There was a lot whinging about Corporation Tax at the G8 summit in Enniskillen (I hope you noticed the plug for NI tourism). It seems to me that there is something fundamentally wrong with the system. It shouldn’t be companies’ responsibility to arrange their affairs to pay more tax; it is surely the responsibility of government to design a system that is fair, clear and workable.
My position is that companies themselves are not the ultimate taxpayers. If a company pays Corporation Tax, there is less money to pay out as dividends, therefore the shareholders are, in effect, paying the tax.
Why not make this explicit?
• Scrap Corporation Tax, and adjust Income Tax accordingly.
• Individuals would pay tax on their share of the profits of the company, not on their dividends; so there would be no benefit to companies to hoard cash, and losses would reduce an individual’s Income Tax.
• Individuals would have to declare their shareholdings, including overseas ones, so that the correct tax was paid (there would need to be a change to the way companies declare information to their shareholders, and possibly an agreement for countries to share information about company profits – it’s all in the public domain the UK anyway).
Scrapping Corporation Tax would have the added benefit of reversing Gordon Brown’s raid on pensions for future years, and maybe slow the decline in long-term pension savings.
There are some flaws that would need to be ironed out, but it seems to me that such a system would put a stop to the arbitrage that is going on at the minute. Tax would be paid where the owners are resident, not where the company sets up business.
Of course, no government is ever going to agree to it. They like to have the Corporation Tax lever as a pork barrel to tempt employers and investors. Never mind Google and Amazon: I was in Heathrow on Saturday night; you would not credit the number of planes that are registered in Ireland, including ones with Cyrillic and other non-Roman scripts (and I don’t mean Irish!).
So, not going to happen, but what do you think of the idea?