The OCGG Economy Section's Governance Area on EU Fiscal Policy aims at establishing an independent encompassing EU tax, budget, and expenditure system.

 

The Financial Times, Letter to the Editor, Tuesday 18 April 2006

From Mr Alex Cobham, Mr John Christensen and Mr David Spencer.

Sir, Kevin Phillips (Letters, April 13) writes that concerns about foreign takeovers eroding the UK tax base may be addressed by following the example of Ireland and cutting corporate tax rates to increase revenues. This reflects a dangerous misunderstanding.

The Laffer curve that suggested lower tax rates increase overall revenues has been firmly debunked by empirical research. The case of Ireland is - as Mr Phillips acknowledges - the result not of economic activity being relocated but simply the declaration of profits. The short-term effect is of course higher revenues on a given gross domestic product, producing an apparently higher tax yield.

But this illustrates precisely the dangers of tax competition. The Irish tax cuts have simply shifted profit declaration at the expense of other jurisdictions and with little overall economic impact (beyond an unsustainable housing bubble). This is a foolish game that can only be played for a finite time. The response Mr Phillips suggests, that the UK follow suit, will of course be just one more step in a race to the bottom that leaves the entire tax burden on labour. In common with Lex ("Corporate tax", April 12) we view this as likely to undermine rather than enhance economic performance.

We support a system that allocates corporate tax liabilities to the jurisdictions where economic activity occurs, rather than where profits can be shifted to, and thus leaves each jurisdiction with the freedom to tax at the rates they deem most conducive to economic activity and broader social goals.

This would allow genuine competition between competing locations, with the potential for more efficient production instead of simply lower corporate burdens that undermine government provision and fail to give businesses appropriate incentives.

Alex Cobham, St Anne's, Oxford/OCGG

John Christensen, Director, Tax Justice Network

David Spencer, Private Tax Attorney, New York, US

 

by Alex Cobham

Recommendation to the European Commission

The European tax commissioner, László Kovács, has reiterated two plans for EU taxation: first, that the EU budget should be funded from taxation in each member state, and second, that concrete steps be taken for harmonisation of the corporate tax base across the EU. Both are sure to cause consternation in some member states.

There are in fact strong reasons to support each; but considerable caution is required. The Commission needs to clarify the grounds for each, in order not only to make the case publicly but because this process will lead to recognition of important flaws that should be corrected before further political capital is committed.

OCGG Economy Recommendation No 6 (PDF)

 

by Jean-Michel Rousseau

Recommendation to the Presidency of the European Union

“This is a union of values, of solidarity between nations and people, of not just a common market in which we trade but a common political space in which we live as citizens.” Such were the words of Tony Blair in June of this year when introducing the policies of the British Presidency to the European Parliament. Its recent proposals regarding the EU budget however underline once again the sad state of intra-European solidarity these days.

OCGG Economy Recommendation No 4 (PDF)

 

The Financial Times, Letter to the Editor, Thursday 8 December 2005

From Mr Alex Cobham, Mr Richard Murphy and Mr Mike Lewis.

Sir, The CBI is wrong to label the pre-Budget report's corporate tax avoidance measures a new "inquisition" ("Employers' chief warns over drive against tax dodging", December 6). In fact, in some instances the UK is simply playing catch-up to international standards.

The PBR's commitment to pursue information exchange with non-European Union countries regarding indirect taxes, and to ratify the 1988 Council of Europe/OECD convention on mutual administrative assistance in tax matters, comes some 17 years after these bodies recognised the issue's importance.

What the chancellor's statement lacks is a joined-up approach to the tax avoidance industry. Tax planners will adapt to exploit other loopholes as fast as existing ones are closed. The PBR gives some indication of the problem's scale, estimating that its tax avoidance measures will yield more than £700m a year by 2007-08.

But this represents only a small part of lost revenues. An estimated $255bn is lost each year through aggressive tax avoidance, much of it siphoned into UK tax havens. The heaviest burden falls on the developing world.

Both the CBI and government exchequers want certainty with regard to tax. Both would be served by a general anti-avoidance principle in taxation law in place of the current variable and piecemeal approach. This would equip the government to change the culture of tax avoidance, and ensure that each economic agent pays a fair share of public expenditure.

Alex Cobham, The Oxford Council on Good Governance

Richard Murphy, Tax Research

Mike Lewis, Tax Justice Network

 

Alex Cobham, Director of the OCGG Economy Section, explains how the EU's proposals for an EU-wide tax and for corporate tax harmonization should be strengthened in OCGG Economy Recommendation No 6.

Jean-Michel Rousseau, OCGG Analyst, argues the UK should rather scrap its own EU budget rebate than cut structural funds to Eastern Europe in OCGG Economy Recommendation No 4.

Alex Cobham, Director of the OCGG Economy Section, and others argue that the allocation of international tax liabilities based on where profits are declared, as opposed to where economic activity actually takes place, will only lead to harmful tax competition (letter to the editor in the Financial Times, April 18, 2006).

Alex Cobham, Director of the OCGG Economy Section, and others call for a joined-up UK approach to tax avoidance that builds on the piecemeal steps in the Pre-Budget Report (letter to the editor in the Financial Times, December 8, 2005).