At a personal level the concept of tax competition being harmful is something I struggle with. Countries and companies quite readily accept competitive differences in labour, land, materials, which are all components of the cost of production and wealth creation; therefore defacto components of creating jobs, profit and tax.
To say we should compete in the world economy but then try to hamstring tax competition by imposing a view on rates seems to me illogical and anti competitive. But this appears to be the outcome of the EU Code of Conduct on Business taxation review which has opined disapprovingly on the UK Patent Box system introduced by Chancellor Osborne.
The scheme has a super low rate of 10% corporation tax that along with an outstanding legal and professional services capability is designed to make the UK the most competitive European centre for patents and intellectual property registration. And it appears to be working with patent registrations in the UK soaring.
Germany’s Wolfgang Schauble seems to be particularly upset with over 2,000 patents already attracted by the scheme, but similar innovation box schemes already exist in the Netherlands, Belgium, Czech Republic, Hungary, Spain and France, but don’t seem to have attracted the ire of the German Finance Minister.
Ireland is predicted to object too, largely because it has been pursuing the same targets with its 12.5% Corporation tax rate.
The UK has promised a more ‘muscular’ approach to EU attempts to regulate sovereign matters and it will be interesting to see how the Treasury deals with this particular challenge. My guess is they will ignore it, on the basis that low taxes are fine as long as they are paid. A good dictum in my view.
Meanwhile poor old Gibraltar is in the EU’s sights again with it’s business tax system under investigation. More on this later.