The Chancellor of the Exchequer Philip Hammond said in an interview with the German newspaper Die Welt at the weekend that if economic circumstances prevailed against the UK, he would be 'forced to do something different' in terms of tax policy. It seems this was a prologue to Theresa May clarifying the UK position on the single market and customs union today, with hard or ‘clean’ Brexit looking to be on the cards.
Doing something different could mean cutting tax rates, but the UK has done that anyway. It could mean changing the way reliefs are given, but tax needs to be raised somehow. There are some areas of the UK tax system, including UK-to-UK transfer pricing, that were brought in to ensure the UK tax code was compliant with EU principles and that could be scrapped post-Brexit, but the key point is that the UK will in principle have more policy choice.
Some reports have interpreted the Chancellor’s comments to mean that the UK could become a tax haven post Brexit, but does anyone know what a tax haven really is? Within continental Europe, low tax effective rates have historically been available, although the OECD BEPS project seeks to address this, via clamping down on harmful tax practices for example. The point is that although the headline rate might look high, if the tax base can be too easily reduced then the effective rate comes down.
Last week the Dutch deputy prime minister was reported as stating that the Netherlands would block any future EU trade deal with the UK unless the UK signs up to tough tax avoidance regulations preventing it from becoming an attractive offshore haven. However, the Netherlands is one of the countries under investigation by the European Commission for what is essentially tax base erosion – doing so-called sweetheart deals with multinationals – and is itself considered a tax haven by some. Is this a race to the bottom for profits taxation which no-one wants to admit?
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