Is Singapore a tax haven

BrexitWhy Singapore is not a model for Great Britain

Great Britain has not been a member of the EU since February 1st. Prime Minister Boris Johnson celebrates the time without EU regulations and wants to give the island a head start in global competition. If britisIf companies dream of less stringent regulations and simpler approval procedures, they often have Singapore in mind: the city-state is seen as a model of international competitiveness. So does the EU have to worry about a new economic competitor on its doorstep with state aid, tax breaks and low environmental standards attract multinational companies? We ask Christian Odendahl, Chief Economist at the Center for European Reform (CER).

Mr. Odendahl, where did the idea of ​​a “Singapore on Thames” come from?

CHRISTIAN ODENDAHL: In the Brexit debate, Singapore is a symbol of a business-friendly, regulated, low-tax country that is small but very successful. Singapore, for example, is always very high in the World Bank's “Doing Business” index. The hope is to become such a country, detached from the EU: less product market regulation, less annoying data protection rules, lower environmental protection - or labor market standards and so on ... At least that is the argument.

What are the real benefits the UK could get?

That is the question to which none of the proponents of such a model has so far given a convincing answer. When it becomes specific, it usually becomes very thin. The OECD regularly sets up an index that measures the level of regulation. Indeed, none of its member states is less regulated than the UK today, with the exception of the USA, for which no data are available. That means, despite EU membership, you can apparently keep the regulation very easy.

Which screws could you then turn?

In relative terms, I find the most convincing argument that the government in London could make its own industrial policy on a large scale as soon as the EU restrictions on state aid fall. But I don't think that's exactly what the Brexit proponents imagine Singapore to be.

If the government cuts labor market standards, it would hit the socially disadvantaged areas in particular, where the Tories rose in the last election. Is a Singapore model politically feasible at all?

That is exactly what is doubtful. Because such a Singapore model is only successful - if at all - if it is designed for the long term. Only then will companies rely on the promise of even less regulation or even lower taxes and invest accordingly. Even if the conservatives are very strong at the moment, I do not see any long-term viable political coalition that will support such a model in the long term. I dare to doubt whether Boris Johnson's new voters in the north of England would like more deregulation.

But could a new tax haven emerge at the gates of Europe?

As Ireland, the Netherlands or Luxembourg show, you can also become a very attractive country for tax purposes within the EU. Unless illegal state aid is involved, the EU has hardly any rights of its own in terms of taxation. Most tax issues are resolved in bilateral double taxation agreements or in OECD forums. The fact that large companies can play off EU countries against each other on tax issues is a big problem. But Brexit is of little help to the British here.

The EU is pushing for Great Britain to maintain what is known as a “level playing field”. Can it contain the competitive advantages the British have in mind in the upcoming talks about future relations?

This is exactly where the drawbacks of a Singapore model come in. Because the EU will of course not allow a country to run a poorly regulated, low-tax economic model at its gates, which at the same time has free access to the EU market. The EU will insist on fair rules, as negotiator Michel Barnier has already made clear. If the British refuse - and that's what the government sounds like right now - then that means less easy access to the EU market. But that would, especially in the industrial sector, probably undo the few advantages of deregulation (and the devaluation of the pound).