REPORTS THAT the UK’s second largest drugs group Astra Zeneca and one of its biggest advertising groups WPP are contemplating following the third biggest UK drugs company Shire and the publisher United Business Media into Irish tax exile can rightly be seen as another feather in the cap of the IDA.
While the growing exodus of UK firms to jurisdictions with more favourable tax regimes arguably has much to to do with a number of policy missteps by the UK authorities, it is also an endorsement of our increasingly tax driven approach to attracting foreign investment. None of these new arrivals will create significant numbers of new jobs. But there will be valuable spin-off benefits in the services sector and of course very welcome corporation tax receipts.
The mouths of gift horses are generally best left unscrutinised. However, there is a need to sound a note of caution and look at the wider context of this latest trend. The first and obvious point is that the UK is not going to simply stand back while its blue chip companies decamp to Dublin. Alistair Darling, the increasingly hapless chancellor of the exchequer, has already ordered a review of the competitiveness of the UK’s tax system on foot of fears that the trickle of companies departing the UK could become a flood.
It is equally naive to think that companies moving their domicile here, or threatening to move here, will not do an about face if the UK makes the tax changes they seek. Indeed, the legal structures being put in place by the companies that are coming here, would easily facilitate such reversals. The Government would then come under pressure to offer further concessions to retain the new arrivals. This, of course, would represent exactly the sort of counter-productive and debilitating tax tourism that the advocates of tax harmonisation cite as evidence to support their arguments for common European tax rates.
Ireland and the UK are the most trenchant opponents of such moves, opposing even the smallest efforts towards agreeing on what base corporate tax should be levied, never mind at which rates. Nothing would suit the proponents of tax harmonisation better than to see the Irish and British governments played off against each other by tax shopping UK corporations seeking to maximise their profits.
Shire, UBM and their peers are welcome but the short-term gain must be weighed against the possible long-term cost.