and there \u00a0is an immediate issue to resolve. I do, however, assume that this will be within the capacity of both governments to solve in due course. Of much greater significance other legal, political and policy issues involved.<\/p>\n
No doubt Scotland will, as Ireland did in 1922, inherit existing UK law as its own, with the added advantage in this case that it has already got its own established legal system. However, in quite significant areas the existing UK legal system is dependent upon international agreements. So, for example, will Scotland inherit the benefit of the UK's double tax agreements? If \u00a0not, what will happen? \u00a0Likewise, will Scotland inherit the benefit of OECD membership? \u00a0These are not minor issues: \u00a0they control international financial flows and without answers both the taxation integrity of Scotland, and also its ability to provide answers to individuals and companies resident within it as to how their taxation affairs will work is \u00a0simply unknown.<\/p>\n
Then there is the thorny question of the European Union. In this context is not an issue of whether or not Scotland is, as such, a member, but one of whether or not VAT will apply in Scotland given that this is an EU based tax with \u00a0most of the parameters for it established in Brussels. \u00a0It is known that EU based VAT can be extended outside the EU: \u00a0the UK does this in the case of its customs union with the Isle of Man. \u00a0Without, however, such an agreement with the UK, or in turn with the EU, there would, quite suddenly, be significant barriers to trading across the border with Scotland absent Scottish EU membership, which it appears cannot be taken for granted. I remain surprised that this has not come up in debate.<\/p>\n
It is of special significance if Scotland does want to establish its own autonomy with regard to VAT rates, and there is no reason why it should not. VAT \u00a0is, after all, a major fiscal weapon, as was discovered in both \u00a02008 and 2010. The moment that \u00a0happens \u00a0real trade barriers between RUK \u00a0and Scotland exist. \u00a0How will these be managed? \u00a0How too will the enormous potential for fraud that might result ( as is seen between Northern Ireland and the Republic) be tackled?<\/p>\n
Then there is income tax. Will Scotland want to have different rates? \u00a0Much of the debate about autonomy is focused on granting such powers, but how will they be used? \u00a0Politically it would seem that the demand for greater equality is higher in Scotland than it is in the rest of the UK. Will the tax system be used to deliver this? If so, what sort of information exchange is going to be required between RUK \u00a0and Scotland to ensure that those who are resident in Scotland \u00a0pay higher rates of tax there, if due?<\/p>\n
And, \u00a0just the sake of asking it, \u00a0how will residence between the two states be agreed \u00a0and will domicile have any role to play \u00a0or will this be considered a special case, as it has been in the history of UK and Irish taxation?<\/p>\n
All of which still leaves the \u00a0thorniest question untouched, \u00a0which is corporation tax. We \u00a0know that Alex Salmond wants to reduce Scottish corporation tax rates to rival those in Ireland. This is, with all due respect to him, \u00a0a vain and wholly unproductive policy. \u00a0He has, first of all, to only notice the troubles \u00a0within the Irish economy to realise the difficulties that the resulting financialisation caused it. \u00a0Being a corporate tax haven \u00a0is like \u00a0drifting up the creek without a paddle. Once \u00a0the route is set there is nothing you can do about it: \u00a0you are a captive to its fortunes \u00a0and you have, in effect, given up all your options to a corporate sector that has captured significant \u00a0control \u00a0of your economic policy with any change in the corporate tax rate thereafter being nigh on impossible for fear of being held to ransom by the ever present threat that your oh so friendly tax-driven investors will simply up and leave. Is that what Scotland wants? \u00a0Being held captive by the City of London might be bad enough; \u00a0being held captive by a range of major investors might be no better. \u00a0Being subject to retaliatory \u00a0action for such aggressive tax behaviour might be even worse.<\/p>\n
The fact is that \u00a0we know that tax competition is harmful to the well being of \u00a0democracy, effective government and those who are dependent upon the state for some or all of their well-being: \u00a0that is precisely why those who oppose the power of the state are so keen to promote it. The risk \u00a0is that an independent Scotland may be dragged into tax competition by politicians who know little of tax and who are \u00a0already being beguiled by corporate lobbying. Isn't that worthy of discussion?<\/p>\n
Scotland will undoubtedly, and necessarily, take control of its own fiscal policy if it is to develop any sense of economic autonomy. \u00a0I am the first to say that it should, and would uphold its right to do this, \u00a0within and without the union. \u00a0Equally, however, if ever there was a case of a country needing to set out a case for taxation cooperation to help achieve its goal then Scotland \u00a0should be the prime example. Clarity on precisely where \u00a0its fiscal policy might take it is fundamental if there is to be stability during a period of transition to independence. \u00a0Right now no such vision \u00a0seems to be on offer. \u00a0And that really worries me.<\/p>\n","protected":false},"excerpt":{"rendered":"