Speculation is rife in Brussels that the European commission is strapping on its boxing gloves in preparation for another battle over corporate tax avoidance.
In the red corner is Luxembourg’s finance ministry, which has spent the last year under investigation for allegedly setting up sweetheart deals for allowed McDonald’s to receive €1bn from its European operations tax-free.
At the same time, Ireland is preparing to defend its treatment of Apple after being pummelled by a commission report that accused the US mobile phone maker of avoiding €13bn in corporate taxes. Dublin aims to persuade the European Court of Justice that all the tax breaks it offered were fair and reasonable or, if not, then at any event in the gift of a sovereign national government.
It all adds up to a busy time for competition commissioner Margrethe Vestager. She has landed a few punches as part of a Brussels mission to stop corporate taxes going into the dustbin of history.
If her officials have pieced together a watertight case against McDonald’s, it will send a strong message to the legions of US companies based in Ireland or the Grand Duchy that tax is not optional. McDonald’s, it should be said, denies any wrongdoing, while Luxembourg said the fast food group had not received preferential treatment.
Without a crackdown on the biggest avoiders, the current system of taxing corporations risks becoming a bad joke.
Only last week, the rich nations’ thinktank, the Organisation for Economic Cooperation and Development, said eight of the top industrialised nations had cut corporation tax rates last year or said cuts were imminent. The Paris-based organisation named Japan, Spain, Israel, Norway and Estonia as culprits. Future reductions are planned by Italy, France, the UK and Japan.
The OECD avoided using the phrase “race to the bottom”, but characterised the downward trend as having accelerated since the 2008 banking crisis. “With regard to corporate income tax, rate reductions had generally slowed down after the crisis but seem to be picking up again,” the report said. “The trend seems to be gaining renewed momentum.”
A combination of lower headline tax rates and generous tax breaks has proved to be the formula of choice for many countries desperate to attract foreign investment. In a bid to shore up their depleted exchequers, the OECD suggested cuts in corporation tax were being partially offset by rises in other taxes such as VAT, fuel and car tax.
But as tax justice and inequality campaigners have shown, higher taxes on personal incomes and essential items hits poorer individuals hardest.
The Tax Justice Network summed up the problem when it said this remedy for lost corporate taxes “redistributes wealth upwards”.
It added: “Governments make up shortfalls [from corporation tax cuts] by levying higher taxes on other, less wealthy sections of society, or by cutting back on essential public services, so tax ‘competition’ boosts inequality and deprivation.”
Strangely, the US government is one of the few to stand out against the trend and maintain its high corporation tax rate. At 35% for major corporations and 40% once local taxes are taken into account, its main rate is double the UK’s 20%. But the only reason the rate has not come down yet is the gridlock on Capitol Hill, with senators, representatives and the White House at each other’s throats.
Barack Obama can see that everyone else is at it, and it would be a big part of a Donald Trump’s war on tax. Which makes the McDonald’s case so crucial. If Luxembourg and Ireland are both successfully prosecuted, EU citizens might feel better about paying tax. All governments underestimate voters’ resentment that corporations pay almost nothing.
Will RBS’s new image make a difference? You be the judge
X Factor contestants are fond of telling the judges that they “really want it” as they wait for Simon Cowell and his fellow judges to decide whether to say “yes”. This weekend, the talent contest should be essential viewing for Philip Hammond, because Royal Bank of Scotland will be rolling out a new publicity campaign during the show’s ad breaks intended to signal a break from the near-fatal era of Fred Goodwin.
Ross McEwan will be hoping that he gets a yes from Hammond for the strategy he has adopted: to abandon global ambition and focus on high streets in the UK and Ireland.
The new chancellor’s intentions for the government’s 73% stake in RBS have not been made public since he stepped into No 11 to replace George Osborne in the wake of a Brexit vote that has piled even further pain on RBS. The lower-for-longer interest rate environment is not helpful for a bank that has racked up losses of more than £50bn since its bailout and is on course for at least two more years in the mire.
Osborne had signalled his determination to return the bank to private hands by taking a £1bn loss on the first sell-down of the government’s stake last summer. Those shares were sold at 300p – below the 502p break-even point for taxpayers, but way above the 180p to which they have now sunk.
For now, at least, McEwan can tell Hammond that he is not to blame for problems he faces: the footdragging of the US authorities over a fine – which could amount to £9bn – for the way it sold mortgage bonds before the crisis, and the delays at UK regulators over an investigation into the way it treated, or mistreated, small business customers.
McEwan will also argue that the delay selling the 300 branches that the EU demanded as a penalty for its bailout cannot be helped. The post-referendum rate cut ended all hope that Williams & Glyn could be reborn as a standalone bank.
The New Zealander made sure his strategy got the approval of Osborne. He will be hoping it is enough for a yes from Hammond.
Ignore Lawson’s bluster over Brexit: Carney must stay
Attacks on Bank of England governor Mark Carney are nothing new. But the volume has risen recently, especially after he defended his warnings of doom and gloom should the UK vote for Brexit.
Lord Lawson has called for him to quit, saying he “behaved disgracefully” in the run-up to the EU referendum. He said: “I have known all six of his predecessors as governor of the Bank of England and not one of them would have thought it proper to behave as he has done, particularly during the campaign when he joined in the chorus of scaremongering.”
Lawson’s anger might turn to apoplexy it the rumours are true that Carney will stay three years beyond the end of his term in 2018. But the public will cheer. Carney has shown himself to be calm in a crisis, cutting interest rates when needed in the weeks after the vote. Lawson should pipe down.
[Source:- The Gurdian]