It’s time to smell the coffee and start cooperating on international tax

Posted on

There is a report in the FT this morning that President Obama is to impose a levy on the estimated $2 trillion offshore cash pile of US corporations. He aims to raise £$200 billion to finance investment in failing US infrastructure.

I do of course welcome attacks on offshore tax abuse.

But I worry about this move as much as I do about the UK’s supposed Diverted Profits Tax. I am wholly in favour of taxing profits once somewhere at least in the world, and to allow a combination of both source and residence based tax systems that allow a state with claim on a source of income to tax it at whatever rate it feels appropriate, having allowed for taxes already paid elsewhere. But I am worried about double taxation. I do not think that approximates to tax justice any more than non-taxation does.

A proliferation of one off and arbitrary tax charges imposed to beat multinational corporation tax abuse could well result in double taxation and that helps no one at the end of the day.

If these moves by Osborne and Obama are negotiating chips put on the table to force reluctant multinational corporations to come to the table at the OECD in Paris and agree to the BEPS process, then all well and good, if that works.

If the move is instead the beginning of a drift towards the breakdown in the international consensus on tax then I worry: that is potentially seriously harmful.

I think it is time for multinational corporations to smell the coffee. They have to pay tax now at least once , or face  the consequences.

But I would also suggest it is time for governments to appreciate that they too face risk right now. It is their duty to cooperate on tax or they risk creating harm.

There is a way to cooperate: it is through the creation of unitary taxation.  Despite all its rhetoric it is clear that the OECD is creeping in this direction now because it has to: it is the only logical way to solve the problems of offshore taxation and the conflict that inevitably arises when states dispute taxation.

I seriously suggest some espresso is served to a lot of tax attorneys this morning and they come to terms with the fact that the days of abuse are numbered, and that they will now pay a very heavy price for holding out against tax reforms.