The next few days might see reduced blog activity. I am at the Institute of Development Studies at the University of Sussex taking part in, and co-presenting with Prof Prem Sikka to, a conference organised by the International Centre for Tax and Development on the role that unitary taxation might play in tackling international tax abuse and in shifting the tax based towards developing countries who so badly loses out under current international tax arrangements
Prem and I have been researching the interaction between accounting standards and tax bases in this context. Our paper will be published in due course. What we have discovered is a whole area for work which to date hardly seems to have been systematically addressed at all in academic tax or accounting literature, and which appears to have been simply pragmatically ignored by tax authorities who have as a result created a myriad of conflicting mechanisms for addressing accounting failures which do in themselves provided enormous opportunity for arbitrage and abuse. That is precisely why this under-examined field is worthy of further study.
There will be more on this issue as this year progresses, considering the issue over a wide range of scenarios if time permits.
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Sounds fascinating – all the best to you both at the conference. Academics by and large are sadly not interested in tax injustice – often the focus is on their narrow careers and stretching theories to fit data. The real world in its diversity and complexity is ‘noise’.
But Unitary Taxation was invented to expand the tax base of California by taxing profits that corporations earned in lower-cost environments. Richer countries have higher real wages and, particularly, higher rents than poorer countries so profit margins are lower (unless there is an absolute ban against third parties transporting the goods across borders). Returns on capital are generally higher in poor countries with a shortage of capital than in rich countries with a surplus of capital.
So (as the Californian politicians spotted) unitary taxation transfers money from poor areas to rich ones compared to taxing the profit actually earned in that state.
Applying unitary taxation in the EU, to punish Luxembourg and Ireland, would only work if you redefined sales by the location of the purchaser rather than the seller.
I think you are being led away on a wild goose chase when the solution is improving the competence and integrity of each poor nation’s tax inspectors.
You clearly know nothing about the history of tax
But you are are right that destination based sales are a factor – what is the problem with that, so long as other factors are involved?
You’re quite right that you need to define sales based on purchaser rather than seller.
I’m currently trying to design a UT system, as a hobby. I know people who have the proper resources (time, mostly) are also trying to do this, but it’s frustrating that I can’t find anyone who’s published a system in any detail so I’m having to build my own.
The thing that currently has me stymied is working out how to include destination basis of allocating sales in a way that is (a) legally enforceable and (b) doesn’t give potentially disproportionate compliance burdens. I’m sure I can work out a suitable compromise, though.
Who have you read?
There’s a big literature on this
I’m using a number of Sol Picciotto’s papers as a basis, trying to design something that fits his descriptions.
I’ve been reading around US formulas, but they vary by state and it’s hard to find a sensible level of detail.
The EU CCCTB is based on allocating profits to PEs rather than to the whole activity in any one jurisdiction. So most of the principles there need re-working to fit with UT, though they give some useful suggestions.
It’s much easier to find people discussing what the impact of adopting UT would be, or pointing out that coming up with definitions is tricky, than it is to find any hard and fast suggestions. Plenty of questions, not so many answers.
If you can point me to something more useful that’d be excellent.
Look at Clausing, Avi-Tonah and Mike Durst’s work in US – the latter in Bloomberg
Thanks, I’ll have another look at them.