A comment has been made on the blog which asks why, if I am so sure that unitary taxation is a good thing do we not get it? Let me suggest a number of reasons why, despite the fact that it is glaringly obvious that the international tax system is fundamentally broken, we do not get the change that we need.
First, there is the fact that just because the international tax system is fundamentally broken the world's biggest companies do really want to keep it. They can say they comply with all its requirements and make all the usual comments about paying the right amount of tax in the right place under this system knowing that all such statements are meaningless and that they pay much less than should be the case. The result is that they have every incentive to continue to support the system, and spend a great deal of money doing so.
Second, the role of the big four firms of accountants (PwC, KPMG, Deloitte and EY) must be taken into account. They are, in revenue terms, massive beneficiaries of the existing tax system because they are the owners of much of the intellectual property invested in the archaic, illogical and now impossible to use arm's-length transfer pricing system. Precisely because they know more about such arrangements than anybody else in the world they can, of course, extract monopoly profits from exploiting this knowledge, and therefore have every incentive to ensure that it is maintained into the future. They, like their large corporate clients, have as a consequence spent a considerable sum supporting the maintenance of the current status quo even though that is only in their interest, and not that of society as a whole.
Third, because so few politicians have any real knowledge about tax, and because it seems that so many tax officials always have one eye open to the possibility of transferring their knowledge into the private sector and as such also have a vested interest in maintaining the status quo, there is no political capacity to change the system because those politicians with the will to make the change do not have the resources and advice that they need to facilitate it.
Forth, there are, of course, some politicians who do for reasons of political belief wish to maintain the current system. There is no doubt that the current arm's-length transfer pricing system that underpins international tax assists the upward flow of funds from consumers to the owners of capital, or if you like, from ordinary people to the wealthy. Some politicians are dedicated to facilitating that process.
Add these factors together and you can see the obstacles that change is up against.
But we'll try to deliver it, all the same.
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“Some politicians are dedicated to facilitating that process.”
And not all them are in the Conservative and Unionist Party.
In the circles I frequent there’s quite a few arguing for zero Corporation Tax, and compensatory increases in personal taxation for the wealthy, consumption taxes and some cuts in public spending.
That would put a black hole in the punting budgets of some of the staff at KPMG, Deloittes, EY and the other one, I can tell you.
It also creates a massive opprtunity for tax avoidance
No wonder your friends like it
Actually the ‘Google Tax Affair’ is an absolutely fantastic opportunity for Google!
Just suppose Google reversed the current situation and really decided to ‘Do No Evil’ by voluntarily & very publicly paying full & fair corporate tax liabilities. Ok their shareholders will lose out initially but the publicity & the warmth to them generated world wide would surely soon compensate those initial losses via additional business.
I’m trying to think of a comparison – the Beatles/John Lennon (Imagine). Google’s place in the hearts & mind of the world secured for a long time
And what an effect/pressure on the other tax avoiding corporations! What do you think?
David you need to remember this is not about Google, Amazon, Starbucks etc.. or what their executives think, many of whom in customer facing roles may well support your viewpoint.
It is about who owns them and their common interests. None of the branded corporations will be allowed to step out of line by their mostly anonymous shareholders. The CFO’s and CEO’s know who they take their orders from.
The real dangers always lurk in the shadows!
“I’m trying to think of a comparison — the Beatles/John Lennon (Imagine)”.
A better analogy might be Nelson Mandela.
Maybe some of the obstacles are caused by the politicians themselves who are part of the problem.
We know about the revolving doors and MPs with second jobs and directorships, and finishing their career in the Lords with consultancies and lucrative directorships of companies sending profits offshore.
In years gone by it was money in brown paper envelopes, which of course is now completely unacceptable. They are much more subtle these days. Call it a directorship and that makes it alright !!
And how many of them are looking after their newly acquired fortunes by using “tax efficient” schemes, worked out for them by their accountants.
This could be the problem, They are hardly going to be keen on Fair Tax if they are to be affected themselves.
Last year, George Monbiot said he knew that many of his fellow journalists were nothing more than part time paid lobbyists because they were paid to write propaganda.
He said that he was hoping to start a trend by publishing his entire source of income on his website, with the hope that others would follow suit. However, he was not holding his breath.
Similarly we should be asking politicians to make a statement about their tax affairs. John MacDonnell has, I believe, already stated that he will be publishing his.
In September 2012, at the Ethical Consumer Conference, when the idea of a Tax Kite Mark was being discussed, there was much enthusiasm for this not only being applicable to companies.
At that time the comedian, Jimmy Carr was being vilified for his tax dodging, and it was envisaged that a kite mark or something similar should be extended to pop singers, footballers and politicians, et al.
We, the people who do pay our tax, should be demanding that our politicians both national and local, and all public servants be required to make a statement about their tax affairs.
This statement would not have to publicise the details. All that would be required is the answering of a carefully selected set of questions (such as ‘do you have an offshore bank account’) and then a swearing.
After all, every day of the week, in courts people are required to swear to tell the truth, and are then prosecuted if there perjure themselves.
My contention is that until this is sorted out, the required legislation will not be passed. Many of our politicians are the problem.
I have now read most of Sol Picciotto’s paper on Unitary Taxation for multinationals, and pleased to say I understood most of it too! It’s a very helpful read for a non-accountant to understand the history, current situation and future possibilities of dealing with multinational tax avoidance.
Unitary Taxation seems to be the logical end game, its not rocket science and certainly no more complicated to implement and operate than the International Space Station! The challenges will clearly be political, not technical.
As for Nigel Lawson’s proposals for a corporate sales tax, he certainly knows which side his bread is buttered and would be happy to keep as many loopholes in the tax system to be abused by his mates in the City. And put an even greater tax burden on the general population and less on capital yet again.
A blog on Lawson will be coming
Largely taking today off: recovery from a long week
I’ve never heard it called that before.