Rampant international corporate tax abuse means it is now beyond doubt that many of the governing principles underpinning international tax are fundamentally flawed.
In the face of rising public anger, governments are promising to fix the problems, but their proposals so far involve trying to patch up an outdated international system that is beyond repair.
Failings built into the current system let large multinationals avoid hundreds of billions of dollars in tax.
Thanks to their tax subsidies, multinationals out-compete smaller locally-based rival. This has nothing to do with genuine economic efficiency or productivity. They are killing off their smaller rivals in markets, and at the same time free riding on the tax-funded benefits provided by the societies where they operate, letting others pick up the tab.
This can no longer be tolerated.
As politicians scramble to placate the public at the sheer size of tax dodging by all sectors of international business including global extractive, finance and new technology firms, TJN today publishes, Towards Unitary Taxation of Transnational Corporations by Sol Picciotto, emeritus professor at Lancaster University and senior adviser with Tax Justice Network.
Towards Unitary Taxation of Transnational Corporations is a roadmap outlining a complete and managed overhaul of international system of corporation tax.
There is, we believe, no alternative to wholesale reform of multinational taxation. The status quo, left unchecked, will foment increased economic and social dislocation.
Sol Picciotto, emeritus professor at Lancaster University and senior adviser with Tax Justice Network
“George Osborne claims that the UK is taking the lead in looking for ways to deal with tax avoidance by TNCs. Yet British officials have consistently opposed examining the necessary fundamental reforms, especially unitary taxation, both in the European Union and worldwide. If Osborne is serious, he must now back the necessary reforms to what is clearly an unworkable system.
“The only rational way to tax modern multinational companies is to tax them according to where their genuine economic activity is, rather than where their tax advisers pretend it is. The way to do this is to treat them as unitary businesses that are much more than the sum of their parts – which is exactly what they are. Their worldwide profits should be assessed by disregarding the shifting of profits into artificial entities dreamed up by their tax planners, and instead by apportioning those worldwide profits among the relevant countries based on factors that reflect where their real business lies. Countries can then tax their share of the worldwide profits at their own rate.