(With apologies to John Cleese for paraphrasing The Life of Brian)
I was intending to write this week’s article about the Horizon programme on BBC 1 on Monday night about corporate tax planning, however that got me thinking about competitive advantage in a global market place and what lessons we can learn from Greece.
Greece is known as the birthplace of civilisation. I am of course aware that the early Greeks settlers most likely came up through North Africa and settled in the Aegean islands before the mainland, however it was in Greece itself that early forms of philosophy, astronomy, engineering and mathematics thrived amidst a burgeoning economic climate. During the period up to the Persian Wars, Greece was separated into a myriad of individual city states with their own distinct cultures and societies, they came together to fight the Persian invasion but again disbanded once they had beaten back the marauding forces of Xerxes in 479 B.C. The 100 years thereafter were the golden age for Athens when democracy was founded and Aristophanes wrote some quite amusing (and very rude) plays.
When Philip of Macedon came to power he once again united Greece and when his son, Alexander The Great, took control he conquered most of the known world. What should happen upon his death? The city states split once again and went their own merry way (do you see where I’m going yet?). So is it any surprise that unions of states end up reverting back to a socially acceptable position of a loose coalition of individual jurisdictions with their own economies and cultures.
The European Central Bank is actively discussing Greece decoupling from the Euro and one has to consider that Spain and Portugal will follow. If so, why would Germany not do the same being at the stronger end of the scale?
So decoupling is likely to result in a massive depreciation of the new Drachma and possibly hyperinflation in Greece which does, tenuously, lead me on to the aforementioned Horizon documentary. The tone of the programme was entirely predictable in that offshore jurisdictions are assisting unscrupulous big business to avoid paying their ‘fair’ amount of tax in the UK. The reporter also mentioned that the UK has one of the lowest corporate tax rates amongst first world countries implying that this may be unfair against our fellow Europeans.
The reality is that HNWs and corporates increasingly have the freedom to choose where and when to pay tax; this has been helped hugely by the rise of the internet, mobile technology and broadband. As such, jurisdictions need to be competitive just as the private sector is. That basically means that the services you pay for need to be worth the money.
My suggestion to Greece: leave the Euro and introduce a 5% corporation tax rate. The EU may well attack them for unfairness however if Spain and Portugal follow suit they may encourage a new Mediterranean financial boom that will see companies relocating wholesale; and why not?
The EU is discovering that it cannot police the world fiscally, so rather than fighting it, let freedom flourish and maybe Athens can have another golden age.
