Max Teuerman took to this blog last month to criticise George Monbiot’s attack on the government over corporation tax plans. Now the BBC’s Robert Peston has blogged his own long-promised take on the story, saying:
The government seems to be trying to do precisely the opposite of what Mr Monbiot accuses it of doing: it is trying to stem the exodus of companies and their assets abroad.
As Peston explains,
George Monbiot warns that if dividends from overseas branches of multinationals become exempt from tax, that will create an incentive for multinationals to relocate more of their operations to these overseas branches situated in low-tax countries, such as Switzerland, Ireland or Singapore.
But that is to ignore the enormous current incentive for multinationals right now to relocate every single bit of their operations to low-tax countries, irrespective of what happens to the taxation of dividends from branches.
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10 Comments
The race to the bottom continues.
We need a transactional tax on our currency. That way any business that does business here will pay tax on their income at source.
The ability to shift profits across borders simply means multinational businesses can outcompete local ones.
The race to the bottom indeed. Fortunately, Monbiot beats Peston in that race every time.
So we must lower the poor oppressed multinational corporations burdensome taxes, or else!
Taxes should only apply to the little people.
Don’t force the corporations to pay taxes or they will throw their toys out the pram and go elsewhere.
Sounds exactly like a bunch of bankers to me and just as persuasive.
Remind us how much Vodaphone and Murdoch paid in UK taxes again just for starters?
I don’t doubt that Osborne is “trying to stem the exodus of companies and their assets abroad” by indulging in the race to the bottom as Timak observes. But is this the right strategy, or even a sensible strategy? I think not.
Peston begs the question early in his post when he says, “But given that company law obliges company directors to give greatest weight to the interests of their shareholders….” Well, yes, it does – but should it? If shareholders were still more or less real partners in a business it would make sense but nowdays they are the most mobile and least committed of all the groups connected to a company. In the USA recently the averagelength of time that shares are held has fallen to just over 20 seconds. Yes seconds! Should company law really continue to give them pre-eminence?
I recently put it to a small group of died-in-the-wool Tory friends that we should introduce Supervisory Boards for larger companies to improve their management and legally recognise that, over a certain size, companies become national assets and not just a playthings for speculators. They all agreed this was a good idea. Will we be hearing similar from Cameron and Clegg? Don’t hold your breath; they are sold on the idea that big is beautiful and on the race to the bottom as the only game in town.
Meanwhile, Richard Murphy at Tax Research UK makes other important criticisms. He says, inter alia, that, “This is the dismantling of the central avoidance process at the heart of UK corporation tax and that the supposed £100 million cost is mumbo jumbo. The real cost will run to billions.
He also points out that this will create a tax regime where individuals the great majority of small businesses will pay tax on world-wide income at an effective higher rate than big multinationals. Is there a matching proposal to re-level the playing field for small businesses (Remember them? They were supposed to be the engine of job creation) at the new lower level? Again I’m not holding my breath.
http://www.taxresearch.org.uk/Blog/2011/02/22/facing-paxman-and-why-this-corporation-tax-reform-is-so-important/
It used to be that liberals instinctively sided with ordinary people against powerful elites. They must put something in the water in Westminster that prevents such thoughts.
@timak
‘We need a transactional tax on our currency. That way any business that does business here will pay tax on their income at source’
yes indeed. Given that London is the largest centre of f/x transactions why do you think any non UK firms would do f/z deals in london and pay a transaction tax ?
Peston rightly rejects Monbiot’s hyperbole, but concludes that George is quite right in pointing out that these changes amount to a £100m tax cut for big business (mainly, banks) at a time when the rest of us are being bled dry. Time will tell just how much this tax cut amounts to. Peston gives Barclays as an example of a company which will benefit – heck they REALLY need a tax break right now, don’t they?
“In the USA recently the averagelength of time that shares are held has fallen to just over 20 seconds. Yes seconds! ”
That’s an astonishing enough claim to ask if there is a source?
Many of the critics of the Government’s approach sem to miss one of the main points of Peston’s article – that most of the tax revenue generated by companies is not through Corporation Tax, but through all the other taxes they pay before arriving at their net profit.
This includes the income tax and NI paid by their employess, business rates on any premises, VAT etc.
All of these are much harder to avoid than Corporation Tax.
It therefore makes a lot of sense to concentrate on maximising the income from these taxes, even if it is balanced by a slightly lower rate of CT.
I understand why people are annoyed about bankers getting bonuses, for example, but from a tax revenue perspective, bigger bonuses and lower net profits means more tax.
@ Hywel,
Yes, the source is Prof Michael Hudson in this interview. The relevant bit starts at about 10:30 minutes in but the whole is well worth watching with much for liberals to like.
http://michael-hudson.com/2011/01/why-america-had-a-90-income-tax/
I forgot to say that behind this amazing statistic is that share trading in the USA is now dominated by computer-driven High Frequency Trading done to exploit the smallest fluctuations in price on the shortest timescales, making only fractions of a pennny per share but over huge volumes – hence the short holding time.
Needless to say all this has everything to do with a casino and nothing whatsoever to do with investment or capital allocation in the real economy which are the proper purpose of the capital markets.