A better way to tax corporations: my article in the Financial Times

There have been major debates in Britain in recent weeks following a series of stories showing how multinationals including Starbucks, Amazon and Google have been using the international system of tax havens to cut their UK tax bills, often down to zero, while reporting big profits to their shareholders there.

I have a comment article in the Financial Times today, co-authored with Professor Sol Picciotto, entitled Make Corporate Tax Rules Fairer For All. It’s  about corporate tax avoidance and a proposal for reform, known as unitary tax. The article is a fair bit shorter than what was submitted but still they did a good edit. It states:

“The world’s tax rules have not kept pace with profound changes in the global economy.”

Then it goes on briefly to describe the hocus-pocus of international corporate income tax avoidance, and our original article (though not the published version) went on to say:

“The rules, dominated by the OECD club of rich countries, are supposed to tackle this prestidigitation by pretending that it is possible to set an “arm’s length,” market-determined price for these transactions, based on comparables elsewhere. But multinationals generally produce unique products and services and enjoy economies of scale and scope, so even the world’s most sophisticated tax authorities cannot find appropriate comparables. Developing countries find it nigh on impossible.”

The OECD’s methods are, as former top US international tax official Michael Durst explains, “based on a fundamental misunderstanding of practical economics.” The published version then notes a better, simpler alternative: unitary tax.

“Instead of taxing multinationals according to the legal forms that their tax advisers conjure up, they are taxed according to the genuine economic substance of what they do and where they do it.”

Europe’s proposals for a Common Consolidated Corporate Tax Base (CCCTB) is a version of this, but its scope is too narrow, as the article continues:

“Tax experts have long argued that this approach is better. It is proved, too: most US states already use it successfully for state taxes. The EU’s proposal for a common consolidated corporate tax base goes a long way towards this, though its geographical focus should be expanded to require a worldwide combined report. It is possible to move towards unitary taxation without widespread international co-ordination, though that would certainly help.”

If you want to know more about unitary tax, see Prof. Picciotto’s draft paper here. It has some discussion of the CCCTB, but it far broader. A substantially edited final version of the paper will be available soon.

  1. #1 by mike potter on November 20, 2012 - 3:34 pm

    Such a new method can be established intra-regionally (EU, NAFTA, BRIC) then inter-regional.
    Canada uses a formula apportionment to distribute corporate profits between provinces. They should spread this to US and Mexico

  2. #2 by Svetlana Borg on November 22, 2012 - 4:28 pm

    • #3 by Clarissa on November 28, 2012 - 1:09 am

      In the U.S. you find lot’s of those crazies who want to mess up governmental issues with Christian fundamentalism. You might find your kind of “solution” especially in the south over there.

      But we’re not going there in Europe. We definitely have not enough fundamentalist crazies. Thanks God we haven’t!

      By the way, I’m very much convinced the Republicans lost the election above all by uttering Christian fundamentalist insanity. They scared a lot of fiscally conservative women over to president Obama. Who wants to go back to the middle ages? Thanks Richard ‘the rapy’ Mourdok! LOL

  3. #4 by Clarissa on November 28, 2012 - 12:42 am

    This is what I’ve learned during the online campaign of the 2012 election year in the U.S. (was only online whiling over there):

    Tax laws should tax private luxury and reward investing into ventures within a nation or union. Ergo, taxing is not only good for raising revenue, it’s also motivation to actually create jobs. After all revenue comes in anyway, if more people find work. (I don’t talk about “growth”, because it’s pure insanity.)

    We have to consider the difference between spending and investing: Investing means to create, build and develop. Spending means fancy meals, diamonds or expensive watches for sweethearts and exorbitant palaces.

    The idea to create jobs by cutting taxes on the super-rich failed in the U.S. : The Bush tax-cuts didn’t motivate them to create jobs within the country. They actually shipped jobs overseas, as to China ect. — as they still do.

    And still the Republicans sing their same silly old song in Congress: “We can’t raise taxes on the job-creators!” Indeed they mean those one-percenters, who often live sort of neo-Sunking lifestyle. If you tax that insanity, these neo-Sunkings will be shocked, watching their wealth slowly melt away. And trust me, some might leave the country (let these idiots go, even help them packing!), but many of them will start investing…..

    Reasonable taxing is educating as well. How get there within the E.U.? By voting in representatives who utter ideas like this. Progressives of course. ;)

  4. #5 by Moribundus on December 17, 2012 - 3:08 am

    Rise minimum wage will boost tax colection. Scandinavia and Benelux aint got too much problems since people make ehough so this is actually taken out of corporate profit. Folx ship jobs out of country but they do not allow others to invest. Basically we are hostages as they can do whatever they want. Norway fixed problem in 1920-1930′s when they kicked out 1%.

  5. #6 by Moribundus on December 17, 2012 - 3:20 am

    For US there is main goal get healthcare out of employer benefit. Selfemployed are single digit in US which put US at tail of 150 countries. Then make minimum wage by age: till 18 years old $6/hour, 18-25 $10, over 25 $15. Plus 4 zones by cost of living and add to minimim wage. One can not compare New York city with places in New York upstate. Yep, it will rise prices. But low prices are killing economy since family businesses can compete with MCD, Wendys etc. One Walmart cost taxpayers average $200 000 since Walmart aint giving enough hours to qualify for healthcare and benefits and the those folx are hanged on food stamps and state help. Ohio in 2009 spent $600 milion on employees of 50 companies in state. The same issues. US economy is 75% consumer’s spending.
    In 1997, Norway instituted Debt Forgiveness and “Wrote Down” 90% of the Countries Mortgage Debt.
    It’s been done, documented, and completely hidden from the World, through the World Media, until 19 April 2012.

    Complete and Total Censorship of anything Debt Forgiveness Related, World Wide.

    The IMF has said that targeted household debt reduction policies can deliver significant economic benefits.

    Latest IMF report notes link between high levels of household debt and the effect on economic recovery
    The IMF has said that targeted household debt reduction policies – including mortgage write-downs – can deliver significant economic benefits.

    I would do this in US with mortgage and student debt. In Europe with mortgage.

  6. #7 by Clarissa Smith on December 14, 2012 - 11:41 pm

    I don’t like spam posts, but this might be the most intelligent one I’ve ever read. In case I’m right, it is the most devilish one as well. What admin feels fine with deleting concerns about most deadly cancer forms? But nobody else is talking about cancer here.