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01/10/2016

Germany warns of EU tax race after Osborne’s 15% plan

UK & Europe

Germany warns of EU tax race after Osborne’s 15% plan

German Finance Minister Wolfgang Schäuble warned on Wednesday (6 July) of an EU-wide tax war, with states cutting their corporate tax rates, in the wake of Brexit and the UK’s announcement it will cut rates to 15%.

Earlier this week the UK Chancellor, George Osborne, told the Financial Times he planned to cut the UK business rate from its current 20% to 15%, in an attempt to prop up the economy following the vote to leave the EU.

However, Osborne put no specific timetable on his plan, saying only that Britain should “get on with it” in order to prove the UK was still an attractive and viable business destination outside the bloc.

Osborne plans to cut corporate tax to cushion Brexit blow

British finance minister George Osborne plans to slash corporation tax to under 15 percent to tempt businesses to stay following the country’s shock vote to leave the European Union, the Financial Times reported Sunday (3 July).

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Speaking on Wednesday (6 July), Schäuble said, “We have no intention to start some sort of ‘race to the bottom’.”

A 15% corporate tax rate, if it is introduced in the UK, would be the lowest of any major economy. Ireland’s, at 12.5%, is currently the lowest in the 28-member bloc.

Osborne told the FT he wanted to make the UK a “super competitive economy”. According to Reuters, the head of tax at the OECD warned, in an internal memo, that the fallout from Brexit “may push the UK to be even more aggressive in its tax offer” but that further steps in that direction “would really turn the UK into a tax haven type of economy”.

At a regular government news briefing, Schäuble noted that Osborne was expected to present his plans to his European counterparts at next week’s ECOFIN meeting of finance ministers in Brussels.

Osborne “made the announcements and I hope he’ll elaborate” on them, the German minister said, recalling the EU’s drive in recent years to try and harmonise taxes across the bloc.

“We’re not opposed to fiscal competition,” he said, but it has to be “fair”, he added.

Generally speaking, the shock vote in Britain to quit the EU was not expected to torpedo Germany’s economic recovery, Schäuble continued.

“At the moment, we’re not observing any negative effects on the German economy,” he said.

“But we’ll see if that remains the case.” Schäuble was presenting his 2017 budget, with the public finances of Europe’s biggest economy projected to be in the black for the third year in a row.

Berlin is planning to keep its budget balanced or in surplus at least until 2020.

Paris beckons

Meanwhile, in other ramifications from Brexit, in Paris on Wednesday the French Prime Minister Manuel Valls unveiled a series of measures to boost the lure of Paris after the Brexit vote raised doubts about London’s future as a European finance hub.

He also confirmed a decrease in a company tax previously announced by President François Hollande, which will be lowered from 33% to 28%.

Britain’s vote to leave the European Union “created shockwaves, for all European citizens but also, in a very concrete manner, many businesses settled in the United Kingdom,” Valls said.

“In this new environment which is taking shape, we want an attractive France,” he said, adding that he wanted to improve the tax and legal framework to “welcome even more companies (and) make Paris the capital of smart finance.”

Most of the measures are tax-related, such as reductions for foreign employees which would be valid for eight years instead of the current five, Valls said.

Beyond fiscal measures, the government also plans to put in place a “unique entry point” to facilitate administrative matters for foreign companies seeking to set up shop in France.

This service will help companies with questions about real estate, residency permits, schools and other issues.

Further Reading

UK in political meltdown after Brexit vote

The British vote to leave the European Union has sparked a political crisis in the United Kingdom. These were the latest twists and turns.

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