3 - European taxes force up prices

Posted on 12 Jul 2007 at 11:11

Verdict: False

"The regional tax argument doesn't hold water at all - it may make a slight difference, but it doesn't in any way account for large regional differences," says the LSE's Alexander Grous.

Leaving VAT aside, claims that tax issues push up prices on this side of the Atlantic simply don't bear scrutiny. Even if companies are paying corporate tax here, and not solely in the US, the taxman's pie is far more thinly sliced over here. "Although there are other hidden taxes, and it could be closer after adjustments and allowances, the basic corporate rate here is 30% compared to 40% over there, and the UK will drop to 28% next year," says Professor Fender.

So whether it's a software manufacturer doing business here, or it's a reseller that's operating solely in the US, the UK tax rates shouldn't push up prices. The issue is further muddied by the fact that in a near monopoly, as enjoyed by market leaders Microsoft and Adobe, changes in corporate tax have limited effect on prices. "A profit-maximising monopoly wouldn't change its prices based on corporate tax rates, because it would still make more money by leaving its prices high - it will go for the highest price it can charge and simply pay the tax," says Fender.

Back to 'Rip-off Britain: excuses exposed'.

Author: Stewart Mitchell