David Glen, head of tax at PricewaterhouseCoopers in Scotland, analyses the effects independence will have on Scottish taxes.
While it is obvious that a Yes vote will result in substantial change to the tax system, as Scotland begins to develop its own independent tax regime, perhaps what is less clear is that a No vote is also likely to result in significant change.
Initially this will be through the devolution of tax powers already introduced by the Scotland Act and then potentially through further devolution of tax powers as proposed by the main unionist parties.
On the assumption that the SNP form the first government of an independent Scotland, its white paper gives an indication of what its early tax priorities will be.
These priorities include a reduction in corporation tax by up to 3% below the main UK tax rate and the simplification of the tax system to target a £250million revenue gain.
While the intention to reduce corporate taxes and simplify the tax system to encourage investment in jobs in Scotland is laudable, it is only one aspect which will be considered by international businesses when determining where to locate overseas operations and therefore there is no guarantee it will be successful.
Such tax breaks also have to be funded and, even if successful, the payback period can be significant, given every company benefits and not just new entrants, which will result in the Scottish Government having to borrow or raise additional income to balance the books.
Part of the funding for the 3% tax reduction may come from the £250million the government hopes to save through simplification of the tax system.
But it is not clear whether the target for raising this revenue will be individuals or businesses, large or small.
The most significant tax impact of a Yes vote is likely, initially at least, not to come from the exact wording of the Scottish tax legislation but from a new border between Scotland and England which will redefine the concept of “overseas” transactions for tax purposes.
Individuals who live and work on different sides of the border, or businesses that operate on both sides of the border, could find themselves resident for tax purposes in both countries and, as a result, suffer double taxation.
It is expected that Scotland would enter into a double tax treaty with the rest of the UK shortly after independence, the terms of which will be crucial to alleviate this double taxation.
Nevertheless, an analysis of the cross-border transfer price will need to become a familiar concept for these businesses.
Turning to the impact of a No vote in September, this doesn’t mean there will be no change.
With the Scotland Act 2012 introducing the Scottish Land and Buildings Transaction Tax and Scottish Landfill Tax from April 2015, and the Scottish rate of income tax from April 2016, change is clearly already on the agenda.
This devolution of power was supported by the main unionist parties, and more recent announcements from them have suggested they may look to devolve further tax-raising powers to Scotland.
What is key, however, is that none of the proposals involve the devolution of any of the other major taxes, such as corporation tax, national insurance or VAT. It should be noted that VAT cannot be devolved under EU law.
The result of this is that, while further devolution of smaller taxes may shift additional revenue-raising power to Scotland, it is unlikely to enable the Scottish Government to introduce new tax policies specifically targeted at stimulating the Scottish economy.