Corporations do pay tax

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Neil McIntyre, a Canadian accountant quotes the following on his blog, with favour:

No corporation ever paid a dime of tax. All taxes are paid by people: the people who own the corporation, or the people who work for it, or the people who buy its products. A corporation is just a piece of paper, a legal document on file at the registrar’s office.

This fiction is promoted by economists, and most especially by companies. And in the world in which economists live (one which they are happy to assume perfect) the fiction coincides with reality. In practice, the reality is otherwise, as the corporations know. The reasons are simple:

  1. Economists and right-wingers might assume that companies are run solely in the interests of their shareholders, but that is untrue. The reason is obvious. It would be completely irrational for all who work for a company to sacrifice their own self interest to the cause of those who in all large companies, at least, they do not know and might care for even less.
  2. Managers retain profits within companies, and have the legal right to do so. There is nothing that the shareholders can do about that in most countries except by removing the directors of the company, an event almost unknown in current modern company practice within the quoted company sector. So directors know that this cash is available to them to use as they will.
  3. When the owners of companies are not known (and this is often the case) it is completely irrational to presume that these unknown people pay the tax that the company owes and it does not.

To out it another way, after about 150 years or corporate history what this claim represents is an absurd suggestion that the corporation has no identity separate from that of its owners. It has. They cannot be sued for its actions. They cannot be held liable for its debts. And yet apparently they pay its tax.

Shall we get real here? They don’t. It’s liabilities are not those of its members. That’s the whole purpose of a limited liability company. And the reality is quite simple. Directors have learned to keep enormous resources under their control, out of which this tax is paid. They just promote a convenient fiction created by economists to cover their tracks.

Corporations do pay tax. That’s why they should be taxed, fairly. Of course their tax interacts with the tax liability of their shareholders. That’s an issue where justice has to be taken into account as well. But let’s get over this nonsense that they are the same thing. They are not.