The US is targeting the biggest tax havens in the world. The FT reports that:
A pledge by Democrats in Congress to crack down on tax avoidance and to pay for spending measures as they are approved has put the practices of a range of international companies under the spotlight.
"These multinationals avoid US taxation on their actual earnings by siphoning off revenues by sending payments through US tax treaty countries with low withholding rates, before they are forwarded on to the parent corporations," a Democratic aide said.
This move targets 'treaty shopping' where profits, interest and royalties are all routed through countries that provide them with favourable treatment for tax and those self-same countries also have a strong network of tax treaties that allows the favourable treatment to flow through to the country of eventual ownership of the income streams in question.
Number 1 target has to be the Netherlands. It's a flagrant abuser of the tax law or other nations and the EU, as I and my co-authors showed last year in the report we wrote for SOMO entitled "The Netherlands: a Tax Haven?".
Others have noted today though that this will also hit the UK.
Quite right too. Tax law is there to be enforced. Corporations who abuse the rules shift the burden of tax onto others, and those others are either compliant companies or, more likely, ordinary people. This shifts the burden of tax down the income scale and as such this is regressive behaviour. Worse though, treaty shopping shows contempt for the rule of law and the role of democratic government. This undermines society as we know it.
That's disastrous. As such this move is good news. The UK should reciprocate. The role of places like the Netherlands, Switzerland, Belgium, Luxembourg and Ireland in this abusive game should be exposed, and ended.