Tax issues making EU investors look for alternatives

Last week, when we said that tax on incomes of foreign investments in Europe and the United States (US) may reach up to 80 per cent of annual profits, some considered it as an exaggeration.

Yet, the answer came quickly from French President Francois Hollande a few days ago, noting that taxes on investment income can be up to 70 per cent, adding that a law on this regard will be presented to the Parliament for approval.

The previous perception on tax expectations is based on many indicators, particularly the measures taken by the European Union (EU) for Cyprus, leaving the door open to all possibilities to save the Eurozone from collapse. These measures will have grave consequences on more than one level, which requires reassessments of investment returns, assuming that investments of €100 million (Dh480 million) with a net profit of 5 per cent will earn annual revenues of €5 million, the imposition of a 70 per cent tax will reduce the net return to one million and a half euros at 1.5 per cent only.

Despite some positive signs that have helped prevent the Eurozone from collapse, investors and businessmen have begun to look for alternatives.

Providing an example of this approach is “Gerard Depardieu”, French millionaire, actor and filmmaker, who vowed to give up his French citizenship and transferring his money abroad in protest at the new tax system, which he considered as an arbitrary tax.

Meanwhile, Russian President Vladimir Putin has granted the Russian citizenship to the French actor, which means that the capital outflow will have negative consequences on economic growth and creation of jobs.

Popularity

Therefore, polls show that 68 per cent of French people are not convinced of Hollande’s economic policies, and his popularity has fallen to its lowest level since he was elected last year at a time when his government is facing scandals of corruption and tax evasion.

This leaves Great Britain, which operates beyond the Eurozone and introduces itself as an alternative to European markets, on the grounds that deductions do not until now affect investors and businesses, with general deductions are channeled to support the country’s budget support and financial status.

Britain’s Conservatives Government has imposed a set of deductions in social welfare expenditure, which are expected to take effect this month, while imposing bedroom taxes if rooms are not used in social care homes, and made it conditional to put two children in each room to avoid taxes, which is a unique and strange move.

In fact, it is unknown to what extent the British Government will be able to avoid higher taxes on foreign investment returns, as British economy’s indicators are not satisfying.

Modest growth

The British economy has faced two rounds of recession since the election of Cameron’s government in 2010 and the application of his economic procedures, while economic growth remains poor and is expected to achieve modest growth of 0.6 per cent during the current year of 2013.

The current developments and measures regarding high taxes are taken under the umbrella of strong economic blocs and alliances within a large group of countries, as is the case in the Eurozone, not by each country individually, as was the case in the past. And, this is why the new tax measures get their strength.

Therefore, this will not stop at the issue of tax imposition or and indirect acquisitions of assets under the international economic blocs, but will include many other areas, including enhancing the competitive capacity of economic cartel members and achieving commercial and economic gains through collective bargaining, as well as increasing inter-trade exchange and integration of economic blocs and groups.

Briefly, this means that the era of taking unilateral action by each country has gone, because it is not possible for each state to cope with the new procedures and the fierce competition in international relations without collective action and within a strong economic group enjoying strategic dimension and fundamentals of success necessary to compete in the era of globalisation and emerging challenges.

Dr Mohammad Al Asoomi is a UAE economic expert and specialist in economic and social development in the UAE and the GCC countries.