German companies unconvinced by Brexit tax reduction promises: study

BERLIN, Sept. 27 (Xinhua) — German companies are highly sceptical that the British government can deliver on a promise to attract more business to Britain by lowering taxes after Brexit, a study published on Thursday by the Foundation for Family Business in Germany and Europe found.

According to the study, only 11 percent of German companies with commercial links to Britain believe that benefits from a lower corporation tax would outweigh the disadvantages of leaving the European Union (EU). The findings were based on a representative survey of 1,250 businesses conducted by the Ifo institute for economic research on behalf of the Munich-based lobby group for family-owned enterprises.

Policymakers in Britain have pledged to intensify tax competition with other countries as a means to offset the adverse economic effects of giving up its membership of the EU single market. “My message today is that a post-Brexit Britain will be unequivocally pro-businesses”, British Prime Minister Theresa May recently said at a business forum on the sideline of the United Nations (UN) general assembly.

“So let me say this bit very clearly. Whatever your business, investing in a post-Brexit Britain will give you the lowest rate of corporation tax in the G20”, she added.

In the meanwhile, German Finance Minister Olaf Scholz (SPD) has urged companies in his own country to intensify their preparations for a “no-deal scenario” in which Britain crashes out of the EU without an agreement on its future relationship with the bloc.

A recent summit of European leaders once again failed to produce a much-needed breakthrough on the key question of how to prevent the erection of a hard border in Northern Ireland, prompting an emergency meeting between EU officials in Brussels on Wednesday to determine which concrete steps to take in response to a disorderly Brexit.

Even if Britain somehow still succeeds in persuading Germany and other EU nations of the benefits of the Chequers deal preferred by May in time for it to be ratified by March 29, the model would not address concerns voiced by many British-based banks whose service-sector activities are not covered by the agreement.

As a consequence, these firms are now highly likely to lose their current “passporting” rights to conduct financial business in across the members of the EU as of next year.

Speaking to Xinhua on Thursday, Thiess Petersen, senior economics expert at the Bertelsmann Foundation, predicted that such economic disruption following Brexit would lead to a rise in the cost of bilateral trade between Germany and Britain.

“German exports (to Britain) will fall as a consequence, and intermediate goods imported from Britain by German companies will simultaneously become more expensive”, Petersen said. He noted that the development would lead to a loss of competitiveness among affected firms, especially in the automotive industry which was characterized by close German-British links in its global value chain.

Additionally, Petersen pointed to a likely further decline in the value of the pound in the event of a no-deal scenario as an important reason why German companies did not feel re-assured to expand their British activities by promises of lower corporation taxes there. Sterling’s anticipated fall would hereby be mirrored in a corresponding re-valuation of the euro, leading to a “further deterioration of export opportunities” to Britain.

As a consequence, Petersen argued that May’s self-declared Brexit pro-business offensive would only appeal to types of enterprises which were primarily targeting British sales with a more localized commercial model. However, firms to whom this circumstance did not apply, would probably still shun Britain in the future in spite of a potential reduction in their fiscal burden.

“If the United Kingdom is seen primarily as a location for production, from which goods and/or services should be sold across Europe, it makes no sense (to move to Britain after Brexit). To the contrary: In this case a relocation from the United Kingdom to Germany or another EU country would be sensible”, Petersen said.