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Scots invite views by 5 September on corporation tax devolution

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There is a compelling case for devolving corporation tax to Scotland, the Scottish Finance Secretary said in a discussion paper on options for reform.

John Swinney said a competitive corporation tax regime had been ‘a feature of the economic success of many small independent economies’, and there was a 'growing consensus' in the UK on the merits of devolution.

‘In Scotland, a growing number of our most successful entrepreneurs and business leaders are calling for change,’ Swinney wrote in a foreword to Corporation Tax Discussion Paper – Options for Reform, published on 16 August.

He added: ‘With full responsibility for corporation tax, the Scottish Parliament would have a whole range of new, positive choices to help strengthen our economy. For example, Scotland could operate a lower tax rate, vary the tax base, simplify the tax system or use corporation tax as a lever to encourage innovation and investment. These are important tools, which could deliver substantial economic dividends.’

The fact that Northern Ireland is currently in consultation with the UK government on being granted authority to set a lower rate of corporation tax than the rest of the UK – a move that the Scottish government would support – made it ‘all the more essential that Scotland is granted similar powers’, according to the discussion paper.

The Scottish government is committed to holding a referendum on independence.

Profit shifting

David Gauke has argued that a Scottish corporation tax would present ‘greater opportunities’ for groups to shift profits than a Northern Ireland corporation tax.

During a debate on the Scotland Bill in June, the Exchequer Secretary to the Treasury told MPs: ‘Given the geographic proximity of England and Scotland, the integrated infrastructure, the large number of big GB-owned groups with a substantive presence on both sides of the border, and the relatively large and complex nature of the Scottish economy, there are likely to be greater opportunities for groups to shift profits there than may be the case for Northern Ireland.’

Alan Reid, Liberal Democrat MP for Argyll and Bute, said: ‘If one part of the UK were to cut corporation tax, the other parts would be forced to follow suit and there would simply be a race to the bottom, in which businesses would not be paying their fair share of taxes. That would mean either personal taxes going up or services being cut.’

The Tax Justice Network said battle lines were being drawn for ‘tax haven Scotland’.

Scotland Bill

The Scottish government invited initial comments by 5 September to help inform its proposal for devolution of corporation tax, to be submitted to the UK government this Autumn. The second reading of the Scotland Bill in the House of Lords is scheduled for the following day.

The UK government’s consultation on rebalancing the Northern Ireland economy closed on 8 July.