I was on the Today programme this morning.
You can listen again here at 2.38:30.
I made several arguments. The first is that the politics around tax have changed.
The second is that tax havens are about secrecy and their opacity is now the focus of attention.
Finally, current corporation tax rules don't work and we need unitary taxation.
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Very clearly and concisely put, as usual Richard, with the central importance of transparency coming across strongly.
Leaving the OECD and G8/20 aside, what we really need to see now is the EU sorting out the Netherlands and Luxembourg, and of course our own pile of dirt. Merkel, Cameron and co can complain as loudly as they like otherwise but if they can’t sort out their own backyard (as it were) then that significantly undermines their ability to presure others into taking action. Ideally I’d like to see the EC agreeing a timetable that all secrecy jurisdiction within the EU (including overseas territories and dependencies) are outlawed within two years of the G20 meeting. That’s realistic and sets and benchmark for all others to live up to.
That would be good
Seconded 100% Ivan.
Delighted to hear this – I’ve been badgering Jack for weeks to get you on the programme, and others with a more critical approach to the financial industry (& the state’s overseeing responsibilities).
And not before time I have to say, Peter. Let’s hope from hereon we can expect a little more critique and less of the ‘safety first’ by simply going along with the government/industry line.
Excellent, well spoken as usual Richard. Great that someone finally got the taboo words unitary taxation spoken on prime time national media
Thanks
Excellent but disturbing article from Zoe Williams on the kind of degradation employees of Amazon (and others) have to endure.
http://www.guardian.co.uk/commentisfree/2013/feb/14/when-did-lowly-paid-become-offence
Not only do the likes of Amazon want to avoid their responsibility to the Exchequer in the form of taxes for the benefits they get from operating here, they also appear to want to demean and terrorise the workforce. It seems to me that this is the kind of operation the likes of Beecroft would applaud as a model for the future.
I know it is far fetched, but how fantastic would it be if a union could get in there, get the workforce organised and force recognition rights? (Similar odds are available on Elvis Presley landing a UFO on the Loch Ness Monster….)
Most of amazons workers are agency-contract.
Getting a unionised agency is as likely as getting an honest politician.
They are also not allowed to park personal transport at the “factory” !
As Ivan Horrocks says, very concise .. and the defining feature of tax havens being ‘secrecy’ came across extremely clearly.
I thought you might not have seen this infomatic re: how the super-rich avoid paying taxes, which I thought very clear:
http://www.zerohedge.com/news/2013-02-15/how-super-rich-avoid-paying-taxes
Dear Richard
I’ve concluded that the OECD should consider doing away with the whole concept of Permanent Establishment as a basis for taxing companies which are based in one country, but trade with another, in favour of a system which taxes the profits of international retailers where the CUSTOMER is based, regardless of whether the seller has a physical presence in the destination country.
A business that has the opportunity to sell to the inhabitants of a country is thereby gaining an economic benefit from that country, for which in principle it should be paying.
Such a destination — based taxation system would involve significant practical challenges, but I think that those challenges are worth trying to meet.
I suggest the following hypothetical scenario: A company based in country A spends £25 on materials (purchased from local taxpaying businesses) and £75 on labour (paid to local taxpaying employees), thus producing a product at a cost of £100. The product is then shipped to country B (ignoring transport costs for now, for simplicity) and sold there for £130 to a consumer who would otherwise have bought a similar product from a local taxpaying business.
The question is: To which country, if you were designing a tax system “from scratch”, and suspending for the time being any concerns about the practicalities, would you give taxing rights over the £30?
My answer to this is country B. The COST of the product has been generated within country A and taxed there, but the PROFIT is attributable to the sale to the customer in country B.
If destination countries don’t have taxing rights in these kinds of situations, then clearly their tax systems will eventually suffer massive losses due to businesses basing themselves in low tax jurisdictions.
I’d be very grateful for any comments you might have on the above.
Thanks
I am much inclined to agree with you, but not quite
I wholeheartedly think a destination tax is essential
But labour that generates a sale deserves a shar too
As does infrastructure
Check out Sol Picciotto on TJN on this – I endorse and share his thinking, but we are colleagues woken closely together
I am much inclined to agree with you, but not quite
I wholeheartedly think a destination tax is essential
But labour that generates a sale deserves a share too
As does infrastructure
Check out Sol Picciotto on TJN on this – I endorse and share his thinking, but we are colleagues woken closely together
OK thanks. I’ve now read Sol Picciotto’s paper “Towards Unitary Taxation of Transnational Corporations”. I think I understand the gist of it, specifically the statements that “the unitary approach is based on the principle that tax should be paid according to where the activities generating the income take place”, and “At the heart of the unitary approach is the allocation of the total profit according to a formula”.
I agree that a structural change is necessary. The part where I’m still struggling with the logic, is the idea of allocating part of the tax on the PROFIT, on the basis of factors which form part of the COST of production. The point being that profit = proceeds less cost, i.e. they are two completely separate things.
To illustrate: if a business has a factory built, then the construction companies that built it presumably made their own profit from doing so, on which they have presumably paid tax. Likewise, the workers in the factory have already paid payroll taxes on their salaries. So using these factors to allocate any of the taxing rights on the profit would seem to be double counting and therefore giving the country in which they are based, too many taxing rights.
The most principled answer would (it would seem to me) to be, ideally, to give 100% of the taxing rights to the destination country (since that is the country which has generated 100% of the actual profit margin), but probably allow the business a corporation tax deduction for the specific costs of selling in that country (costs of transporting the goods from the home country to the destination country, any marketing costs specifically targeted at the destination country, etc)
This “pure destination tax model” (for want of a better name) would not be as far reaching as full unitary taxation. In particular, it is not designed to address all the major practical TP challenges for both companies and tax authorities in setting/policing appropriate inter-company prices, where there are no comparable uncontrolled transactions. Tackling those challenges would have to be a separate project. I can see that this fact will diminish the attractiveness of this model for many.
Nevertheless this model is simpler than full unitary taxation and (for the reasons given above) would seem to have a slightly sounder logic (and therefore hopefully more chance of being recommended by the OECD).
Isn’t it? Or am I missing something?
The basic problem is simple models result in inequitable solutions
And we can handle complexity with ease
So why settle on a compromise of little merit when a better solution s available?
I think the point you are missing is that the allocation of the tax base under Unitary Taxation does not aim to identify in what country profit is earned, it does not *attribute* those profits by country. It assumes that profit is earned by the firm as a whole, due to its ability to combine activities in different locations and the synergy that generates. UT aims to *allocate* the tax base according to factors which measure the firm’s physical presence in each country. This should therefore include its presence in production as well as sales. Taxes are the firm’s contribution towards the collective provision of the infrastructure, education, social welfare etc which help the firm to make profits, so it’s important that production factors are part of the formula. However, the formula should also reflect the location of consumers of the firm’s output.