Will The UK Become A Tax Haven?

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With Brexit now done and dusted, many are questioning whether the hints at a ‘Singapore-on-Thames’ will now come to fruition. As the UK has left the EU, they no longer need to abide by the EU’s Code of Conduct on Business Taxation. However, the UK must still abide by the rules of the Organisation for Economic Co-operation and Development (OECD), which was a term within the Brexit deal that came into effect December 31, 2020. 

What Exactly Is A Tax Haven?

Tax havens are typically offshore countries that have tax regulations and rules set in place that allows them to offer low tax liability to business and individuals. The country also has little financial transparency with foreign tax authorities, which makes it easier for those abroad to keep their income out of sight. It is not normally required that an individual has residency, or a business has a business presence in the country to reap the benefits of the tax haven.

Tax havens allow individuals and corporations to benefit from incredibly low tax rates or even no taxes at all. Some of the most popular tax havens are the Cayman Islands, the Bahamas, Hong Kong, and Panama. The UK’s overseas territory includes many countries that are considered tax havens, so even if the UK itself is transformed into one, those territories will be their main option. However, after leaving the EU the UK will no longer be able to defend those areas, as well as they, did whilst being a part of the EU. 

Is The UK On Its Way To Becoming A Tax Haven? 

There is no denying that the UK over the past decade has been working towards low tax for corporations and individuals alike. Between 2007 and 2019, corporation tax fell from 30 per cent to just 19 per cent. One of the goals that supporters of Brexit had in mind was to turn the UK into a tax haven, however with COVID-19 devastating the economy at the moment, it is highly unrealistic that would be happening any time soon. 

It was speculated before Brexit that the UK government may strive to lower taxation to attract foreign investment. Over the past few years, UK politicians Rishi Sunak and Michael Grove have been found to facilitate money laundering as well as reducing national tax breaks, which led to people believing that the UK government would carry on these types of actions when granted more freedom after leaving the EU, however, this seems to not be the case for now.

What’s happening now?

Just last week, MEPs in the European Parliament voted to add some UK overseas territories to their tax haven blacklist, as the UK no longer has a voice able to protect these territories. The vote passed with an overwhelming majority, and other actions are to be taken, such as adding countries with 0 per cent tax regimes to the blacklist. Robert Palmer, director of the Tax Justice UK Campaign group told The Guardian, “The UK itself has been warned that if the government tries a Singapore-on-Thames approach…then the EU will act swiftly.”

This is just the beginning of the EU striving to home in on tax avoidance and money laundering in the UK, as some are concerned that now the UK is out of the EU, they will try to transform the UK into a tax haven. Some MEPs have expressed concern over the fact that the only rules holding the UK government back are that of the OECD, however, it is unlikely the UK will risk being added to AML and taxation blacklists to break any rules. For now, the UK governments focus is handling COVID-19 and recovering from the damage.  

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