UK: Britain is a corporate tax haven – that's why US firms are keen to uproot
03 July 2014
Posted by: Author: Phillip Inman
Author: Phillip Inman (The Guardian)
Destination Maternity, the US baby clothes business, wants to take over Mothercare to halve its corporation tax burden
A country's tax regime has a clear impact on where international companies choose to locate; and not just the main corporation tax rate. Simple inducements, such as enterprise zones and low taxes for top earners can swing the decision in favour of one country over another.
Destination Maternity, the US baby clothes business seeking to swallow Mothercare, wants to escape the US's 40% corporation tax rate. The UK is attractive because Mothercare is not only a struggling business and therefore cheap to buy, but also because Britain has worked hard to become one of the lowest tax jurisdictions in the G20.
George Osborne has argued that all the Treasury's tax incentives are concerned with creating jobs and "genuine business investment", but he has been unable to escape accusations that Britain is now increasingly attractive to foreign companies after becoming one of the world's largest and most sophisticated tax havens.
A survey by PwC earlier this year revealed that 63% of the 1,344 chief executives surveyed worldwide put government tax policy high on the agenda when choosing where to operate their business.
Decades of tax competition have seen internet retailers like eBay opt for Luxembourg, software firms like Google and Facebook congregate in Ireland, while the major US multinationals like Coca Cola and McDonald's have chosen to operate from Switzerland's many low tax cantons.
Successive British governments have tried to compete for some of this business, most obviously by cutting the main rate of corporation tax from 30% in 2007 to 21% today and 20% next year.
Chris Morgan, head of tax policy at KPMG, said this move, along with a raft of other measures designed to attract the bigger international players has spurred investment and protected jobs.
He cited the patent box, which cuts the effective rate of corporation tax on income from patents to 10%, as another boost to foreign investment
Osborne has made no secret of his mission to develop the most competitive tax system in the G20. His so-called "corporate tax road map" also involves simplifying controlled foreign company legislation, which ends the double taxation of profits and at the same time arguably makes it easier to switch profits to low tax jurisdictions.
In Paris and Berlin, officials have watched with dismay as Britain has on the one hand talked tough on tax avoidance and on the other sought to compete with low tax countries.
Maria Fekter, the Austrian finance minister, spoke for many continental leaders when she attacked the UK for wanting an end to her country's bank secrecy laws while it maintained "many money-laundering centres and tax havens in its immediate legal remit".
A recent investigation by Reuters appeared to confirm that several firms have moved to the UK, but only to pay less tax.
Company filings show that Rowan, a huge operator of drilling rigs valued at $4bn (£2.33bn), cut its effective tax rate to 3.3% in 2013 from 34.6% in 2008 after domiciling in the UK but keeping its HQ and management in the US.
Tax campaigner Richard Murphy points to figures from the UN Conference on Trade and Development showing foreign direct investment into Britain fell 19% last year to $37bn despite a 9% rise in global flows. He said: "Far from attracting more money, less money has come than before. But the cost has been enormous. I have estimated that this policy of tax rate and tax base cuts may cost the UK up to £10bn a year."
This article first appeared on theguardian.com.