Britain and the ‘Google Tax’

Britain should not follow France's lead and make a political target of corporations.

The Wall Street Journal

David Cameron’s best pitch to voters ahead of May’s election is his stewardship of the British economy, which is now firmly among the developed world’s best performers. So it’s strange to see the Tory leader and his Chancellor, George Osborne, turn away from a key ingredient of their success.

That’s the takeaway from Wednesday’s Autumn Statement on the budget, in which Mr. Osborne unveiled plans for a “Google Tax.”

The measure, technically called the diverted-profits tax, would hit multinational companies with a 25 per cent tax rate on any profits earned from activity in Britain that the company attributes to a subsidiary based in a lower-tax jurisdiction. Since the rate is higher than Britain’s normal 21 per cent corporate tax rate, Mr. Osborne clearly is hoping companies will stop so-called revenue shifting and pay regular taxes instead.

It’s a strange move because not so long ago the Tories understood the stimulative power of tax cuts.

Messrs. Cameron and Osborne have cut the top corporate tax rate to 21 per cent from 28 per cent, and have reduced personal income-tax rates and adjusted the tax brackets so that fewer earners pay the higher rates. By keeping more cash in the productive private economy and improving incentives for saving, investment and work, these moves have contributed to a growth rate now expected to hit 3 per cent for this year.

Some parts of Mr. Osborne’s budget speech kept this flame alive.

Eliminating the 55 per cent tax on pensions that transfer to a widow or widower when the beneficiary dies will remove a senseless punishment for prudent saving and investment. Even better, Mr. Osborne is seeking to dramatically ease or eliminate stamp duty for the vast majority of housing transactions.

This makes the failure to apply that principle to corporate taxation all the more mystifying. Mr. Cameron has previously supported greater coordination among governments on tax issues, but the Google tax proposal is the furthest his government has gone to join France in making a political target of corporations. It’s an attempt to steal some of the populist thunder of the high taxers in the Labour Party on the left.

Any effort to tax corporate profits in this way will probably founder on EU rules that currently govern business taxation within the single market -- another reminder that, every now and then, Brussels lives up to its founding principles and stands in the way of bad national policy.

Still, the Google Tax’s marquee placement in Mr. Osborne’s speech sends a bad signal to companies and investors, and is a reminder of why so many Britons are disappointed in the Cameron government.

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