Corporate tax base ‘not being eroded’
11 April 2014
Posted by: Author: Taxation
There is no evidence that the global corporate tax base is falling to pieces as the result of aggressive avoidance by multinationals, according to an academic study carried out on behalf of the Association of Chartered Certified Accountants (ACCA).
Multinational Corporations, Stateless Income and Tax Havens by the Royal Melbourne Institute of Technology (RMIT) University School of Economics, Finance and Marketing disagrees that the worldwide corporate tax system is broken: a common argument made by Massachusetts Institute of Technology accounting professor Michelle Hanlon and other prominent commentators.
A survey published earlier this year by financial services giant PwC found that almost three-quarters of CEOs believe the UK’s business tax system is not fit for purpose.
The RMIT paper refutes such claims, offering a critique of the ‘stateless income’ theory created by law professor Edward Kleinbard of the University of Southern California to explain how the biggest businesses are able to generate income that is apparently untaxed.
"At best, the concern about the tax base is not so much that it is being eroded, but rather that multinational corporations do not pay tax in every host economy,” notes the report.
Its author, Sinclair Davidson, remarked, "It is one thing to point out that multinational corporations do not pay tax in some jurisdictions, but that says nothing about the actual corporate tax base.
"To the extent that corporate tax revenues have fallen ... this is more likely to be a result of poor economic conditions than aggressive tax planning.”
Chas Roy-Chowdhury of the ACCA claimed there were still unanswered questions regarding the tax strategies of big business.
"Multinationals need to be clear about the value they bring for the benefit of their shareholders and wider society, and to communicate to all stakeholders their underlying commitment to the building of a sustainable business,” he said.
"Companies must see the management of tax obligations as part of that process of creating long-term value.”
This article first appeared on taxation.co.uk