Fighting Corporate Abuse by Collective Corporate Reform;

Author:Collective, Corporate Reform;
Language: eng
Format: epub
Publisher: Pluto Press

Conclusions

The reforms to the current system now being developed by the OECD, discussed in the second section of this chapter, could, if they are developed and applied in a determined way, make significant improvements to the system.22 However, the OECD’s Action Plan does not include some measures which could be particularly helpful for developing countries, such as withholding taxes and taxation of services.

For some of the measures included in the Action Plan the OECD is unlikely to propose solutions that would be strong enough or appropriate for developing countries, especially the definition and attribution of profits to a permanent establishment, and limitation of deductions. Strengthening of such aspects would be difficult for individual countries to undertake, because they may be considered a deterrent to inward investment, so collective action by groups of countries would be preferable. This should be facilitated and supported by bodies such as the UN Tax Committee, the International Monetary Fund’s (IMF’s) Tax Policy Division, and regional organisations, such as the African Tax Administration Forum (ATAF) and the Inter-American Centre of Tax Administrations (CIAT).

Increasing corporate tax revenues would be a significant boost to government coffers, as they account for 8–10 per cent of tax revenues in OECD countries and about twice that in developing countries. These revenues have remained more or less stable over the past 20–30 years despite both major reductions of tax rates and the big increases of corporate profits in proportion to GDP.23 Hence there has been a significant decline in corporate taxes paid in relation to profits. Though it is difficult to estimate the actual losses incurred through tax avoidance by multinationals, the international expansion of such firms since the 1950s has itself been partly due to their ability to avoid taxes on retained earnings, as explained in Chapter 1. Avoidance has become more sophisticated with the shift to the digital economy and the knowledge society. This accounts for the continuing relative decline in revenues from corporate taxes.

These losses from corporate tax avoidance also result from the exploitation of the offshore tax-haven and secrecy system. Research conducted for the TJN has estimated the total amount of global financial wealth, excluding assets such as yachts and other property, held in the tax-free offshore system at $21–31 trillion in 2010. Around one-third of this is attributable to developing countries.24 Bringing these enormous accumulations of capital back into the tax net would transform government revenues, in both developed and developing countries.

Beyond the direct revenue gains, ending the systematic tax avoidance by multinationals through the tax havens and offshore secrecy system would have many more benefits. The system sustains a vast army of professionals engaged in avoidance and evasion not only of tax but also of banking and financial and other forms of regulation, resulting in enormously wasteful expenditures for both firms and governments. Its removal would help to restore the legitimacy of taxation. This is seriously undermined when the largest and most important corporations are seen to be free-riding by failing to contribute to the state

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