Risk & Economy » Tax » Editor’s letter: Taxation sans frontieres

Andrew Sawers

In October 2005 we published our first Financial Director Guide To:
Global Tax Strategy
and high on the list of key agenda points was the need
for boards to decide what kind of taxpayer they wanted to be. Was there value in
trying out tax-saving schemes that might ultimately fail a legal challenge by
the tax authorities, and risk the ire of the public as a result? Or is there a
social responsibility issue, here, that overrides any real or apparent cut in
the tax bill, compelling companies to determine what seems a ‘fair’ amount of
tax and to just pay it, even if it’s more than the sum that clever tax people
say you should be handing over?

We return to the question of global tax strategy this month with another
Guide, which our subscribers should find along with this month’s magazine. This
time, the international scene has come to the fore. Last November, for example,
insurance group Hiscox announced it was going to up sticks and move to Bermuda
because of the more competitive tax regime. In doing so, it would be on a more
equal footing with its haven-based competitors.

Then HSBC stirred things up with a speech in which the company’s head of tax
let slip that the bank – which, as you’ll remember from the letter ‘H’ in its
name, used to be based in Hong Kong – had been approached by “a number of low
tax jurisdictions” to see if they could tempt the global operator to relocate
again. And Aidan Smith, FD of Liberty International, told us recently that the
one-time South African-domiciled property group perhaps wouldn’t today have
chosen London as its base were it not for the new Reit (real estate investment
trust) regime. Then, of course, there’s U2 rock star Bono, whose move from
Ireland to the Netherlands deprives the Emerald Isle of a taxable entity the
size of a mid-cap corporate.

All the more ironic, then, that the OECD should be trying to stamp out
‘non-compliance’ with domestic tax laws while apparently having little interest
in the fact that countries around the world are redrawing their tax codes to
bring in foreign investors. Then there’s the European Commission, busily pushing
ahead with plans for a common consolidated corporate tax base (a hideous,
stuttering, five-letter acronym, CCCTB), that, supposedly, will present a 28th
tax jurisdiction option to businesses operating in the 27 EU member states. (If
the Daily Mail ever finds out that this is the thin end of the European
tax harmonisation wedge, stand well back.)

Complicated business, this global tax strategy stuff. More than ever,
companies need clarity of thought and clarity in their tax reporting.