So the pro-corporation, anti-society coalition government is proposing changing the tax code to give corporations the largest single tax break in British, perhaps global history.
The basics are fairly simple. At present corporations domiciled here pay UK Corporation Tax on profits earned offshore at the difference between the Corporation Tax of the offshore location and the Corporation Tax in the UK.
So for a simple real world example lets say that a UK based corporation earns £100 m in Ireland.
The Respective Corporation Tax Rates:
Ireland: 12.5 %
Amount of Tax Paid:
Ireland: £12.5 million
UK: £10.5 million
Total Tax Paid: £23 million
This is an intrinsically fair system both jurisdiction gets the Corporation Tax rate it sets; if the rate was higher in the foreign jurisdiction then no tax would be due here in the UK.
The UK corporation can also offset the costs of the foreign offices, etc, against the tax due to be paid here. So in effect the foreign income is treated exactly like income earned here in the UK. All seems fair right?
So what are the Proposed Changes?
They’re radical so make sure you’re sitting down. Basically our coalition government is proposing that UK corporations no longer have to pay any tax on income earned abroad.
So in this example we’d go from earning £10.5 million to a big fat zero.
In fact it’s worse than that. They’re still allowing the corporation to offset the cost of their foreign earnings against the tax they pay here on their UK earnings. So we will actually lose money.
How I ask is this in our interest? A few corporations might stay in the UK?
Is it done anywhere else in the world? Not even in Republican States in the US.
So what are they telling us?
It’s a small tax change.
The Treasury estimates it will only cost £100 m a year in lost revenues.
But I ask will it end there?
As a business owner myself I deeply doubt it.
For further discussion on this see this excellent segment from Newsnight a couple of weeks ago featuring Richard Brooks, Richard Murphy and Chrystia Freeland.