{"id":13870,"date":"2012-01-30T08:27:17","date_gmt":"2012-01-30T08:27:17","guid":{"rendered":"http:\/\/www.taxresearch.org.uk\/Blog\/?p=13870"},"modified":"2012-01-29T22:17:35","modified_gmt":"2012-01-29T22:17:35","slug":"the-tax-reforms-needed-if-globalisation-is-to-work","status":"publish","type":"post","link":"https:\/\/www.taxresearch.org.uk\/Blog\/2012\/01\/30\/the-tax-reforms-needed-if-globalisation-is-to-work\/","title":{"rendered":"The tax reforms needed if globalisation is to work"},"content":{"rendered":"

IPPR produced a report on globalisation last week<\/a>. With a forward by Lord Mandelson the report was written by Will Straw and Alex Glennie.<\/p>\n

I admit I don't agree with either Mandelson or Straw; they have a political perspective I don't always share but this report has merit to it, as others have also noted since its publication. It represents a clear change of heart on Peter Mandelson's part, and that I welcome.<\/p>\n

The report is especially strong on the need for corporate tax reform. Having noted that profits are rising as a trend t also notes that there is a steady fall in corporate tax receipts as a proportion of profits and realises this is an issue that has to be addressed. It dismisses the alternative to corporate tax proposed by Oxford University and Mirrlees, which is a form of Value Added Tax. As the report rightly notes there is no doubt this would be regressive and so unacceptable. Instead it suggests five reforms, as follows:<\/p>\n

First, the European Union should implement the Common Consolidated\u00a0Corporate Tax Base (CCCTB). Under the current tax regime,\u00a0multinationals file separate accounts for each country in which they\u00a0operate; under the CCCTB, each company would compute only its\u00a0EU-wide consolidated profit, on a common definition of the tax base.\u00a0This profit would be allocated to member states on the basis of an\u00a0apportionment formula containing factors such as shares in employment,\u00a0payroll, assets and sales. Each member state would retain autonomy\u00a0to tax its allocated share of profits at its own tax rate. This approach would allow countries to retain their own tax rate\u00a0and pursue healthy tax competition. But within the EU, companies would\u00a0have to actually move their staff and physical capital to the lower-tax\u00a0regimes, rather than relying on the accounting mechanisms outlined\u00a0above. In time, other jurisdictions could be encouraged to join, paving the\u00a0way for an eventual global consolidated tax base.<\/p>\n

Second, the EU and its member states should begin discussions\u00a0with the International Accounting Standards Board to introduce a\u00a0requirement that all multinational corporations report sales, profits and\u00a0taxes paid in all jurisdictions in their audited annual reports and tax\u00a0returns in what is known as country-by-country reporting. Country-by-country reporting discloses the profits that companies record in each\u00a0jurisdiction in which they operate and the taxes that they pay on them.\u00a0This means that they can be held accountable for what they do and do\u00a0not pay. The requirement would complement the CCCTB\u00a0by providing simple transparency on the activities of multinational\u00a0companies in jurisdictions outside the EU.<\/p>\n

Third, other jurisdictions should be encouraged to adopt the EU Savings\u00a0Taxation Directive as a means of creating an automatic exchange of\u00a0taxation information. Since 2005, the directive has ensured that paying\u00a0agents either report interest income received by taxpayers resident in\u00a0other EU member states or levy a withholding tax on the interest income\u00a0received. In Cannes, Indian prime minister Manmohan Singh called for\u00a0the G20 to take a lead on the issue \u2018in the spirit of our [2009] London\u00a0Summit that [said] \u201cthe era of bank secrecy is over\u201d\u2019 . But the communiqu\u00c3\u00a9 only committed to \u2018consider exchanging\u00a0information automatically on a voluntary basis as appropriate\u2019. The EU should also adopt an amendment to the savings directive\u00a0which would close existing loopholes and prevent tax evasion by\u00a0stopping taxpayers from channelling interest payments through trusts\u00a0and intermediate tax-exempted structures.<\/p>\n

Fourth, as the Financial Action Task Force has already recommended,\u00a0the beneficial ownership of companies, trusts and foundations should\u00a0be on the public record. This would prevent multinational corporations\u00a0from using networks of international subsidiaries to transfer profits and\u00a0reduce their tax liability. This reform would also have the added benefit\u00a0of making money laundering and the handling of illicit funds more difficult.<\/p>\n

Fifth, bilateral and multilateral donors should support developing\u00a0countries in building their tax collection and enforcement agencies.<\/p>\n

Taken together, these measures will act to reduce the power of tax\u00a0competition and lower the incentives on companies to execute tax\u00a0arbitrage strategies.<\/p><\/blockquote>\n

There is much in here that is based on my work, that of the Tax Justice Network and colleagues in the\u00a0Task Force on Financial Integrity and Economic Development. I welcome that.<\/p>\n

I welcome Peter Mandelson and Will Straw seeing the merit of these ideas over those that were technically presented to them by economists as superior, but which ignored the political realities of taxation.<\/p>\n

The tide is turning: the merit of international cooperation on tax is becoming apparent. It will help get us out of the mess we're in: that's now indisputable by all those except the governments of those states that promote tax evasion and those who benefit from it.<\/p>\n","protected":false},"excerpt":{"rendered":"

IPPR produced a report on globalisation last week. With a forward by Lord Mandelson the report was written by Will Straw and Alex Glennie. I
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