The Triumph of Injustice by Emmanuel Saez

Author:Emmanuel Saez
Language: eng
Format: epub
Publisher: W. W. Norton & Company
Published: 2019-09-05T16:00:00+00:00

WHY HAVE COUNTRIES FAILED SO FAR TO COORDINATE?

To see how we could escape our current predicament, we must start by understanding why we have failed, so far, to address the fiscal challenges presented by globalization.

There are, to start with, a number of relatively benign and circumstantial explanations. Financial globalization is a recent phenomenon. Close to 20% of the world’s corporate profits are made by companies outside of the country where they are headquartered today.2 Before the 2000s, that figure was less than 5%. Whether this modest amount of profits was appropriately taxed or not didn’t matter much for public coffers, and so few people—in academia or in the policy world—cared. That’s how the surge in multinational profits caught people off guard. In ministries of finance, the default assumption was that the 1920s-era system of transfer pricing would hold up. This assumption, as we saw in the previous chapter, was far too optimistic. But few people had thought about which system could replace it. This cluelessness allowed firms to exploit frailties in the law with quasi-impunity.

It also took time for the scale of corporate tax dodging to become clear, for the simple reason that the activities of multinational corporations are opaque. Companies are generally not required to publicly disclose in which countries they book their profits. In its annual report to the US Securities and Exchange Commission, Apple provides information on its worldwide consolidated profits. But the Cupertino-based giant doesn’t publicly reveal where it books these profits—how much are booked in its Irish subsidiary (and thus taxed in Ireland), in Germany, or in Jersey. There is no way for the public to know how much money Apple shifts to tax havens. The same is true of most other giant multinationals.

6.1 The rise of multinational profits

(Percentage of global profits made by firms outside of the country where they are headquartered)

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