David Cameron is planning ‘the biggest and crudest corporate tax cut in living memory’ and the banks will be the main beneficiaries, the Guardian columnist George Monbiot claimed yesterday, in a comment piece that has already attracted more than 1,000 comments on the newspaper's website.
‘The latest heist has been explained to me by the former tax inspector, now a Private Eye journalist, Richard Brooks and current senior tax staff who can't be named,’ Monbiot wrote.
Companies based here, with branches in other countries, are not taxed twice on the same money, he said.
‘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.’
If the proposals go ahead, he said, 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 main beneficiaries will be the banks, and the exemption will not be available to smaller firms, Monbiot added. Treasury guidance indicates that the smaller firms will not be excluded – but they will not make use of the exemption simply because they do not tend to have foreign branches.
Nicholas Shaxson, author of ‘Treasure Islands: Tax Havens and the Men who Stole the World’, proclaimed on the Tax Justice Network’s blog that this was ‘big, big news’, adding that ‘we hope that the likes of UK Uncut, and TJN in the UK for that matter, get stuck into this one’.
Consultation on reform of the taxation of foreign branch profits closes today. UK resident companies are liable to corporation tax on all their profits wherever they arise, including profits of foreign branches. Draft legislation, earmarked for the Finance Bill to be published next month, exempts the profits of foreign branches of UK resident companies from corporation tax.
The measure is expected to have ‘a steady state cost of £100 million a year’ by 2014/15, according to the Treasury's consultation paper. The final costing will be subject to scrutiny by the Office for Budget Responsibility.
‘Companies opting into the exemption will benefit from a reduction in tax, where the profits of their foreign branches would otherwise be subject to UK tax for the difference between the tax paid in overseas territories and the UK tax,’ the Treasury said.
This will achieve greater consistency of tax treatment with overseas subsidiaries,’ it said, following the introduction in 2009 of an exemption for dividend income from foreign subsidiaries.
The government expects large financial services companies to make ‘the greatest use’ of the exemption. The measure 'supports the government’s objective to deliver a more competitive corporate tax system, in line with its aims to move towards a more territorial corporate tax system,’ the Treasury added.
There will be rules to prevent ‘abuse whereby profits that would otherwise remain within the charge to corporation tax are diverted to an exempt foreign branch’.
But Monbiot said the new exemption ‘will create a powerful incentive to shift business out of this country’, into nations with lower corporate tax rates.
‘Any UK business that doesn't outsource its staff or funnel its earnings through a tax haven will find itself with an extra competitive disadvantage,’ he argued. 'The new rules also threaten to degrade the tax base everywhere, as companies with headquarters in other countries will demand similar measures from their own governments.’
‘Monbiot is exactly right,’ said Richard Murphy, director of Tax Research UK. ‘This is an enormous and deliberate tax heist, unavailable to small companies.’
David Cameron is planning ‘the biggest and crudest corporate tax cut in living memory’ and the banks will be the main beneficiaries, the Guardian columnist George Monbiot claimed yesterday, in a comment piece that has already attracted more than 1,000 comments on the newspaper's website.
‘The latest heist has been explained to me by the former tax inspector, now a Private Eye journalist, Richard Brooks and current senior tax staff who can't be named,’ Monbiot wrote.
Companies based here, with branches in other countries, are not taxed twice on the same money, he said.
‘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.’
If the proposals go ahead, he said, 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 main beneficiaries will be the banks, and the exemption will not be available to smaller firms, Monbiot added. Treasury guidance indicates that the smaller firms will not be excluded – but they will not make use of the exemption simply because they do not tend to have foreign branches.
Nicholas Shaxson, author of ‘Treasure Islands: Tax Havens and the Men who Stole the World’, proclaimed on the Tax Justice Network’s blog that this was ‘big, big news’, adding that ‘we hope that the likes of UK Uncut, and TJN in the UK for that matter, get stuck into this one’.
Consultation on reform of the taxation of foreign branch profits closes today. UK resident companies are liable to corporation tax on all their profits wherever they arise, including profits of foreign branches. Draft legislation, earmarked for the Finance Bill to be published next month, exempts the profits of foreign branches of UK resident companies from corporation tax.
The measure is expected to have ‘a steady state cost of £100 million a year’ by 2014/15, according to the Treasury's consultation paper. The final costing will be subject to scrutiny by the Office for Budget Responsibility.
‘Companies opting into the exemption will benefit from a reduction in tax, where the profits of their foreign branches would otherwise be subject to UK tax for the difference between the tax paid in overseas territories and the UK tax,’ the Treasury said.
This will achieve greater consistency of tax treatment with overseas subsidiaries,’ it said, following the introduction in 2009 of an exemption for dividend income from foreign subsidiaries.
The government expects large financial services companies to make ‘the greatest use’ of the exemption. The measure 'supports the government’s objective to deliver a more competitive corporate tax system, in line with its aims to move towards a more territorial corporate tax system,’ the Treasury added.
There will be rules to prevent ‘abuse whereby profits that would otherwise remain within the charge to corporation tax are diverted to an exempt foreign branch’.
But Monbiot said the new exemption ‘will create a powerful incentive to shift business out of this country’, into nations with lower corporate tax rates.
‘Any UK business that doesn't outsource its staff or funnel its earnings through a tax haven will find itself with an extra competitive disadvantage,’ he argued. 'The new rules also threaten to degrade the tax base everywhere, as companies with headquarters in other countries will demand similar measures from their own governments.’
‘Monbiot is exactly right,’ said Richard Murphy, director of Tax Research UK. ‘This is an enormous and deliberate tax heist, unavailable to small companies.’
