There are days when running a blog intrudes into life. Yesterday was one. A touch of early hyperactivity on my part led to 100 or so, mostly long, comments to moderate. That takes time. So today the heat may be turned down slightly. On this blog that's easy. I talk about tax.
The FT noted on Sunday that:
Multinationals' agility in shifting profits between jurisdictions constitutes a problem. In principle, economic activity should be taxed where it takes place. Technology companies do not fit neatly into such a system; but even if Google's tax arrangements are legal, the sales it declares in France are clearly not commensurate with the scale of its activities there. Such discrepancies undermine public faith in the equity of the tax system.
And this is a real issue: there is a clear issue that loss of faith in the system is a cause for the tax gap. There are of course moves afoot to tackle this, but as the FT also notes:
An increasingly assertive actor, however, is the European Commission. ... [T]here may now be new Franco-German backing for the commission's push to create a bloc-wide common corporate tax base. This is a promising idea: it should help tackle tax avoidance, while giving companies clarity about what they could expect to be taxed on. It should not prevent countries setting competitive tax rates. A global deal is the ultimate goal, but much can be done before international efforts bear fruit. Companies will always strive to minimise their tax bill. Governments must show equal ingenuity and perseverance to keep pace.
This issue is on my work agenda: I support the Common Consolidated Corporate Tax Base as the best practical way to get unitary taxation under way. I am pleased the the FT does as well.
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One of the main reasons why the intellectual and philosophical core of the Tory party wants to leave. Or to put it another way, yet another reason why rational human beings should want to remain.
Let’s have a little game and see who can come up with the best tabloid headline for when the Commission declares that the UK’s participation in the CCCTB under the jurisdiction of the ECJ is a precondition of any post-Brexit trade deal.
I’ll get the ball rolling with “Blitaxkrieg” but I’m sure you and your regular contributors can do much better than that.
I would make it a condition if I was the EU….
Hi Richard,
I usually get your blog straight into my email inbox but it appears to have stopped again. I’ve not been recieving the emails since Friday 14th.
If you could see your way to rectifying ths I would much appreciate it.
Thanks
Claire
I am checking this
It is rogue text that stops the process and it is very annoying to find
Give me some time and I will get there
Could you explain how ‘a bloc wide common corporate tax base’ would ‘not prevent countries setting competitive tax rates?’ Surely this is a contradiction, as the aim of the legislation would be to prevent race-to-the-bottom tax competition.
The tax base is allocated to a state.
They can then tax it as they want.
I have no problem with a state not taxing if it so wants so long as it does not undermine the tax system of another state when doing so
I can’t read the underlying FT article, but presumably this is on the back of the recent administrative court ruling in France that Google US and Google Ireland do not have a permanent establishment in France, because their French subsidiary is a separate entity with its own separate tax position (relations between the group companies being a matter for transfer pricing) and neither of the non-French companies has sufficient human and technical resources in France to makes sales to customers in France. As I understand it, the court agreed that the sales are made by the parts of the business outside France.
It would be interesting to see what effect the CCCTB formula would have on a company like Google. Perhaps the profits allocated to the UK might be more, based on the volume of sales and number of employees here, but the profits allocated to France or Germany might be less?
Individual cases hard to assess
King Ferdinand II would agree with you entirely. When we were at Valladolid in the mid 70’s just after signing up for the EEC they still thought very highly of him as a model for Europe. But could a unitary tax system be more vulnerable in many ways that complex systems easier to vary and to meet the many sided challenges of the tax evaders?
I believe the EU mandates some sort of upward ratchet on purchase taxes but beggar thy neighbour corporation tax rates are perfectly fine. Says it all for me.
I am not sure what you mean
If you are saying there are VAT bands, that’s true
But the say you say it makes no sense
For me the EU competition policy and Margrethe Vestager, whom after all the Google CEO visited (more than he did for the UK!) has moved the goalposts and given the EU tax system a fairness dimension – which is not generally in the small print.
‘Fraid this is another reason for remain.
It strikes me (and no doubt I’m late to the party here) that one of the hurdles to explaining how tax really works is that the conventional explanation, despite being incorrect, is easy to understand and morally satisfying: everyone should pay into a pot, from which the government then spends to the benefit of society as a whole. It is then easy to make a simple case for chasing down Google and their ilk, by means of a unitary tax system or whatever. They should be made to pay their fair share.
It is a harder sell to say Google needs to be chased so that it can play its part in controlling inflation. The instinctive response to the “news” that all government spending comes from new money, might well be to think “oh well, that’s alright then, we don’t need to chase Google too hard after all.” Because though there is obviously a link between spending and tax (via inflation) the actual link is, whatever we might like to think, less direct and compelling for non-economists.
I’m sure there is a way of framing the correct economic model in a way that is more compelling. Perhaps there is mileage in communicating the idea that all money is government money and everyone needs to give a portion of it back eventually. But there are obvious problems with making this sound like fun!
This is why the alternative reasons for tax are so important
Reclaiming money spent to control inflation
Ratifying the value of money
Redistribution
Repricing
Reorganising the economy
Raising democratic accountability
Do Pigovian taxes feature in your world view of taxation?
I explicitly state that repricing market failure is one if the six reasons that I think exist for tax
I’m slightly surprised at your enthusiasm for this EU initiative. It doesn’t seem all that long ago that you favoured a very different approach which I had called an Infrastructure Charge (http://outsidethebubble.net/2016/10/20/fair-taxation-on-corporate-profits-3/) and you called and Alternative Minimum Corporation Tax (http://tinyurl.com/ho6yy73).
The AMCT had a great advantage of being something that any individual country could introduce without having to go through the infinitely laborious business of dealing with many other different governments and could be done essentially immediately.
Have you therefore gone off the AMCT, or how would these work together?
I have always supported the CCCTB
It and the AMCT are wholly complementary
Totally agree. The real beauty of an AMCT is that it can be structured not as a tax but as a prepayment on account of tax. As it is not a tax, double tax treaties could not be used as a defence. As DTTs would not apply, the prepayment could be calculated in any way the law states, including on a unitary or CCCTB basis.
As a prepayment, it does not have to be refundable. Any prepayments in excess of the actual tax liability can simply be carried forward and set off against the actual tax liability for future years (to the extent that the liability is not extinguished by the prepayment in respect of that year).
The net effect would be that the multinationals would end up paying the higher of the amount computed under current CT law or the AMCT computed on a unitary or CCCTB basis. There would no longer be any point in all the mucking about they currently do and they would eventually just give up and account for their profits wherever they really arise.
OK. I know it won’t be that simple, but it can be done and it can be done in the short term without having to wait for the rest of the world to catch up.
I can sense a blog com9ng on that….thanks
Richard