A few thoughts on international tax issues if the Scots vote for independence. First, though I should point out that I don’t really care which way they vote, I just look forward to the issue not being discussed ad nauseam.
There are a number of tax negatives for Scotland with a yes vote which are no tax grouping with the rest of the UK, not being a member of the EU and the need for new tax treaties.
If Scotland is independent then clearly it will have a separate corporation tax to the UK. As a result if a Scottish taxpayer makes a loss in the UK it will not be able to offset this tax loss against Scottish tax due. This hits start ups particularly and results in double taxation on total profits. Similarly a Scottish taxpayer selling into the UK will have to register for VAT in the UK and pay that VAT to the UK. Scotland loses a share of that tax revenue it currently receives. If Scots work in the UK, then they will be subject to UK tax when they work in the UK subject to tax treaty relief. Of course all this applies in reverse to UK taxpayers.
Scotland will no longer be a member of the EU, until such time as the EU decides to admit it. It will no longer benefit from EU tax directives. As such it will depend on tax treaty protection (if appropriate) which I will come to later. So taxpayers will not be able to benefit from withholding tax rates set by the Interest and Savings directive and the Parent / Subsidiary directive on payments made to them by taxpayers in EU states (including the UK). The likely outcome is that withholding tax will be withheld until the Scottish taxpayer can prove it doesn’t apply which at the least will result in a timing disbenefit. This will affect interest payments, dividends and potentially capital gains. Given the attitude to secession of some EU states, this could be a protracted problem.
Finally, tax treaties. When the Soviet Union split up, former member states used the USSR treaties until new treaties were negotiated. As such it is likely that Scotland would try to use UK treaties if the UK allows it (will it?) or until a new treaty with a third country is negotiated by the UK. Again there will be question marks about how the treaties will work for a Scottish taxpayer in the transitional period.
All of these issues increase tax risk for Scottish taxpayers, how much and for how long is an interesting question, but we don’t have any good precedents for what happens in international tax when a country secedes. The SNP will no doubt view this as another example of scaremongering – it isn’t.