The United Kingdom is unlikely to try to lure international investment by becoming a tax haven after it leaves the European Union, according to an internal memo prepared by the body responsible for the drafting international tax rules.
The head of tax at the Organization for Economic Co-operation and Development (OECD), which advises developed nations on policy, said the UK could use its freedom from EU rules to slash corporate tax but the political price would be high.
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The idea the country may cut tax on multinational companies’ profits, which could also help them avoid tax on profits made elsewhere in the EU, has been raised by some accountants and policy experts since the country voted to leave the bloc.
“The negative impact of the Brexit on UK competitiveness may push the UK to be even more aggressive in its tax offer,” the OECD’s head of tax, Pascal Saint-Amans said in the memo, details of which were seen by Reuters.
“A further step in that direction would really turn the UK into a tax haven type of economy,” he said, adding that there were practical and domestic political barriers to doing this.
The OECD declined to comment on his memo, dated June 24, and a separate one seen by Reuters, written soon afterwards, on the outlook after the June 23 vote for Value Added Tax in the United Kingdom, which is made up of Britain and northern Ireland.
The UK is already in the process of cutting its corporate tax rate to 17 percent, compared to an average among other OECD members of around 25 percent.
As part of its stated aim to be the most competitive Group of 20 major economies on tax, the UK has also introduced tax breaks that allow companies pay lower tax rates on some income and no tax on earnings from tax haven subsidiaries.
To significantly improve its appeal to businesses, the UK would need to significantly cut its tax rate or introduce a system of “generous” tax rulings, the OECD said.
Outside the EU, the UK could selectively offer foreign investors one-off tax deals – something prohibited by EU law.
The European Commission is taking legal action against Ireland and Luxembourg for allegedly giving sweetheart tax deals to companies like iPhone maker Apple and burger chain McDonalds that allowed them to shift profits from other EU nations. The countries and companies deny breaking any rules.