A peace pact in the race to cut company tax
The global arms race has been replaced by a corporate tax race. Countries call for disarmament while building up their armouries.
Britain is the worst offender. It led the calls for a level international playing field on corporation tax to stop multinationals from choosing where to pay tax. However, the UK is also leading rates down to attract foreign groups to Britain.
The OECD international finance forum has, under pressure from Britain, come up with a shopping list of measures to prevent countries competing to win multinationals. It proposes closing loopholes, limiting the use of tax havens and greater transparency – particularly by forcing multinational companies to detail their revenues, profits and tax paid on a country-by-country basis.
That will show how much multinationals earn in Britain and how much tax they pay in Britain. But with UK corporation-tax rates set to fall to 20 per cent in 2015 – a rate beaten in developed countries only by Ireland – Britain will be collecting taxes from companies who prefer to pay its low rates rather than pay the expensive tax rates in the countries where they earn their profits.
This year the merged Fiat/Chrysler chose to register the enlarged company in the Netherlands rather than Italy or the US – but to locate its tax domicile in the UK. Pfizer, the American drugs giant, was prepared to swap its US base for Britain to save tax. That’s how good a tax haven Britain now is.
Britain led the corporation-tax race but other countries are now cutting their rates to compete. Just as countries used to increase their stock of nuclear arms to beat rival nations, only to see those other countries increase their armouries to maintain equality at a higher level, low tax rates everywhere maintains the status quo while generating less revenue for all.
Low company taxes may seem a blessing for local companies, but if low rates mean less tax revenue for government, the shortfall has to be made up from elsewhere. That’s why Britain is now threatened with mansion taxes, high income-tax rates and other ways for the state to raise revenues.
