Behind the business news: Playing tax EU style

You may have seen at the weekend yet another proposed Spanish take-over of a UK insitution the tote in the Sunday Times.

Briefly, since 2002 the Spanish Government allows any good will in a deal (that is the amount over the price of the assests) to be set against future tax. This is different to the UK and other major European companies.

Thus Spanish companies, althought still having to pay up, can effectively write-off much of the cost at the government's expense. Hence we have seen this year O2, Abbey and BAA fall to Spainsh acquirers. The tax saving could be up to 20% of the goodwill. SO any other bidder would be hindered by this, as effectively the Spanish government is subsidising the bids

I make this point a) to be informative as to why so many of our companies are being taken over by Spanish companies and b) to show how playing with seemingly arcane tax law actually has big effects on our corporate ownership. All these companies used to pay tax on UK profits which will now no doubt move abroad over time.

This is one area where the UK is very poor competitively at the moment, losing out to the likes of Spain and Ireland for investment. I am not a fan of protectionism to stop this and nor of the EU setting our taxes for us. Instead the government should be looking to tie up these aggressive moves by our European partners; otherwise the short-term gain for the city as a result of the take-overs will become a long-term decline for our economy as corporate tax receits get drained abroad.