General Anti Avoidance Rules (GAAR)
There is a common misperception that the new General Anti Avoidance Rules (GAAR) will force companies like Google, Facebook and Starbucks to pay more UK tax. It will do no such thing and it is not even aimed at them.
The problem that the UK Government has in this area is that it doesn’t control the playing field. Other countries can use whatever rate of Corporation tax that they like and the UK cannot do anything about it. They can’t tell Ireland, Luxembourg and Switzerland what Corporation Tax to set.
Maybe the EU could but remember that the EU has a common VAT rate – but Britain has a different one. This would certainly be brought up if Britain tried to introduce a standard rate of corporation tax across the EU.
Switzerland is not even in the EU anyway and neither are the Bahamas, Bermuda etc.
Loading Up Costs
In terms of General Anti Avoidance Rules (GAAR), it’s also up to companies in which countries they load up costs and in which countries they have low costs and high profits.
Those countries with low corporation tax rates lose out as the companies incur fewer costs there like opening factories or hiring people.
Those with higher rates of tax will ge the benefit of the companies loading up costs by running their operations there. Those countries will earn income tax and have fewer people claiming unemployment benefit.
It’s swings and roundabouts. Cameron is trying to load the dice so that the UK can get both jobs and the corporation tax. However, he can’t bring in many measures to do so. He would have to get international cooperation and that will prove very difficult to do with low tax countries like Ireland saying that their corporation tax rate of 12.5% was not negotiable even when they were being forced into a bailout.
Any multinational agreement on all of this is a long way off, if it happens at all. Why should countries not compete on tax rates as well as on everything else. Surely that’s the free market. Surely a Conservative would understand that. Why do they want or need General Anti Avoidance rules (GAAR)?