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23 July 2024

Raising tax to penal levels is like creating drought

By Martin Baker

All the creature comforts in the world aren't going to be enough to persuade the giant US Investment bank, Goldman Sachs, to keep a chunky operation in London, I fear.

Regular readers will know that I have consistently argued against the folly of heavy taxation. In this globally connected world, all heavy taxation does is drive profitable business offshore.

Goldman Sachs has announced that it is looking at locating major divisions of its London operation offshore. The reason, of course, is to avoid penal tax rates. The consequence, unfortunately, will be a loss of wealth for the domicile known as the United Kingdom.

There is a substantive test to being domiciled offshore. The banks don't just employ high-powered lawyers to argue that an operation is not domiciled at a certain location. The facts must bear this out: the workers must locate to a new venue, with loss of income for the support services [travel, clothes, hospitality]. Most importantly, the tax authorities, instead of getting a respectable income from a thriving business community, will see nothing.

There is much talk of climate change in today's world, and the evils of drought. Well, raising tax to penal levels is the business equivalent of creating a drought. The well of favourable conditions, of a sensible fiscal environment and a sensibly and predictable administered legal infrastructure is running dry. And it's all the fault of bad governance.

Mind you, the media are not without blame in all this. Goldmans will be announcing their full-year figures in the week beginning January 10, and the headlines will revolve around whether or not the bank beats its record 2007 bonus payments to staff. Goldman Sachs has recovered very well from the hammering of the credit crunch (having long ago paid off its government emergency funding) and will certainly reveal huge profits.

But the media coverage will revolve around the payments to staff [the bonus pool was a meaty $20.2 billion (Dh74.3bn) in 2007, by the way] not the profitability of the business. There will be lots of enviousness and nastiness in the reporting.

Right now, venues where business and profitability are welcomed – such as Dubai – seem very attractive indeed. And the weather here [-5 Celsius in London the other night] doesn't help much either.

Martin Baker is a journalist, author and commentator on international business affairs. The views expressed are his own


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