The United Kingdom is unlikely to try to lure investment by becoming a tax haven after it leaves the EU, according to an internal memo by the Organisation for Economic Co-operation and Development.
The head of tax at the OECD said the UK could use its freedom from EU rules to slash corporate tax but the political price would be high. The idea has been raised by some accountants and policy experts since the country voted to leave the bloc.
"The negative impact of the Brexit on UK competitiveness may push the UK to be even more aggressive in its tax offer," the OECD's head of tax, Pascal Saint-Amans said in the memo.
Political barriers
“A further step in that direction would really turn the UK into a tax haven type of economy,” he said, adding that there were practical and domestic political barriers to doing this.
The OECD declined to comment on his memo, dated June 24th, and one written soon afterwards, on the outlook for VAT in the UK.
The UK is already cutting its corporate tax rate to 17 per cent, compared to an average among other OECD members of about 25 per cent. It has also introduced tax breaks that allow firms to pay lower rates on some income and no tax on earnings from tax haven subsidiaries.
To improve its appeal to businesses, the UK would need to significantly cut its tax rate or introduce a system of “generous” tax rulings, the OECD said. Outside the EU, it could selectively offer foreign investors one-off tax deals – something prohibited by EU law.
Hard sell
Corporate tax avoidance has risen to the top of the political agenda in Britain in recent years, following revelations about the complex tax structures used by big companies like
Starbucks
and
. That may make further tax leniency a hard sell to the British public.
“The mood of the people is certainly not about giving more benefits to large MNEs (multinational enterprises),” Saint-Amans wrote in the memo, circulated to senior OECD officials.
He also noted that the UK might not be able to afford to cut its tax rates much due to pressure on public finances.
However, the OECD said the UK “might now consider reviewing its domestic rules to remove the VAT burden on its financial services industry”.
– (Reuters)
