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Threats to tax the foreign profits of oil companies risk economic disaster. Here's why foolish and repeatedly made demands to tax the global profits of companies like Shell would crash the British economy.
While headquartered in the UK, BP and Shell make most of their profits overseas. Only 5% of Shell's business is in the UK. Oil companies already pay an extortionate 75% tax on their UK profits, leading many to stop investing in the UK. Harbour Energy, for example, won't bother bidding to explore for new resources in the North Sea, and France's TotalEnergies is cutting down UK investment by a quarter this year.
Naturally most of the demands to confiscate Shell and BPs profits to pay the nurses et cetera are just opportunistic grandstanding to appeal to the ignorant, but it is worrying how many Labour MPs are chosing to take this line.
More worrying is that some people who actually understand tax, likewt to tax foreign profits: "To impose a windfall tax on a worldwide basis would be highly controversial, and is not without risk - but in my view it should be given serious consideration," he says.
It would be legally possible to tax overseas profits but would involve both adopting the policy and ethics of a Banana Republic and exiting from the global system. Our international reputation would be trashed and retaliation would soon follow.
There would be two main consequences:
1. Many international companies would move their headquarters out of the UK to avoid being subject to arbitrary taxation.
2. Other countries, angry that Britain had taxed profits made on their soil, would tax the extra-territorial profits of UK companies.
Companies would cease investing in the UK because of the danger of double taxation in a wild west tax environment that is inherently fiscally unstable. Money would pour out of the country and rapid economic decline would follow.
We should not tax oil from foreign seas. There be monsters.