Wake up Britain. You are a #TAX Haven too!!!

Let’s just pause for a moment: #Tax avoidance talk is all the rage at the moment…

In order to redress the balance of negative sentiment, combined with a political(ly) charged environment with electioneering by all major political UK parties posturing new populist policies (say that fast a few times); we thought it a good idea to put a little perspective on the matter of #Tax avoidance (tax planning we prefer to call it).  Remember this is #Election2015 coming up on 7 May 2015.

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So HSBC bank (more specifically the Swiss subsidiary of their Private Banking arm) got themselves into difficulty over the past couple of weeks with the BBC Panorama programme revelations as reported by Richard Bilton.
Accused of large scale collusion on tax avoidance or even evasion practices, the liberal and politically left leaning media in the UK have quite rightly got themselves embroiled in a multi-layered debate from both tax avoidance and the morals thereof to standards of editorial judgement, when corporate advertisers are the subject of negative headlines (the Daily Telegraph).
However, to grab a headline back for ourselves (and balance the debate):
Britain, wake-up, you are a corporate TAX Haven” and to cap it off, you are not that popular with other higher taxing G8 jurisdictions.
The overall corporation tax environment in the UK has significantly improved if you are considering a Foreign Direct Investment (FDI) route into the UK over the life-time of this last Conservative-Liberal Democrat led parliament.
 world-tax-haven
With corporate tax rates for both small and large enterprises almost aligned at 20% and 21% respectively from April 2014 onwards, for net profits assessable to corporation tax, the UK is one of the lowest corporate tax regimes in the G20 club.
What are the implications of this?
More FDI is attracted to the UK and therefore the potential to create more jobs and reduce the dependency on government handouts reduced.
What has not yet happened though, is that the tax receipts from corporations subjected to corporation tax in the UK increased significantly.  This is partly due to timing issues; Capital and Investment allowances reducing the overall tax take and further aggressive tax avoidance activities by these Multi-National Corporations (MNC).
English: Tax rates around the world: VAT rate/...
Tax rates around the world: VAT rate/G&S Tax rate (the highest rate) by countries (Photo credit: Wikipedia)
On the whole the average effective corporation tax rate actually paid in the UK is therefore less than the 21% head line rate for large businesses with profits over £300,000.  This is due to the cash tax rate paid by corporations being reduced by capital allowances and research and development credits bringing down the effective rate paid as a percentage of the net profit assessable to corporation tax to well below 21%.  These legitimate reductions are known as reliefs.
For a fuller and official explanation of the UK corporate tax system and reliefs available, we suggest a quick glimpse at HMRC site at this address:  https://www.gov.uk/corporation-tax-rates/rates
PwC put together a league table of effective (most attractive to least attractive jurisdictions on that is called “international tax competitiveness”.  In 2014 the UK ranked 16th, with only Ireland and Denmark, (two fellow EU member states) beating the UK from the EU member state block.
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We will continue to develop this theme over the next few weeks leading up to the general election in the UK.
theMarketSoul © 2015
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PS. To balance our views, please refer to some of these articles for your further reading:

theMarketSoul ©1999 – 2010 Ventures an opinion on the ‘Economics of Taxation’

[All names and references to places in this post has been changed, so as to protect the innocent bystanders]

 

Cracking down on ‘Tax Havens’ became a stated objective of the G20 last year during one of the meetings held during 2009.

This image was selected as a picture of the we...
Image via Wikipedia

Lets us keep the argument very simple and divide the world into two colours namely magnolia and chocolate brown (close enough approximation of two other colours normally used in arguments), or rather more accurately the regulated world and the unregulated world.

If it is regulated, it moves slowly, is a target and gets nailed very quickly.  The credit quake of 2008-2009 resulted in the implosion of this world, which today moves even slower, with a catastrophic collapse in taxable revenue and actual tax take an unfortunate consequence.

So, as our hypothetical magnolia world has ceased up almost completely, the G20 thought it right and proper to start targeting the chocolate brown world.  This is the ‘dynamic underground’ of slush funds, oiling the cogs of industry, money laundering, crime, drugs, terrorism and anything that moves outside of the regulated world arena.  Apparently this world is alive and well, with cash sloshing around the system that unfortunately does not hit the regulated world’s sides and filters, and is therefore not siphoned off as ‘direct’ tax flows and revenues.  If your jurisdiction has indirect taxes, then this cash does get siphoned off, as goods and services are also consumed by the chocolate brown world.

Now if you view these two worlds as two balls or circles, the magnolia one is shrinking and the chocolate brown one is growing in size.  So the question really becomes this:  Which one do you attack?  How do you appease the populist vote?  For one of the choices is:  “Tax ‘em to death”, because you are already taxing ‘em pretty harshly! (Those living in the magnolia space).  Alternatively, you grab the populist media’s h(d)eadlines and attack Tax Havens with the natural association of the chocolate brown world with ‘dirty’ cash.  This way you score two potential hits:

(1)    Populism on your home turf and

(2)    capital flight from tax havens.

This is a great tactic if you believe that the ‘Economics of Taxation’ mean that you either tax the flows of money or the stock of money (capital and other ‘fixed’ forms of property).  Flows of money include indirect taxes and maybe this scare-mongering’ tactic does encourage capital movements between jurisdictions, however, as a general approach and tactic to attack Tax Havens, I believe this is doomed to fail.

English: Map of tax havens, using the 2007 pro...
Image via Wikipedia

Tax jurisdictions, fiscal policy and ‘one-upmanship’ is a national and international ‘sport’.  Therefore, we can’t have the big boys and girls getting upset at the little boys and girls, just for trying to scrape together a few crumbs off the BIG table, in order to survive, can we?  A sense of fairness and a measured and proportionate response is definitely called for in this so-called ‘war on tax havens’. Or am I wrong on this call?

 

theMarketSoul ©2010