George has got his dream: the UK is now a tax haven
Richard Murphy explains what the latest corporate takeover says about tax haven UK.
In February 2006 George Osborne went to Ireland and gave a speech with one very simple message: “Ireland’s got Google because of low tax rates and we need to do that in the UK.”
Just as he said he would, George has reformed a great deal of UK corporate taxation to not just mimic Ireland, but to seek to outdo it as a tax haven.
To this end the Chancellor made a number of significant changes:
He has cut tax rates. Enormously.
He has revelled in the creation of what is effectively a territorial tax system for companies which ensures that no UK-based multinational pays tax in the UK on income arising to it from outside this country (if it has structured its affairs with that goal in mind).
He has also overseen the effective dismembering of the UK’s controlled foreign company regime, which was originally designed to prevent tax haven abuse by UK-based multinational companies. His aim here was to eliminate the possibility that intellectual property, managed for tax purposes sources outside the UK, could be brought into the UK tax charge.
This was coupled with the creation of the ‘patent box regime’ which has enabled companies to apply a lower rate of corporation tax to profits earned from patented inventions and innovations.
You can add to this his own special regime for group treasury operations based outside the UK in which profits from loans to overseas companies are taxed in the UK at 5% (unless those profits have been exempted).
You would think that George’s aim was to make sure that no large company should pay tax in this country, even if they might elsewhere.
It has worked: just look at Barclays’ recent announcements on its global taxes with barely a penny paid here but rather more elsewhere.
The aim was summarised in that 2006 speech:
“So the low business tax rates generate strong revenues for the Irish exchequer, from the added prosperity and higher income tax paid on the more and better jobs. That in turn encourages the formation of ‘clusters’ of industrial expertise which stimulate progress and innovation in those industries, leading to more economic growth. And in a world that is increasingly knowledge-driven, that kind of growth is absolutely fundamental to long-term prosperity.”
It so obviously worked for Ireland, didn’t it? It’s as if George never noticed the subsequent crash and continued, helterskelter, to import the idea wholesale into the UK.
And so let’s move to 2014. In July the Financial Times reported:
“[US pharmaceutical company] AbbVie has sealed its proposed £32bn takeover of Shire, the UK-listed speciality pharmaceuticals company, in one of the biggest deals so far to involve a US company shifting its tax residence overseas... AbbVie said that, while its administrative headquarters would remain in Chicago and its listing in New York, the merged entity would be incorporated in the Channel Island of Jersey and have its tax residence in the UK.”
In 2008 Shire left the UK for tax purposes. Then the object was to avoid any chance of UK tax arising under proposed changes to controlled foreign company laws by the then Labour government, changes that might have hit companies with substantial intellectual property (like Shire) hard. Labour did not have the courage to put through those changes that are still so obviously needed to tackle international tax abuse. But Shire left for Ireland anyway.
And now it’s on its way back for tax purposes. It will use Jersey to save stamp duty. And tax haven UK does very nicely for all other purposes.
Welcome to tax haven UK – the place that turns a blind eye to profits made anywhere in the world, while none ever seem to arise here either. This is just the wondrous world of tax that George set out to create. You have to say, he’s succeeded in what he promised in Ireland, but at cost to us all and to many other nations on earth as well.
This and other blogs by Richard Murphy are available at www.taxresearch.org.uk