Monday, June 27, 2016

Brexit / international tax policy follow-up

I was a bit soft-spoken about Brexit in my prior post ("I'm inclined to think that Brexit will predominantly have bad effects") as I didn't want to rant or screech, especially in a very preliminary response before getting a chance to read more about it.

But here's the odd thing, clarifying a point that was implicit in the post but that I hadn't as yet thought through as clearly.  Damaging (or even calamitous) as Brexit may be for the English on the whole if it actually goes through (and I say "the English," not "the UK" or "the British" advisedly), it may actually increase their flexibility in international tax policymaking, which (all else equal) would potentially be a good thing.  But, alas for them, "all else equal" is not a good operating assumption.

If the English value their own international tax policymaking flexibility, they can actually use it in a number of different ways post-Brexit that would not have been as feasible before.  Removing European Commission and European Court of Justice oversight increases their freedom of action whether they want to use it towards (a) cracking down more on their own multinationals, without having to worry about such ECJ decisions such as Cadbury Schweppes, (b) becoming even more of a tax haven, such as by doing state aid without facing oversight by the EC, or (c) reviving corporate integration via shareholder imputation, without having to credit other EU countries' corporate taxes or to offer refunds to other EU countries' residents.

What does this leave out?  Well, here are a few things:

(1) how Brexit's terms are negotiated - e.g., it could conceivably involve agreeing to limits on international tax policymaking flexibility,

(2) how remaining EU countries change their tax policy towards the English (e.g., the gain in flexibility is reciprocal - other EU countries would now presumably be able to treat English companies and taxes less favorably than before), and

(3) everything else that could happen to the English by reason of Brexit if it actually goes through (i.e., if they don't do the smart thing by never actually triggering Article 50).

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