So Estonia taxes net profit, but only on the part which is distributed as dividends? Weird. I think my life is too short to wonder too deeply why they do thisDigby wrote:Son of Mathonwy wrote:
If you don't believe me, ask yourself why, across the world, corporation tax is based on profits? If your idea worked, why is no one doing it? (This doesn't prove you wrong, but it suggests you need to come up with a detailed explanation of how it will work.)
it turns out someone is sort of doing it, the mighty Estonia, I've taken this from a website called something like Work in Estonia (it might have been Live in Estonia)
"The income tax rate for private entrepreneurs and corporations is 20%.
Corporate earnings taxation in Estonia is truly unique – it shifts the moment of corporate taxation from the moment of earning the profits to the moment of their distribution.
This means that earning profit in itself does not trigger income tax liability. The tax obligation arises only when earnings are distributed to shareholders. If the profit distributed to shareholders originates from dividends received from a subsidiary or permanent establishment in another country, there’ll be no tax to pay on profit distribution."
The thing about noting this is I don't want to limit the conversation to a particular plan on what should replace corporation tax, partly because I wouldn't want to discuss it with a diagnosis already in mind, and partly I've never put the time and effort into devising a new tax system, I'm probably not odd in not doing that but you never know. I'm merely of a view that taxing business activity and/or taxing distributed income is a much more efficient model than taxing capital income. I'm not in advance thinking the Estonia model offers a huge amount to us, it might, but I suspect they've a much younger working population, entirely different demographics around their retired and retiring population, entirely difference pension schemes,

In the end, re tax on companies, the truth is that in the UK only a small % of overall tax comes from corporation tax. So in theory they could dispense with the whole thing... if they were able to increase other taxes to take its place. But that's politically difficult and it is of course less risky to collect taxes in a variety of ways (less volatile).