TJN propose Unitary Taxation for the UK

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The Tax Justice Network in the UK has today submitted a response to HMRC’s consultation on the future of taxation of the profit of large businesses in the UK.

The submission is available here. Written by Sol Picciotto, Professor of Law at Lancaster University and me, we argue that:

TJN-UK entirely agrees that the pressures of globalisation create continuing challenges for the UK in protecting its tax base, including corporation tax. However, we argue that the time is right for the UK to adopt a new approach, which would provide a much sounder basis to face these challenges in the medium and long term. Such an approach would entail closer international cooperation and coordination, not only with other EU member states, and the wider group of developed countries in the OECD, but on a global basis. Far from posing a threat to fiscal sovereignty, as some might suggest, such closer cooperation is in fact the key to a reassertion of the rights and powers of states to establish effective taxation in the face of the extensive liberalisation of capital flows brought about in the past two decades.

In brief, the new approach would move towards the taxation of international corporate groups or transnational corporations on a unitary or consolidated basis, with an allocation of the tax base based on formula apportionment. This approach has long been well known to international tax specialists, but the arguments in its favour have now become overwhelming, with the extent of globalisation due to financial liberalisation, and deep international integration of global business networks.

Of all the options available we see this as the only win:win:win. Business will be taxed that reflects the economic reality of what it does. Tax compliance burdens will fall, which will be a win for tax authorities and companies alike whilst Treasuries will surely be pleased with the likely consequence of cutting tax havens out of the tax abuse loop. And sovereignty over setting tax rates is reclaimed, supporting the UK position on this, for as Kellerman, Rixen and Uhl have argued in the European context of the CCCTB:

Member states’ insistence on tax sovereignty is counter-productive because, although they formally have the exclusive legal
competence over tax policy, in fact, their actual capacity to design their tax systems according to national political preferences has long been taken from them. Under conditions of an open economy, national political autonomy to organize a socially fair and efficient taxation system can only be regained if the states do not simply adapt themselves to tax competition individually, but by regulating tax competition collectively on the European level. To achieve this, it is necessary to harmonize certain aspects of European tax policy. A Europeanization of corporate taxation does not contradict national tax policy autonomy. To the contrary, it is a prerequisite for real national tax sovereignty.

We agree. We would just like to apply this internationally.