Yves here. Tax is a major way to create incentives. New York City increased taxes dramatically on cigarettes, and has tough sanctions for trying to smuggle meaningful amounts of lower-taxed smokes in. Rates of smoking did indeed fall as intended.
Thus the debate about whether corporations should pay more taxes is not “naive” as the plutocrats would have you believe; in fact, they wouldn’t be making such a big deal over it if it were. In the 1950s, a much larger percentage of total tax collections fell on corporations than individuals. And the political message was clear: the capitalist classes needed to bear a fair share of the total tax burden. Similarly, what has been the result of the preservation of a loophole that allows the labor of hedge fund and private equity fund employees to be taxed at preferential capital gains rates? A flood of “talent” into those professions at the expense of productive enterprise.
And the result of having lower taxes on companies has been a record-high corporate profit share of GDP, with none of the supposed benefits of giving businesses a break. Contrary to their PR, large companies have been net saving, which means liquidating, since the early 2000s. The trend has become more obvious in recent years as companies have borrowed money to buy back their own stock.
Originally published at the Tax Justice Network
In the past year, scandal after scandal has exposed companies using loopholes in the tax system to avoid taxation. Now more than ever, it is becoming clear that citizens around the world are paying a high price for the crisis in the global tax system, and the discussion about multinational corporations and their tax tricks remains at the top of the agenda. There is also a growing awareness that the world’s poorest countries are even harder impacted than the richest countries. In effect, the poorest countries are paying the price for a global tax system they did not create.
Overall, the report finds that:
• Although tweaks have been made and some loopholes have been closed, the complex and dysfunctional EU system of corporate tax rulings, treaties, letterbox companies and special corporate tax regimes still remains in place. On some matters, such as the controversial patent boxes, the damaging policies seem to be spreading in Europe. Defence mechanisms against ‘harmful tax practices’ that have been introduced by governments, only seem partially effective and are not available to most developing countries. They are also undermined by a strong political commitment to continue so-called ‘tax competition’ between governments trying to attract multinational corporations with lucrative tax reduction opportunities – also known as the ‘race to the bottom on corporate taxation’. The result is an EU tax system that still allows a wide range of options for tax dodging by multinational corporations.• On the question of what multinational corporations pay in taxes and where they do business, EU citizens, parliamentarians and journalists are still left in the dark, as are developing countries. The political promises to introduce ‘transparency’ turned out to mean that tax administrations in developed countries, through cumbersome and highly secretive processes, will exchange information about multinational corporations that the public is not allowed to see. On a more positive note, some light is now being shed on the question of who actually owns the companies operating in our societies, as more and more countries introduce public or partially public registers of beneficial owners. Unfortunately, this positive development is being somewhat challenged by the emergence of new types of mechanisms to conceal ownership, such as new types of trusts.• Leaked information has become the key source of public information about tax dodging by multinational corporations. But it comes at a high price for the people involved, as whistleblowers and even a journalist who revealed tax dodging by multinational corporations are now being prosecuted and could face years in prison. The stories of these ‘Tax Justice Heroes’ are a harsh illustration of the wider social cost of the secretive and opaque corporate tax system that currently prevails.• More than 100 developing countries still remain excluded from decision-making processes when global tax standards and rules are being decided. In 2015, developing countries made the fight for global tax democracy their key battle during the Financing for Development conference (FfD) in Addis Ababa. But the EU took a hard line against this demand and played a key role in blocking the proposal for a truly global tax body.
A direct comparison of the 15 EU countries covered in this report finds that:
• France, once a leader in the demand for public access to information about what multinational corporations pay in tax, is no longer pushing the demand for corporate transparency. Contrary to the promises of creating ‘transparency’, a growing number of EU countries are now proposing strict confidentiality to conceal what multinational corporations pay in taxes.
• Among the 15 countries covered in this report, Spain remains by far the most aggressive tax treaty negotiator, and has managed to lower developing country tax rates by an average 5.4 percentage points through its tax treaties with developing countries.
To read a summary of the report, please click here.
A summary of the report is here.