Reasons to leave the single market [1]: How it allows other countries to plunder the UK’s GDP and taxes

Reasons to leave the single market [1]: How it allows other countries to plunder the UK’s GDP and taxes

by Brian Monteith
article from Friday 6, January, 2017

 

UP TO £10 billion per annum in taxes and another £10 billion per annum in investment are disappearing out of the UK thanks to a perfectly legal abuse of the Freedom of Establishment within the EU’s Single Market.

Multinationals are working in tandem with the governments of the smaller EU Member States – particularly Ireland and Luxembourg – to book their UK sales revenues into European bases in those countries, pay next-to-no-corporation tax here, and staff their UK supply chains with predominantly low-skill, low-wage labour.

The high-value jobs and the majority of the spending goes to the member state where the European base is located. This is only possible because the UK is inside the Single Market; were it outside but still had access – like the United States, where most of the multinationals originate from – then the investment and taxes would be within the UK economy.

Those Member States have constructed aggressive tax regimes to attract multinationals, whose business models major on nebulous royalty and intercompany charging, and on construing their UK operation as being an agent, acting “on behalf of” their European base to sells its goods and services.

The UK operation then receives a sales commission under the so-called “Commissionaire Sales Model”, as if they were selling cosmetics door-to-door.

Ninety per cent of sales revenues land in the European base; ten per cent come back to the UK to pay for their UK supply chain, and what does that supply chain cost? Exactly the same as the UK agent’s revenues, eliminating any UK profit and corporation tax.

Does that sound familiar? Does it ring true of all those reports over the last few years about Starbucks, Amazon and others with hardly any UK tax liabilities when they are clearly trading very actively and very well? Ever wondered how they do it, where the profits go and the taxes?

While we are in the Single Market the UK can do nothing to oppose these procedures apart from examine the detail of the intercompany relationships between the European base and its UK agent. , The practices are entirely legitimate and go a long way to explain why Irish politicians were very nervous of the UK voting for Brexit and are now well aware that in the long term the loss of billions of tax revenues being repatriated back to Britain will force Ireland to reconsider its EU membership too.

It is also plausible that the entire difference between the UK’s already-bad trade deficit of £56.4 billion and its disastrous balance of payments deficit of £114.8 billion is disappearing out of the door in this way. That is £58.4 billion per annum being conduited out of the UK to be taxed and spent elsewhere in the EU.

Meanwhile we are left with an estimated 146,000 jobs that each yield approximately £1,200 in payroll taxes per annum or £175 million in total, and perhaps another £272 million in indirect taxes on the money spent here: these taxes come nowhere close to paying for the public services for those workers involved.

All of this affects Scotland too. Those multinationals involved trade in Scotland, which is regularly the UK’s second or third most prosperous economic trading area, meaning Scotland is losing its share of UK corporation taxes that would feed into public spending or lower tax rates, or borrowing. It means that Scotland is losing high-skilled high value jobs and the investment that comes with them. An independent Scotland inside the EU would gain no benefit, but Scotland inside the UK after Brexit or outside the UK and the EU would – as it would then receive its just share of revenues and investment.

Nicola Sturgeon’s policy of Scotland being inside the Single Market, either inside the UK or as an independent nation, is in truth, the worst option possible.

There is a clear case here for leaving the Single Market, and onshoring the revenues and cost base of these businesses back into the UK: that would bring more jobs, more higher-value jobs, far higher payroll taxes, more money spent by the businesses and employees in the UK, and higher indirect taxes.

Research for Global Britain by Bob Lyddon [available here] demonstrates that the same business models that have been assessed as yielding only £500 million in UK taxes now and £5.6 billion in spending, could in future yield £10.3 billion in taxes and £15.8 billion in spending – increases of approximately £10 billion each in both taxes and spending. Add that to the £10 billion that can be saved from the UK’s EU membership fees and we would have a £30 billion boost to the UK economy – worth over £3 billion to Scotland.

The taxes equate to 17% of the UK’s public spending deficit of £60 billion and the same amount as our annual net cash contributions into the EU – we can leave the EU and cut the deficit by 33% straight away.

If ever there was a reason to leave the Single Market the repatriation of multinational taxes and investment is it – I believe it is known as a real no-brainer.

 

To download a copy of The UK's lost GDP and tax revenues by Bob Lyddon, visit the Global Britain website here.

 

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