Push for a global corporation tax | This is Money .
Plans to harmonise corporation tax rates around the world to stop companies switching their base of operations to cheaper jurisdictions are to be discussed at this week's G20 summit in the US.
Financial Mail understands that the idea of putting a floor under company taxation with a minimum rate globally has been talked about behind closed doors in some G20 capitals, including London, for a number of months.
I have no idea of this is true. But it does make sense and the tax base should be allocated on the basis of a destination based sales formula.
The odd thing is, that allows real tax competition in a form with which I would find it hard to argue.
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The problem is as much a lack of a ceiling as it is a lack of a floor.
why don’t they just pick a number.
30% for starters
Richard
A minimum level of tax on profit, un-earned income and super-normal ‘earned’ income is the ‘real’ answer to tax avoidance/evasion (otherwise, whichever regime offers the lowest rates will be by definition and through financial engineering be a tax haven compared to the other regimes, whatever the progress on disclosure).
However, the allocation of tax base to jurisdiction should be based on the actual profit, un-earned income and super-normal ‘earned’ income, rather than on a destination-based sales formula.
A paper (http://visar.csustan.edu/aaba/Timkinght2005.pdf) argues that, irrespective of the administrative alignment of current tax processes, all taxes are already levied in economic terms out of a wider definition of gross profit; the profit gap between the consume value of the utility created/added/enclosed by enterprises (for which read gross prices), and the disutility of the labour input to enterprises (for which read net wages). Thus, the total value of all tax revenue should be included in that wider definition of gross profit, and all tax revenue should be seen as being levied out of that wider definition of gross profit.
However, taxes are levied out of that wider definition of gross profit in one of two radically different ways:
1. Turnover taxes (on gross profit) are levied ‘up front’ in proportion to turnover, irrespective of the profitability of that turnover. In the UK at the turn of the millennium, turnover taxes included Income Tax on ‘normal’ earned income, employee and employer Contracted-Out National Insurance Contributions, and Value-Added Tax on payroll costs. For an enterprise to break even, that enterprise had to be able to charge almost £2 as the gross price for the utility created/added/enclosed through each £1 of net wages. Thus, turnover taxes pre-empt propositions which cannot create/add/enclose almost £2 of utility for every £1 of net wages, and impose a (relatively) penal rate of tax (and risk of tax-induced loss), on high-employment enterprise.
2. After-the-event taxes (on gross profit) are levied in proportion to gross profit net of turnover taxes. In the UK at the turn of the millennium, after-the-event taxes included Income Tax on ‘super-normal’ earned income, Corporation Tax, Value-Added Tax on gross profit net of turnover taxes, Income Tax on un-earned income, Capital Gains Tax, Capital Transfer Tax, and Inheritance Tax. After-the-event taxes do not distort economic activity. Profitable enterprise remains profitable.
Unfortunately, without global cooperation, productive nations have to compete with tax havens for the divertable tax base (i.e. gross profit net of turnover taxes), in a downward beggar-thy-neighbour spiral to the point where gross profit net of turnover taxes becomes virtually untaxable. In order to maintain tax revenue to fund (re-)distribution and communal spending, socially enlightened nations find themselves in a further downward spiral as they have to increase the punitive burden of turnover taxes on the utility added by a working population shrinking as a proportion of the total. Thus, contrary to all natural justice and economic efficiency, the effective rate of turnover taxes is almost invariably higher than the effective rate of after-the-event taxes.