In 2020, we should implement a system to ensure that companies pay their fair shareby Emmanuel Saez and Gabriel Zucman / December 7, 2019 / Leave a comment
The International Monetary Fund recently asked a slate of experts for their views on the future of corporate taxation and tax competition. Most of the Fund’s interlocutors answered that tax competition was “likely to intensify” in the foreseeable future. Since each nation has a sovereign right to set its own taxation, who could possibly force tax havens to stop? Some countries, the experts agreed, will always offer lower tax rates than their neighbours if it’s in their interest to do so. Mobile profits will seek the lowest tax burden. There may be ways to fix egregious forms of abuse. But taxing multinational companies at high rates? In an ever-more tightly integrated global economy? Hopeless.
As we move forward into the 2020s, we need the confidence to say: this view is wrong. There is nothing in globalisation that requires corporate tax to disappear. The race to the bottom that rages today is a decision we’ve collectively made—perhaps not fully consciously or explicitly, certainly not a choice that was openly debated or voted on, but a choice nonetheless. We can make other choices. And we have to make other choices, because the current trend looks unsustainable. If globalisation means ever-lower taxes for its main winners (the big multinationals) and ever-higher taxes for those it leaves out (working-class families) then it probably has no future. Tax injustice and inequality will keep increasing. And to what end? Voters, falsely convinced that globalisation and fairness are incompatible, will be in danger of falling prey to protectionist and xenophobic politicians, eventually destroying globalisation itself.
Fortunately, there are other, equally feasible paths. An effective action plan has three pillars: “exemplarity,” coordination and sanctions against free riders. Exemplarity means that each country should police its own multinationals. For instance, the United Kingdom should make sure that UK companies, if they don’t pay enough abroad, at least pay their fair share at home. To understand how this could work, imagine that, by manipulating intra-group transactions, a British oil and gas company had managed to book $1bn in profits in Ireland—taxed at, say, 5 per cent—and $1bn in Jersey—taxed at, say, 0 per cent. There’s a problem here: the company pays much less tax than it should overall if (for illustration)…