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Leader: Osborne’s corp tax cut reveals impossibility of harmonised approach

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WHEN Fleetwood Mac sat down to write ‘Go Your Own Way’ on a vacation in Florida, the members of Fleetwood Mac were not getting along very well.

The atmosphere between the UK and its erstwhile European band mates is similarly tense, and is also based on who will stick with whom. It will only have been made more so by George Osborne’s decision to slash corporation tax to less than 15% in an attempt to encourage businesses to keep investing in the UK.

Reducing the rate to below 15% – some 5% lower than its current 20% rate – would give the UK the lowest corporation tax of any major economy. But the move could put the UK at loggerheads with the EU as it will be seen as effectively the start of Brexit negotiations.

Cutting the rate of tax is clearly a sensible move to calm skittish investors in the wake of the EU referendum. But starting with tax competition as a way to begin negotiations is one that, according to World Trade Organisation chief Pascal Lamy, is “not the right way psychologically to prepare this negotiation”.

Apart from being deeply antagonistic to the rest of the EU, the cuts are also a statement of intent from the chancellor. The UK could now exempt parts of the financial services sector from current rates of VAT, while Britain has already signalled its intent to introduce a diverted profits tax that many believe will undermine international efforts to harmonise tax law; chiefly, the OECD’s BEPS action points, which will have to be agreed at the EU level.

 

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