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Friday, March 14, 2008
Yahoo Leaves Britain Because of High Taxes
As if to prove my point about business taxes being too high, Yahoo has today announced it is moving out of London to Switzerland in order to cut its Corporation Tax bill.
Not that the socialists will learn a lesson from this. I hope Yahoo is already packed up and moved out or the socialists will make some vicious move to confiscate money.
That'll confuse the Federalists. I thought business was going to flee in panic across the channel if we weren't "in Europe", in the way that, by their puzzling definition, Switzerland isn't.
Err, that's not quite right. Yahoo is leaving Britain because Swiss law allows cantons to set the rate of tax on income earned outside Switzerland to 0%, thereby creating a tax haven-like status, but still allowing the Swiss company the benefit of comprehensive tax treaties with the entire EU, which would never be available to other tax havens.
If you knew a little about tax Iain, you would know that both Ireland and Switzerland may boost business from having a low tax rate, but there is also a lot of profit shifting (created simply by paper agreements rather than real businesses) to those countries by multinationals and financial institutions, increasing the local tax take at the expense of higher taxing countries.
It looks like Mr Masterly at 9.23 pm and I are making the same point - real multi-nationals have the luxury of paying tax wherever is the cheapest tariff that year.
There are those from the left who might mention Belize at this point, but I am too much of a gentleman and I know that you would have a swift rebuttal handy, if said Central American country were to be mentioned.
Wait till Shell and or BP go. They are much closer to it than most people understand. The have sold / closed most of their refineries in the UK and are selling their North sea assets. And of course Gordon's tax instability has them worried.
Yahoo is in deep trouble anyway so it's hardly a great loss. Note that Google and Microsoft both continue to invest heavily in the UK. Switzerland is effectively (because of the Canton laws) a tax haven. Surely the real point is that wealthy individuals and companies should not be able to evade their duties to society by hiding in tax havens? Or do you support the concept of tax havens that are happy to accept stolen gold looted by the Nazis from people they murdered and then sit on it for decades without telling anybody Iain?
At the moment Yahoo's employees remain based in the UK. It is Yahoo's taxes that will be paid elsewhere. So those Yahoo employees, who draw the UK's social wage and contribute to funding it because they cannot avoid being taxed in the UK, will have a social environment impoverished by the amount of the Yahoo taxes no longer paid here.
This happens on an enormous scale - the empoyees are left funding their own welfare state - and are much the poorer for it - because redistributive taxation and the role of the state in the United Kingdom have become too great and are now unacceptable to companies.
Eventually, as the effect of this worsens quality of life more and more, the competent, the qualified, the free to go, will leave and the quality of the workforce, reinfofced by poor quality educational provision and health provision, will deteriorate sufficiently for companies to seek better quality workforces elsewhere.
Then the ratchetting down goes faster.
We need to have some debate on the size of the state and the choice of welfare provision and its recipients; the whole ethos has been altered without discussion under New Labour. And it isn't socialism that we are dealing with, not as an ideology.
"Anonymous said... Why should the Swiss be pushed around by the EU just to suit the EU barmy ideas?"
Who said this is anything to do with being pushed around by the EU. All countries impose withholding taxes on payments to tax havens but give exemptions under bilateral tax treaties. The Swiss impose 35% withholding taxes on payments to tax havens. Countries that want to encourage mutal investment reduce their withholding tax rates, and the EU requires that all members reduce their withholding tax rates to other members and to other countries with preferred trading status such as Switzerland. The Swiss then allow that preference to be abused so that multinationals can put a regional business centre in Switzerland, use that to gear up all of the multinationals EU subsidiaries by loans from Switzerland, inflating earnings in Switzerland (but leaving them untaxed) whilst creating tax deductible interest in the EU sub. It works well for US multinationals because the US tax rules don't treat these Swiss subsidiaries as being passive investment vehicles based in tax havens because they are actually operating companies, but most of their income is actually untaxed.
The marginal benefit to Switzerland is the tax on the salaries of any employees transferred to Switzerland. The cost to the departing country is far greater because it amounts to the tax foregone because of interest deductions or artificial royalty payments/management expenses paid to Switzerland.
The tax rate paid by the employees and the rate of tax paid by the company on its profits from activities in Switzerland can be higher than the UK rate, but the arrangements are advantageous because the Swiss allow the multinational to let its profits from intercompany lending go untaxed. If you give it a little thought you will realise that there would still be an inventive to move all the staff to Switzerlabnd even if the corporate tax rate in every country was only 10%, which is far lower than the standard Swiss tax rate. So this has more to do with "tax piracy" than competitiveness.
If you knew the history of Shannon free trade area and the Dublin Docks, you would see that the Irish 12% rate arose from similar arrangements - the Irish successfully shifted a lot of taxable profits from mainland Europe to their 0% and 10% special economic zones while imposing tax at 50% on other business activity. But the value of notional profits booked there was so great that the EU rightly told Ireland that they were in breach of the spirit of their EU membership. There were lots of screwdriver plants to book profits in Ireland on EU sales (but no Irish manufacturing gurus), zillions booked in Irish company treasury operations, but strangely the financial press were never on the phone to all of the financial gurus in Dublin. The reason was because there was no such expertise, but such was the diversion of profits and the relative source of revenue that when the EU told the Irish to equalise the 10% and the 50% rates, the Irish fixed on 12%, which kind of explains where all their profits were coming from.
Setting yourself up as a mini tax haven has nothing to do with the Laffer curve and is a game that can only ne played by little countries, so to suggest that either is a model for UK tax policy is not really worthy of comment.
I thought that most multi-national companies could pretty much choose where they pay their taxes - as proven by R Murdoch esq.
ReplyDeleteIt's about time the EU invaded Switzerland.
ReplyDeleteGood for them!
ReplyDeleteNot that the socialists will learn a lesson from this. I hope Yahoo is already packed up and moved out or the socialists will make some vicious move to confiscate money.
That'll confuse the Federalists. I thought business was going to flee in panic across the channel if we weren't "in Europe", in the way that, by their puzzling definition, Switzerland isn't.
ReplyDeleteErr, that's not quite right. Yahoo is leaving Britain because Swiss law allows cantons to set the rate of tax on income earned outside Switzerland to 0%, thereby creating a tax haven-like status, but still allowing the Swiss company the benefit of comprehensive tax treaties with the entire EU, which would never be available to other tax havens.
ReplyDeleteIf you knew a little about tax Iain, you would know that both Ireland and Switzerland may boost business from having a low tax rate, but there is also a lot of profit shifting (created simply by paper agreements rather than real businesses) to those countries by multinationals and financial institutions, increasing the local tax take at the expense of higher taxing countries.
The first of many Iain. What do you expect under a Labour government.
ReplyDeleteAdrian Bailey - The EU have invaded too many countries already (hope you get the irony)
It looks like Mr Masterly at 9.23 pm and I are making the same point - real multi-nationals have the luxury of paying tax wherever is the cheapest tariff that year.
ReplyDeleteThere are those from the left who might mention Belize at this point, but I am too much of a gentleman and I know that you would have a swift rebuttal handy, if said Central American country were to be mentioned.
Yahoo - this is just the tip of the iceberg.
ReplyDeleteWait till Shell and or BP go. They are much closer to it than most people understand. The have sold / closed most of their refineries in the UK and are selling their North sea assets. And of course Gordon's tax instability has them worried.
So who sold BT off
ReplyDeleteI think this should read Yahoo leaves the EU because of.....
ReplyDeleteYahoo is in deep trouble anyway so it's hardly a great loss. Note that Google and Microsoft both continue to invest heavily in the UK. Switzerland is effectively (because of the Canton laws) a tax haven. Surely the real point is that wealthy individuals and companies should not be able to evade their duties to society by hiding in tax havens? Or do you support the concept of tax havens that are happy to accept stolen gold looted by the Nazis from people they murdered and then sit on it for decades without telling anybody Iain?
ReplyDeleteAt the moment Yahoo's employees remain based in the UK. It is Yahoo's taxes that will be paid elsewhere. So those Yahoo employees, who draw the UK's social wage and contribute to funding it because they cannot avoid being taxed in the UK, will have a social environment impoverished by the amount of the Yahoo taxes no longer paid here.
ReplyDeleteThis happens on an enormous scale - the empoyees are left funding their own welfare state - and are much the poorer for it - because redistributive taxation and the role of the state in the United Kingdom have become too great and are now unacceptable to companies.
Eventually, as the effect of this worsens quality of life more and more, the competent, the qualified, the free to go, will leave and the quality of the workforce, reinfofced by poor quality educational provision and health provision, will deteriorate sufficiently for companies to seek better quality workforces elsewhere.
Then the ratchetting down goes faster.
We need to have some debate on the size of the state and the choice of welfare provision and its recipients; the whole ethos has been altered without discussion under New Labour. And it isn't socialism that we are dealing with, not as an ideology.
Why should the Swiss be pushed around by the EU just to suit the EU barmy ideas?
ReplyDeleteAll power to the Swiss for keeping themselves independent.
"Anonymous said...
ReplyDeleteWhy should the Swiss be pushed around by the EU just to suit the EU barmy ideas?"
Who said this is anything to do with being pushed around by the EU. All countries impose withholding taxes on payments to tax havens but give exemptions under bilateral tax treaties. The Swiss impose 35% withholding taxes on payments to tax havens. Countries that want to encourage mutal investment reduce their withholding tax rates, and the EU requires that all members reduce their withholding tax rates to other members and to other countries with preferred trading status such as Switzerland. The Swiss then allow that preference to be abused so that multinationals can put a regional business centre in Switzerland, use that to gear up all of the multinationals EU subsidiaries by loans from Switzerland, inflating earnings in Switzerland (but leaving them untaxed) whilst creating tax deductible interest in the EU sub. It works well for US multinationals because the US tax rules don't treat these Swiss subsidiaries as being passive investment vehicles based in tax havens because they are actually operating companies, but most of their income is actually untaxed.
The marginal benefit to Switzerland is the tax on the salaries of any employees transferred to Switzerland. The cost to the departing country is far greater because it amounts to the tax foregone because of interest deductions or artificial royalty payments/management expenses paid to Switzerland.
The tax rate paid by the employees and the rate of tax paid by the company on its profits from activities in Switzerland can be higher than the UK rate, but the arrangements are advantageous because the Swiss allow the multinational to let its profits from intercompany lending go untaxed. If you give it a little thought you will realise that there would still be an inventive to move all the staff to Switzerlabnd even if the corporate tax rate in every country was only 10%, which is far lower than the standard Swiss tax rate. So this has more to do with "tax piracy" than competitiveness.
If you knew the history of Shannon free trade area and the Dublin Docks, you would see that the Irish 12% rate arose from similar arrangements - the Irish successfully shifted a lot of taxable profits from mainland Europe to their 0% and 10% special economic zones while imposing tax at 50% on other business activity. But the value of notional profits booked there was so great that the EU rightly told Ireland that they were in breach of the spirit of their EU membership. There were lots of screwdriver plants to book profits in Ireland on EU sales (but no Irish manufacturing gurus), zillions booked in Irish company treasury operations, but strangely the financial press were never on the phone to all of the financial gurus in Dublin. The reason was because there was no such expertise, but such was the diversion of profits and the relative source of revenue that when the EU told the Irish to equalise the 10% and the 50% rates, the Irish fixed on 12%, which kind of explains where all their profits were coming from.
Setting yourself up as a mini tax haven has nothing to do with the Laffer curve and is a game that can only ne played by little countries, so to suggest that either is a model for UK tax policy is not really worthy of comment.