Tuesday, June 21, 2011

The campaign to turn Scotland into a tax haven

We've remarked on Scotland's tax haven possibilities before, but now it seems that the propaganda war may be beginning in earnest. Thanks to Tax Research, our attention has been drawn to an article in the influentla Scotsman newspaper. The introductory paragraph reads:
Britain's three Crown Dependencies – Guernsey, Jersey and the Isle of Man – have a unique constitutional status in the world – not sovereign, but virtually independent all the same. Is it on these islands that Scotland's own future may be written?
The article continues, ominously:
Their example is now coming under scrutiny, as the new SNP Government in Edinburgh presses ahead with its plans for an independence referendum – which has turned growing attention on to what the Nationalists these days mean by independence. A study by Professor James Mitchell of Strathclyde University proposed that the SNP is now proposing a form of "looser union" with the UK, where it would attain sovereignty but remain part of a "confederation" of British nations. Such a nation would control matters in its own borders, but would buy in services from the rest of the UK where it was deemed appropriate.
Tax haven Scotland. The battle lines are being drawn. The article quotes a Ben Thomson, of a group calling itself the Campaign for Fiscal Responsibility (CFFR, which Murphy calls "a right wing front for tax cuts",) arguing that the UK should encourage the kind of pernicious tax competition that the Crown Dependencies are engaged in:
"The game is not about dividing up the cake. It is about how do you attract a bigger cake within the UK by attracting businesses to come here. We in a global game competing against Geneva, Luxembourg or Dublin. If these businesses didn't set up in the Channel Islands, they would end up in the Cayman Islands or Bermuda." Thomson says that, given the powers of the Dependencies, a fiscally independent Scotland could set taxes in its own areas of strength – such as oil and gas, or whisky – to suit its own local circumstances.
If that isn't the launch of a campaign to turn Scotland into a tax haven - then we don't know what is. We note that the CFFR are backed by - among many others - Martin Gilbert of Aberdeen Asset Management, someone we've written about before. Read Treasure Islands - pp197-201 in the UK edition - for a wholesale demolition of the 'tax competition is good' myth. Or click here. And note research, such as that by Professor Michael Keating of Aberdeen University, looking at how the kind of corporation tax cut being discussed might work for Scotland:

"In Scotland, such a cut would provide a windfall benefit for existing businesses without attracting much more. The argument that it would pay for itself depends on the implausible assumption that business activity would more or less double in a very short period. . . .there would be a sharp fall in revenue, which I calculated (before the recession) at some four per cent of Scottish Government revenue. Such a loss is difficult to reconcile with the SNP's vision of a social democratic Scotland. . . it implies a cutback in state provision more radical than that currently being pushed through by the coalition at Westminster"

Thankfully, the Scotsman article also quotes saner voices about the possibility of Scotland becoming a tax haven.
"David Mundell, Scotland Office Minister, said that any comparison between Scotland and the Dependencies was "completely misplaced". He said: "They are on a completely different scale to Scotland and their function is also completely different, that of providing a different tax environment. Scotland is an industrial country with an entirely different profile to the Channel Islands."
It's nice to see that clarity on the 'function' of the Crown Dependencies. A last word to Tax Research:
In case they haven’t noticed, all the Crown Dependencies are in deep financial trouble, unable to balance their books and are in possession of tax susyems ruled illegal by the European Union. But what the heck, why let something like that get in the way of the tax competition mantra?
Oh, and there's this new shocker, too.

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