Avoidance Is Its Own Reward

The late, influential and decidedly liberal economist, John Maynard Keynes, (1883 - 1946), once sagely observed: "The avoidance of taxes is the only intellectual pursuit that carries any reward."

What a kidder that Keynes was. Surely he knew that many other intellectual pursuits, (reading, writing, philosophizing, dreaming about money or sex), also has intellectual rewards. 

It was certainly with the worthy goal of legal tax avoidance that this week Shire Pharmaceutical, a leading British drug firm, announced plans to relocate to Dublin for tax purposes.

Irish Tax Haven

Ireland is well known for having one of the lowest corporate tax rate (12.5%) among the 27 EU nations. (Only Cyprus is lower with a corporate tax of 10%). That Irish low tax compares with a hefty 28% tax in the U.K. But, according to reports, what bugs Shire and a host of other companies is Britain's policy on foreign dividend income. Many countries, including Switzerland and the Netherlands, have holding company tax regimes that enable firms to import dividends tax-free from foreign subsidiaries. Only profits earned within the country are taxed. Shire says it is moving not by a desire to avoid tax, but out of concern that Britain will tighten up rules further with anti-avoidance measures that will harm multinationals, such as Shire, that earn profits from a many overseas subsidiaries.

Other companies have already voted with their feet. Shire is the first FTSE 100 company to shift its domicile, but tax advisers say that a number of others are considering it. The big drug firm is following Experian to Ireland, and Yahoo and Kraft Foods recently moved their European headquarters from Britain to lower tax Switzerland.

The Labour government doesn't seem to realize that higher taxes on business and the rich are self-defeating, sending mobile taxpayers to greener low-tax pastures. Recent changes to the UK tax regime - including a £60,000 (US$30,000) annual tax for non domiciled foreign workers in the U.K. – and present discussions about the rules governing overseas corporate earnings, give British companies with big international operations major concern.

More Taxes to Come?

Is the Labour government going to make the UK tax environment even less attractive? Shire isn't waiting to find out. It's shifting domicile to Dublin, where the corporate tax regime is already more friendly. And a lot more stable.

PM Gordon Brown in 2006 said that the key to economic success in a globalizing world is not just stability in monetary and fiscal policy but also “stability through a stable and competitive tax regime”. Yet the UK tax regime has been anything but stable and increasingly less competitive.

For many business leaders, the recent changes to capital gains tax and the tax assault on non-dom workers was the last straw. They have lost confidence in Labour's commitment to stability and competitiveness. Companies and people indeed are voting with their feet. Goodbye U.K. Another good example of why tax competition among nations is a positive benefit for all.

* Find out why smart taxpayers are moving to Switzerland. Just published -- my latest book, Swiss Money Secrets, explores in detail Swiss bank secrecy, low taxes, possible residence for foreigners and current policies. For your copy, click here: LINK: http://www.web-purchases.com/190SSMON/E190J355/landing.html