Umm, Prem?

A recent report from the Public Accounts Committee reported that in 2005-06, 25% of the largest UK companies paid no corporation tax.

So, err, what does that report say

Businesses pay little or no Corporation Tax because, for example, they have made a loss, or had losses in previous years,…

Horrors, eh? Businesses which don\’t make profits don\’t pay profits taxes on those profits that they didn\’t make?

Quite scandalous I\’m sure you will agree.

Derivatives – in effect complex gambles – have been playing havoc with the global economy. According to the Bank for International Settlements (BIS) the face value of Over The Counter (OTC) derivatives is around $596tn and listed credit derivatives add up to another $548tn, making a total of $1,140tn. A 1% tax on this form of gambling can raise over $11tn a year and a fair chunk of that would accrue to the UK and the EU.

Umm, actually, the derivatives aren\’t "complex gambles". Credit Default Swaps, just as an example, are a form of insurance, not a form of gambling (to the extent that gambling and insurance are different things). They\’re also just about the only part of the credit markets that have been functioning and liquid in recent months.

Taxing them at 1% wouldn\’t raise $11 trillion either. It would raise nothing as it would destroy the market.

6 comments on “Umm, Prem?

  1. It wouldn’t destroy the market at all.

    Participants would either not report it; structure it differently; or arrange transactions via counter parties in a country that doesn’t have such a stupid tax.

    Cf. the US trying to tax Eurobonds – the market just shifted to England, cf. the big three UK betting companies shifting operations to Channel Islands to circumvent Betting Levy (as a result of which it was reduced quite a bit).

  2. Or the enormous rise in stamp duty planning (generally involving offshore entities) that coincided with raising the rate from 1% to 4% for (effectively) any commercial property in the UK…

  3. I will also make the obvious comment that corporations are simply groups of people with various stakes – shareholders, employees, customers. The shareholders pay income tax on income they receive from the company in the form of either dividends or capital gains, the employees pay income tax, and the customers pay VAT on the economic value added by the company. Corporation tax is simply income tax being paid by shareholders. Yes, in many places including Britain there are tax credits given to reduce double taxation of company profits (which sort of turns corporation tax into a combination of an withholding tax aiding income tax collection and a way of taxing foreign shareholders excessively), but the argument that company profits should be taxed in the first place is quite a weak one.

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