IT'S not like the SNP to miss a trick. But in a week where no tricks were really necessary as the Labour 'opposition' collapsed in disarray over calls for an early referendum on independence, a missed trick here or there might hardly matter.
Howev
er, this one does. Growing talk of an exodus of top UK companies to escape further intrusion by the Treasury and Her Majesty's Revenue & Customs has presented a golden opportunity for the party to flaunt its low business tax credentials.
Pharmaceuticals giant Shire and media group UBM have already announced plans to move their corporate domicile to the Emerald Isle. WPP, Diageo and Smith & Nephew are among those considering following in their footsteps. Joining the list of possible movers this week were Aberdeen Asset Management and Edinburgh fund management group Martin Currie. Others keeping a watching brief include energy company International Power, Aegis and GlaxoSmithKline.
Geneva also features as an alternative location. Foreign companies including Kraft, Google and Yahoo have recently switched their European HQs from the UK to Switzerland.
But Ireland appears to be the favoured destination for UK companies considering a corporate flight. And it is of course Ireland, with its 12.5% rate of corporation tax, compared with 28% in the UK, that the SNP has long held up as the Celtic Tiger that Scotland should emulate.
What a fantastic opportunity has thus been presented to the SNP. An independent Scotland could be presented as a haven for London and south-east of England based big businesses. They are fearful that Treasury plans to simplify the regime for the taxation of overseas profits could turn into yet another stealth tax opportunity of the type that characterised the 10-year Gordon Brown chancellorship.
Lower corporation tax has been a central feature of the SNP's economic strategy. Many have dismissed it on the grounds that it would take more than a juicy tax carrot to encourage companies to transfer their headquarters. Now the issue has moved centre-stage as talk of a big corporate exodus from the UK has gathered pace.
As if the Treasury was not alarmed enough about such rumblings, it will not have been at all comforted by the recent activities of the Irish Industrial Development Agency. The IDA has been actively encouraging the exodus through letters to UK firms urging them to consider relocating their business.
It is a prospect that must fill Chancellor Alistair Darling and Gordon Brown with particular alarm. Only last year Brown moved to quash an attempt by Northern Ireland to have its corporation tax rate lowered to match that in the Republic so that its economy could compete on even terms with the south and to help it recover from decades of strife and turbulence.
That such a move might have set a precedent for other parts of the UK – and nowhere was the case for lower Ulster corporation tax followed more closely than in Scotland – was a particularly urgent reason for Brown to sweep this proposal off the table.
Ireland has boomed on the back of its appeal to international companies, and while it is understandably keen to stress that factors such as improving infrastructure and a skilled and educated workforce figure high among Ireland's attractions, a rate of corporation tax less than half that of the UK has to be a big incentive. Its corporation tax rate of 12.5% compares with 41% in Germany, 19% in Poland and 18% in Hungary. It even beats Singapore (20%) and Switzerland (21.3%).
Little wonder the country has attracted investment from around 1,000 overseas companies such as Intel, Yahoo, Adobe, Microsoft, HP, Apple, Google and Amazon.
But the current stirrings are not about moving industrial plant and activity from the UK, but moving the domicile of the headquarters for tax purposes. So what has so upset such a host of big businesses? What is it that they fear?
The Treasury has signalled that it wishes to reform the system of taxing the overseas profits of multinational companies domiciled in Britain. Ironically, the changes are ones with which most accountants broadly agree. And the Government has approached the issue in textbook manner: plenty of warning and lots of time for consultation before any changes are introduced – if they are introduced at all.
The problem is not so much with the fine print of how companies' foreign earnings are to be taxed. It is to be found in the broader context of these proposals. Companies are deeply apprehensive that changes to the tax system, however innocuously presented, will in fact prove to be another opportunity for more stealth taxes.
Businesses have been the victims of a constant series of such changes in recent years, presented as simplification or loophole closing. The result, in almost every case, has been greater investigative powers for HMRC, more hassles with the tax office – and higher tax. In recent months there has been fierce controversy over changes to the system of Capital Gains Tax, also presented as a simplification, and the taxation of non-domiciles. What these cumulative developments have done is to corrode the trust between business and the Government.
New Labour went out of its way in the early years to secure business support, and broadly succeeded in doing so. But relations have soured of late. The trust has gone. And as the economy slows and Government revenues are put under threat, businesses fear that changes to the system of taxing overseas profits will be too tempting for the Government to pass up.
Equally worrying for business has been the ever-encroaching powers of HMRC, and in particular the activities of its international division, which seems hell-bent on driving up the tax take on profits earned overseas.
Added to the gradual loss of competitiveness that the UK has suffered, particularly through extended employment legislation, and it is not hard to see how companies, faced with intensifying global competition, have become apprehensive and restive. Moving tax domicile out of the UK is not what most wish to do. But if the Government's proposals turn out to be as invasive as they are now feared to be, then the exodus will almost certainly gather pace.
And this is a loss that the economy can ill afford at this time. The UK has been a good home to first-class international companies. In return they bring employment, good opportunities for senior executives in marketing, logistics and finance, help the UK to ride the ever-changing trends in the global economy and contribute hundreds of millions of pounds to the Treasury coffers.
This head office benefit is of particular relevance in Scotland where there has been growing concern at the loss of head offices through mergers and takeovers – Scottish & Newcastle being the most recent example.
Scotland needs to attract head office activities and the high-value jobs they bring. Scotland, too, can offer a skilled workforce, an impressive pool of talent, a great environment for work and relaxation, and some of the most beautiful scenery in the world. The SNP has correctly spotted that a lower rate of corporation tax would give the country an edge that it currently lacks.
However, such is the pressure mounting on the Treasury and the need to cauterise this corporate revolt, that I suspect a further cut in corporation tax will be on the 2009 Budget agenda. Can Brown afford to do it is an obvious question. But there is a bigger one: can he afford not to?
The full article contains 1281 words and appears in Scotland On Sunday newspaper.
