Tax row prompts corporate exodus
Following the furore over non-doms and capital gains tax, the Government has been warned that it faces an exodus of companies moving to lower tax regimes.
Disgruntled firms have been lining up at the door: last month Shire announced a move to Ireland (where corporation tax is 12.5% as opposed to 28% here) and United Business Media soon followed. Advertising giant WPP, fund group Aberdeen Asset Management and Brit Insurance are considering leaving, with the latter citing the high corporation tax rate and the Treasury’s recent proposals for taxing foreign profits.
What this fuss is about
The proposed changes in this area, which the Government is now reviewing along with business, will exempt foreign dividends paid to large and medium UK businesses from British tax. But the Treasury also hopes to clamp down on abuse by taxing UK assets that have been sited abroad purely to reduce tax; it is concerned, for instance, that intellectual property such as a patent may be developed here and then registered in a low-tax country to minimise the tax payable on the income it generates, said Robert Peston on BBC.co.uk.
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In short, said Siobhan Kennedy in The Times, this gives the Treasury “carte blanche to rake in taxes on any foreign income, regardless of whether it would ever be remitted to the UK”. Martin Sorrell of WPP reckons the proposals as they stand would cost WPP “very very significant sums of money”.
The main problem
Still, the overriding theme is not so much taxation as uncertainty thanks to “obsessive Brown/Darling tinkering”, said Neil Collins in the Evening Standard. The “constant drizzle” of new rules wastes executive time and undermines long-term business planning.
The emphasis on crackdowns doesn’t help either since the tacit message is that “all businessmen are on the fiddle”. The threat of a tax exodus, said John Whiting of PricewaterhouseCoopers, has become “a big issue, and it’s not going to go away”.
