Unitary taxation of multinationals’ profits would increase tax revenues and make it easier for governments to lower corporate tax rates, according to a new paper published this week by the Tax Justice Network.
Sol Picciotto, emeritus professor at Lancaster University, said tax revenues gained from the elimination of profit-shifting and tax avoidance through havens, as well as ‘substantial savings in enforcement and compliance costs’, would make it easier for all states to lower corporate tax rates, thus ‘reducing the differentials between them’.
The present international tax system treats transnational corporations (TNCs) as if they were loose collections of separate entities operating in different countries, Picciotto wrote in today’s issue of Tax Journal.
The system ‘gives TNCs tremendous scope to shift profits around the globe to suit their tax affairs’, he said. Unitary taxation would treat a TNC engaged in a unified business as a single entity, which would be required to submit a set of worldwide consolidated accounts in each country where it has a business presence. The overall global profit would be apportioned to the various countries according to a weighted formula.
‘Unitary taxation would cut the costs of compliance for firms and greatly simplify tax administration, benefiting poor developing countries especially,’ he wrote. It would ‘ensure that [TNCs] make a fair contribution as corporate citizens towards the costs of the public services provided by the states where they do business.’
But Miles Dean, founder of Milestone International Tax Partners, said practical difficulties made implementing unitary taxation ‘a pipe dream’ and the economic effects for the UK were ‘far from clear’. It was ‘inconceivable’, he argued on the same page of Tax Journal, that a global consensus could emerge as to how global profits should be allocated between jurisdictions.
MPs on the Commons public accounts committee appeared to advocate an allocation factor based on sales ‘because, in their simplistic view, this would increase the corporation tax take from multinationals such as Amazon’.
Dean added: ‘However, a
The main problem with a unitary approach is that it ‘requires a relatively uniform
‘Countries would lose control of their tax systems,’ he suggested. ‘Instead of being able to design a tax system suited to their individual economies, countries [would] just receive an allocation of profit (or loss).’
Picciotto’s paper suggested that as part of a managed transition a unitary approach could be adopted by groups of countries such as EU member states or the East African Community of Burundi, Kenya, Rwanda, Tanzania and Uganda. He recognised that the weighting of the factors in the allocation formula would be ‘the most difficult issue’ for the international adoption of a unitary approach.
But a loosely coordinated unitary approach by US states seemed to have worked well, he said, with ‘few complaints by firms since the 1980s’.
Unitary taxation of multinationals’ profits would increase tax revenues and make it easier for governments to lower corporate tax rates, according to a new paper published this week by the Tax Justice Network.
Sol Picciotto, emeritus professor at Lancaster University, said tax revenues gained from the elimination of profit-shifting and tax avoidance through havens, as well as ‘substantial savings in enforcement and compliance costs’, would make it easier for all states to lower corporate tax rates, thus ‘reducing the differentials between them’.
The present international tax system treats transnational corporations (TNCs) as if they were loose collections of separate entities operating in different countries, Picciotto wrote in today’s issue of Tax Journal.
The system ‘gives TNCs tremendous scope to shift profits around the globe to suit their tax affairs’, he said. Unitary taxation would treat a TNC engaged in a unified business as a single entity, which would be required to submit a set of worldwide consolidated accounts in each country where it has a business presence. The overall global profit would be apportioned to the various countries according to a weighted formula.
‘Unitary taxation would cut the costs of compliance for firms and greatly simplify tax administration, benefiting poor developing countries especially,’ he wrote. It would ‘ensure that [TNCs] make a fair contribution as corporate citizens towards the costs of the public services provided by the states where they do business.’
But Miles Dean, founder of Milestone International Tax Partners, said practical difficulties made implementing unitary taxation ‘a pipe dream’ and the economic effects for the UK were ‘far from clear’. It was ‘inconceivable’, he argued on the same page of Tax Journal, that a global consensus could emerge as to how global profits should be allocated between jurisdictions.
MPs on the Commons public accounts committee appeared to advocate an allocation factor based on sales ‘because, in their simplistic view, this would increase the corporation tax take from multinationals such as Amazon’.
Dean added: ‘However, a
The main problem with a unitary approach is that it ‘requires a relatively uniform
‘Countries would lose control of their tax systems,’ he suggested. ‘Instead of being able to design a tax system suited to their individual economies, countries [would] just receive an allocation of profit (or loss).’
Picciotto’s paper suggested that as part of a managed transition a unitary approach could be adopted by groups of countries such as EU member states or the East African Community of Burundi, Kenya, Rwanda, Tanzania and Uganda. He recognised that the weighting of the factors in the allocation formula would be ‘the most difficult issue’ for the international adoption of a unitary approach.
But a loosely coordinated unitary approach by US states seemed to have worked well, he said, with ‘few complaints by firms since the 1980s’.
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