Draining our pockets
Think tank: Adam Smith Institute
Author(s): Julian Morris
October 26, 2021
This report from UK think tank the Adam Smith Institute looks at how the global tax cartel could cost Britons billions.
This latest paper, written by Julian Morris, outlines how the global minimum tax proposal would endanger Britain’s national interest: One-hundred and thirty six jurisdictions, including the United Kingdom, have agreed to negotiate two new treaties that would, if implemented, change how many large companies are taxed in the name of ‘tax fairness’. The minimum tax has been justified by claims that there is a ‘race to the bottom’ in tax rates. But, in fact, corporate tax revenues, as a proportion of GDP, have risen in recent decades along with lower rates. This includes in the UK where corporate tax revenues rose from about 2% of GDP in 2000 to over 2.5% in 2019, at the same time as the topline rate was reduced from 30% to 19%.
Corporate taxes are the most harmful of major taxes to economic growth because they significantly reduce investment and entrepreneurial activity. The minimum tax would lock in a corporate tax rate, which economic theory suggests should be lower if not closer to zero. There is no guarantee that every country will implement a global minimum tax, including the United States if President Biden is unable to get Pillar Two through Congress. This would create advantages for some countries. The minimum global tax could be seriously detrimental to the United Kingdom because it would: be incompatible with key UK Government policies, including the super-deduction, free ports and the patent box; undermine national sovereignty by locking the UK into a model of corporate taxes and reduce future policy flexibility; and result in some UK companies relocating to jurisdictions that do not implement the minimum tax, leading to the loss of as much as £7 billion in annual tax revenues to HM Treasury.