Taming The Corporate Tax Dodge

July 12, 2017

Google has just managed to escape paying taxes due in France of about $1.3 Billion. I don’t know how much they paid in legal fees, but clearly on the lawyers and Google investors gained anything from the shell game they play. In honour of the “little” people who pay their taxes every month or year, I have decided to replay the suggestions I first made in January 2016:

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Until we manage to mature into a society that can depend on mutual aid and cooperatives, we have to mitigate the abysmal effects of today’s market capitalism and the supra-national power of corporations.  Over the next few weeks I will be posting a number of ideas of how to fundamentally change the economic system, but today I want to start with the problem of corporate tax dodging through foreign ownership.

Google, Amazon and many other international companies make billions of dollars in revenue from , say, sales in the UK, but manage to pay virtually no tax in the UK.  They do this through foreign ownership — sometimes through multiple countries — and so-called management fees that the UK operation has to pay to the home corporation. It has become a regular scandal in the UK and threatens to do the same elsewhere.

For example, a classic case is brewing in the United States with Johnson Controls. This is a company that, as the Times says, exists only through the generosity of the Federal and state taxpayers.  And yet, it is now planning a reverse takeover with a smaller Irish company.  This will turn Johnson into an Irish company and they estimate saving $150million a year on US taxes while still retaining its location in Milwaukee.

Centre-right politicians have suggested that lowering corporate tax rates will encourage more companies to stay in- house as it were.  That is just an excuse to make the rich richer.  There is a simpler and much more efficient way.

I suggest that corporate income taxes be eliminated completely. They should be replaced by a “license to operate” fee equal to, say, a flat rate of 10% of revenues earned in the country no matter where the head office is based. Simple to understand, simple to manage, and, I suspect, very difficult to get around.

Country of ownership becomes immediately irrelevant, and transfers to an offshore HQ will be pointless for tax purposes. Indeed, they may well create a double taxation situation in which those transfers become taxable revenue in the home country. It also gives corporations the right to NOT operate in any particular country if they choose to forgo the revenues.

Finally, I would make this tax law bullet-proof by including a provision that, should some smart accountant or lawyer find a loophole, then that loophole is closed retroactively.

As I wrote earlier, there will be other ideas on corporate governance in the days and weeks ahead.

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