Thursday, March 24, 2011

Osborne's Corporation taxes

In the Budget, Osborne cuts corporation tax by 2%, from 25% to 23%.

His aim of course is to attract business here, and in a smoothly choreographed movement, Martin Sorrell, chief of WPP advertising, announces that he may return to the UK. Just like that. Amaazing. WPP's subsidiary had an interest in Imago, who did work for Robert Mugabe in 2008.

There is an interesting wrinkle here:

Corporations have the status of legal personality.  "Legal personality allows one or more natural persons to act as a single entity (a composite person) for legal purposes. In many jurisdictions, legal personality allows such composite to be considered under law separately from its individual members or shareholders. They maysue and be sued, enter into contracts, incur debt, and have ownership over property. Entities with legal personality may also be subject to certain legal obligations, such as the payment of tax. An entity with legal personality may shield its shareholders from personal liability."

As legal personalities, corporations should be on a tax rate of 50%. Osbore has them on half that, and falling.

Here's a rough list of comparable countries' rates:

Country     %corp tax
NZ           30
Oz           30
USA       15-35
UK          23
Singapore 17
HK         16.5
Eire         12.5

Osborne says of course that if we put up our taxes, the corporations would take off to countries with lower tax rates. Although it is questionable that they could all do this, it is enough of a threat to put a political block on any talk of unilateral setting of corporation taxes at a rate commensurate with their legal status.

Therefore we must press the Government to put the matter of a global corporation tax regime (with closure of tax havens) on the agenda of the G20 meeting in November. This will benefit the entire global economy.

They won't like it. They don't like the taste of cold steel. But it has to be done. Corporations cannot enjoy the benefits of having legal personality without shouldering the responsibility of same.


Corporation law reform


john said...

I can't help thinking this is a red herring since corporations through the big four accountant companies can by sleight of hand shift taxable profits around their 'empire' to anywhere that suits their current purposes, a turnover tax however as the cost of operating in 'our' market would be unavoidable, and if they are unable to turn a profit in our stable political/social environment, well all the more room for those that can.

DocRichard said...

Hi John

I take your point. That's how it operates at the moment. But what would be the point of shifting numbers around their global empire if they were just going to be taxed in the new place?

I have no objection to a turnover tax locally. Is there any reason the two measures cannot be complementary?


john said...

Hi Richard
I feel that having both corporation[profit] tax and turnover tax may be a little draconian, but having a property tax on the assets owned by corporations, at every layer, would be fair. Internationally the implications are too complex to address on anything but a simplistic level, but if the more mature economies ensured the contribution of transnationals, proportionate to their participation less mature economies would be foolish not to follow suit.
I commented previously on another post about tax regimes and couldn't find the words to present my background reasoning briefly, but I just came across this on max kieser
regards john