Levies without borders

The absurdity of how multinational corporations are taxed, let alone how they are not taxed, manifests itself in weird and wonderful ways. One is that Brussels is much more keen for Apple to pay tax to Ireland than Dublin is. Another is George Osborne’s attempted transformation into a white knight of corporate tax transparency, after the UK chancellor’s too-celebratory welcome of Google’s settlement with the British taxman left most of the public unimpressed. The details of that deal are covered by the FT here, and largely amount to Google agreeing that instead of paying almost no tax, it will instead pay very little tax.

Whatever the motivations of Osborne’s twisting take on corporate tax (some point to prime ministerial ambitions), his Damascene moment is good news. He has swung behind a proposal by the European Commission to require “country-by-country reporting” from multinational corporations. Under such a rule, companies would have to make public their revenues, profits and taxes paid in each country where they operate. The commissioner in charge, Pierre Moscovici, is in favour, so long as it doesn’t “damage competitiveness”.

No doubt many companies will say that it would. That’s an echo from the previous battle over country-by-country reporting in 2013, when it was introduced for Europe’s extractive (oil, gas, mining and forestry) businesses only. (The US put in place similar rules.) As the FT’s editorial column repeatedly argued then, the threat to “competitiveness” was always illusory. The screaming absence of news about companies failing because of the rule since it was introduced shows this was right. So it is with the current proposal to broaden the rule to all multinationals.

In itself, transparency does not alter how companies are taxed. But information is a powerful thing, and it has become clear that many corporations would have a very hard time, and take a large hit to their reputation, justifying to the public that so much of their profit happens to be made in low-tax jurisdictions.

Country-by-country reporting is only one of the many reforms contemplated in Brussels’ new policy package, published last week as a step in the intensifying effort to “plug up the LuxLeaks” as the FT’s Jim Brunsden describes it. Another part is a renewed push for a “common consolidated corporate tax base” — a harmonisation of how the taxable profits of corporations are defined. This, too, is an excellent idea: it would respect each country’s right to impose the tax rate that it sees fit (indeed to set the tax rate to lure business activity to its jurisdiction), but ensure that tax (at whatever national rate) is levied as and where the economic value is created. The aim must be to make it impossible to change one’s tax burden by changing one’s address.

 

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