This blog trails a paper that I think should be of real interest. With the above title, it is by Prof Sol Picciotto, with whom I have collaborated on tax justice issues for a long time, and has been published by the International Centre for Tax and Development. The summary says:
Taxes are a basis of national states, but they have been internationally coordinated since the emergence of taxes on income and profits, which were central to the legitimacy of taxation and the increased power of states in the 20th century. This paper traces the historical development of this international system, especially in relation to its interaction with the growth of transnational corporations (TNCs), and analyses attempts to adapt the system to the increasingly dominant role of TNCs in the world economy. It explains and discusses the key principles and concepts (permanent establishment, arm's length, controlled foreign corporations, transfer pricing), and shows that they have become increasingly inadequate especially following recent renewed economic globalisation. Contributing to current debates on reform of the system, this paper puts forward proposals for an evolutionary shift towards a unitary approach for taxing TNCs.
This debate is now at the heart of the international tax issue.
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I’m afraid nobody will take unitary taxation seriously until its proponents properly engage with conflicts between unitary taxation states and those retaining the existing system. In other words: the problems of double taxation, and double non-taxation. Thusfar all we’ve seen are one-paragraph responses asserting that double taxation does not matter (which will not convince any waverers) or that double tax treaties will prevent double taxation (which at present they will not).
The problem of double non-taxation hasn’t even been touched – but unless it is solved, a state uniltaterally adopting unitary taxation is just providing additional avoidance opportunities to TNCs. The only solution I can see is unitary tax countries retaining a profits-based system as a backup (a bit like the AMT in the US); but this seems extremely unattractive.
Or is there some fuller analysis somewhere I’ve missed?
Read what Sol, I and others are writing and you’ll see that is exactly what we are doing
Where? There’s nothing in this paper, and one paragraph in a paper by Prem Sikka which asserted double taxation wasn’t really an issue. If I’ve missed a more detailed treatment of that problem, or any kind of proposal for solving double non-taxation then do please point me in the right direction.
We have explained time and again in submissions how e would do this
Try our March BEPS submission – on this site
Am I looking at the right document – “no more shifty business”?
It contains one paragraph saying that a gradual move to unitary tax havens could be achieved by amending tax treaties. This begs the question of how a treaty allocates tax between a jurisdiction that taxes on a unitary basis and one that continues to tax on a conventional basis. It also assumes that everyone plays ball – in reality a country that doesn’t wish to adopt unitary taxation is unlikely to agree tax treaty provisions that facilitate others doing so if that reduces its own tax take or results in its residents being more heavily taxed.
I’m not saying these issues can’t be resolved – I’m saying they’re genuinely difficult and it doesn’t look like you or anyone else advocating for unitary taxation has thought about them. If I’ve missed some detailed analysis somewhere I apologise.
You’ve found where we’re going
And yes we are thinking about it – or we wouldn’t be writing it
No one else is trying
We are
So please don’t say otherwise