July 25, 2013

The First, Faulty Effort to End Global Tax Dodging

By Frank Clemente, Campaign Manager, Americans for Tax Fairness

A plan adopted last weekend by the G-20 group of industrialized nations would crack down on some of the worst corporate tax dodging. But it’s not enough. A much bolder—and simpler—approach is needed to stop the accounting acrobatics of huge multinational firms that cheat countries out of tens of billions of dollars of desperately needed revenue.

While countries around the world are cutting public programs that their citizens depend on in the face of budget shortfalls, it’s outrageous that huge multinationals like Apple and Starbucks are dodging tens of billions of dollars in taxes.

The plan, drafted by the Organization for Economic Cooperation and Development (OECD), acknowledges that corporations are avoiding taxes in the countries where they make their profits by hiding those earnings in offshore tax havens. It would require better reporting on “aggressive tax planning arrangements,” both from corporations to governments and among governments, making it tougher for companies to talk out of both sides of their mouth and play one country off another.

Curbs would also be placed on corporate self-dealing, whereby goods and licenses are supposedly “traded” from one subsidiary to another, artificially creating profits and expenses wherever the tax benefits are greatest.

But as Citizens for Tax Justice points out, the plan falls short because it’s built on the faulty “pretense that a web of ‘subsidiary corporations’ in different countries are truly different companies,” even though these subsidiaries are usually all being controlled from one corporate headquarters. As long as post office boxes in the Cayman Islands are accepted with a straight face as stand-alone entities, nations will continue to struggle to collect the taxes due them.

The Tax Justice Network correctly argues that only “unitary taxation”—under which corporations are taxed “according to the genuine economic substance of what they do and where they do it”—will end the international game playing and finally force huge corporations to contribute their fair share to the communities that make their success possible.

In the meantime, the United States can do its part to create a fairer global tax system by abolishing the “deferral” of corporate income stashed overseas, thereby raising $600 billion over the next 10 years for investment in the American people.