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MNCs caught in the crossfire of Scottish Independence

6 Aug 2014

George Osborne today announced a deal that would give Scotland the economic benefits of remaining in the United Kingdom, but with unprecedented new powers should the Scots vote to stay in the Union. These powers are widely thought to include Scotland deciding social security policy and setting its own tax rate (both corporate and income): a greater book-balancing responsibility than to date.

Tax has become a critical weapon for both the “Yes” and “No” parties as political concessions seem to be coming more frequently at the cost of financial common sense. With an independent Scotland claiming they will cut corporation tax to 17% by 2015 in an attempt to attract greater investment and with the UK appeasing “Yes” voters by granting further devolution to Scotland over fiscal issues, speculation over the future of corporate tax regulation is rife.

Although one may argue that cutting corporation tax is in the multinationals’ favour, the constant ambiguity surrounding future regulation makes it harder for larger companies to effectively plan their tax liabilities and growth strategies. Additionally, due to the politically fuelled nature of their proposed implementation, it is difficult to determine whether the Scottish tax reduced rates will be on a long or short term basis. In Taxand’s 2014 global survey of multinational CFOs, nearly three quarters (74%) of respondents said that the regular political discussion around potential new tax measures is causing confusion and uncertainty amongst business decision makers. The rhetoric surrounding the Scottish independence debate is a prime example of this.

As the UK government promises greater autonomy over corporation tax as a bargaining chip with undecided Scottish voters, only one thing is certain; more confusion for multinationals. The potential disparity in tax rates between primary financial centres such as Edinburgh and London would only succeed in creating more complexity in a tax regime which is already facing uncertainty. With OECD initiatives such as BEPS on the horizon, the last thing UK based multinationals need is more ambiguity surrounding tax regulation. In the face of the referendum, multinationals’ growing desire for tax consistency and harmonisation seems an all too distant dot on the horizon.

The Referendum will not be the end of the matter, even if the UK remains intact. The future unknown is the pressure this will put on English MPs to set their own revenue decisions independent of the views of Scottish MPs ie the remaining unresolved “West Lothian Question”, posed by Tam Dalyell MP as far back as 1977.

The debate and outcome is observed with keen interest by international observers with similar federal predicaments, such as in Spain, and indeed North and South EU.

Frederic Donnedieu, Chairman, Taxand, the world’s largest independent global organisation of specialist tax advisors to multinational businesses.

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Taxand's Take

Whatever the outcome, both parties need to reassure multinationals it will remain business as usual – a comfort that for multinationals witnessing this debate, seems further away than ever.

Taxand's Take Author