9 Feb 2011

The UK governments corporation tax reform plans

Today's Guardian has an incredible commentary from George Monbiot describing the UK governments plans for corporation tax reform. It's called "To us, it's an obscure shift of tax law. To the City, it's the heist of the century".

The story is mind blowing. Here's his summary:

  • At the moment tax law ensures that companies based here, with branches in other countries, don't get taxed twice on the same money. They have to pay only the difference between our rate and that of the other country. If, for example, Dirty Oil plc pays 10% corporation tax on its profits in Oblivia, then shifts the money over here, it should pay a further 18% in the UK, to match our rate of 28%. But under the new proposals, companies will pay nothing at all in this country on money made by their foreign branches.
  • Foreign means anywhere. If these proposals go ahead, the UK will be only the second country in the world to allow money that has passed through tax havens to remain untaxed when it gets here. The other is Switzerland. The exemption applies solely to "large and medium companies": it is not available for smaller firms. The government says it expects "large financial services companies to make the greatest use of the exemption regime". The main beneficiaries, in other words, will be the banks.

This is indeed terrifying news. I just downloaded the document on corporate tax reform that George Monbiot cites in his blog.
It really does contain things like (on page 88)

2.16 The Government will extend the opt-in exemption regime for large and medium companies to all countries and territories, including those with which the UK has no tax treaty. The Government notes that this goes beyond the foreign branch exemption regimes of many other countries.

What on earth can we do? Well, apparently the government is currently in a phase of consulation about the taxing of foreign branches, and the closing date for comments is the 11th of February.
The document invites "interested parties" to reply to the following questions:

  • How well does the draft legislation (to be published shortly on the HM Treasury website) put into effect the policy proposals set out above? 
  • How could the legislation be improved? 
  • What else should it include? 
  • Do you agree that new regime should be available for accounting periods commencing on or after a specified date in 2011?
And says that responses and enquiries should be sent to:

Carol Johnson 
Room 2/E1 
HM Treasury 1 Horse Guards Road 
London SW1A 2HQ 

Alternatively, please email: carol.johnson@hmtreasury.gsi.gov.uk 

Can I suggest that all the interested parties (i.e. UK taxpayers who will have to foot the bill) contact Carol directly to say what they think?

It goes without saying that these reforms almost guarantee that any big bank will be able to get away with paying virtually no tax at all. By some miracle, all the profits will be made offshore.

Given that the Conservative Party currently gets 50% of its income from the City, it is hardly surprising that their policies seem so obviously designed to provide a limitless supply of loopholes to allow the City to avoid paying its share of taxes.

Fortunately, there is a simple and fair alternative - a flat rate financial transaction tax.

1 comment:

  1. Hi Simon,

    I just looked at your paper to propose a 1% transaction tax, which I found via your comments in the Guardian and your blog.

    Brilliant simple idea, but one comment I have without going into too much detail:

    A lot of of the financial transactions would dry up if a 1% tax is introduced. So currently it is worthwhile to trade USD against EUR if there is a difference of up to 1% in rates. But after the introduction of the tax these trades won't happen any more. I suspect the bulk of these FX trades (and Interest Rate Swap trades) fall into that category (less than 1% from buying to selling rate), and FX trading certainly makes up the bulk in value of all financial transactions.

    I am not sure whether that is right, but it makes sense to me, how else do these large volume of FX transactions happen? If you bought something yesterday at 100, and today it is 101, you going to sell it. For each 100 million you trade you make 1 million. I suspect real dealing is more like you buy 100 million a couple of minutes ago at 100.00 and sell it now at 100.01 which would still make you 10,000.

    These trades would not happen anymore after the introduction of the 1% transaction tax, and the value of all transactions would reduce significantly. Maybe to 10% or even less of the current value. Obviously, it would still be worthwhile to go ahead with the 1% transaction tax.

    I am not an economist either, but have you got any economists looking at this? It is certainly worth looking at it in more detail. You probably find an economics student in your university, who would love to take that idea on for a bit of further research.

    Still, a very good idea...