Taming The Corporate Tax Dodge

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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3 Responses to Taming The Corporate Tax Dodge

  1. tdurrie says:

    Thomas Piketty, in his famous book “Capital” suggests a tax on capital whether held privately or corporately. A tax as low as 1% on all world capital would effectively eliminate the need for any other taxes. Of course the trick would be to get owners of capital to reveal their bank accounts, stocks, and other types of capital. This could be done if all the banks in all the countries of the world would give an accounting of every account and investment. No more hiding vast resources in Bermuda or numbered Swiss accounts. Unlikely, but a very good ideal.
    Tom

  2. Grandview Citizen says:

    Who exactly would enact the legislation for this license fee, and how? Do you not see the capture of current government by Big Capital and Big Corp, or are you simply living in a fantasy?

    The idea to implement this kind of fee or that kind of tax has value that is best described by someone I once worked for who when brought *any* idea would say, “Ideas are like assholes, we all have them and they all stink. Bring me a solution or don’t waste my time.” Yes, he likely was an “idea”. He was right though.

    So, my challenge to those proposing ideas is to stop and instead create a workable plan with concrete actions (i.e. a solution) that has at least a marginal chance of success and then to implement it. Hate to be blunt, but anything else is political masturbation.

  3. jakking says:

    I;m disappointed as I expected a better level of debate from you. Those that criticise imaginative ideas simply because they don’t have the imagination to see the change — and cannot supply a solution of their own — are unworthy disputants. We need big ideas, especially those that seem beyond reach. For example, before 1945, the idea of a single payer national health service, was considered idiotic and revolutionary; now, only the US can live without it.

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