[A-List] Global capital and fiscal crisis

["Michael Keaney" <michael.keaney@xxxxxx>]

Rivalry cuts company tax rates
By Christopher Swann
Financial Times, May 2 2003

Competition between governments to attract businesses is driving down tax
rates on companies, intensifying pressure to raise tax on individuals,
according to a survey by KPMG.

The average level of corporation tax in the world's 30 richest countries
fell from 37.5 per cent in 1996 to 30.8 per cent in 2003, the survey found.

Although cuts in headline tax rates have often been offset by restrictions
in allowances, tax experts believe that falling rates show how governments
are finding it increasingly hard to raise revenues from business.

As companies become increasingly multinational, it has become easier for
them to shift activities between states or allocate profits to countries
with lower taxes.

The accountancy firm also said that European Union rules on free movement of
capital were making it harder for member states to clamp down on the
transfer of profits to lower tax countries.

John Battersby, head of strategic tax policy at KPMG, said: "Governments are
having to recognise that they are operating in a competitive market to
entice companies to their shores."

Ireland has been in the forefront, cutting corporation tax to 12.5 per cent
in 2003. The Italian government has also cut the total corporate tax rate
from more than 40 per cent to 38.25 per cent recently and aims to reduce it
to 33 per cent.

KPMG said the UK's longstanding appeal as a low-tax state for companies was
being chipped away by tax cuts in rival EU states.

"The UK can no longer afford to be complacent on this issue," said Mr
Battersby. "Its corporate tax rate of 30 per cent is now only a whisker from
the OECD average."

The figures also show the threat to Chancellor Gerhard Schröder's hopes of
raising more tax from companies to help close Germany's budget deficit,
which rose to 3.6 per cent of gross domestic product last year.

Infineon, the chip manufacturer, warned this week that it was considering
moving its headquarters outside Germany to cut its tax bill.

Accountancy experts believe the threat to corporate tax revenues was masked
by the high profits during the boom years of the late 1990s.

But the problem should become increasingly obvious in coming years as lower
profits reduce the tax take, said John Whiting, a tax partner at PWC. "I
believe that corporate tax is in near terminal decline," he said.

"Over the next 10 years governments may have to deal with a lot less
corporate revenue and will have to raise the tax from elsewhere."