Nations band together try to do something about tax evasion. Separately and futilely.
by David Atkins
Faced with rampant global corporate tax evasion and angry citizens, the wealthiest nations of the world are finally getting around to trying to do something about it. If by "doing something" about it one means flailing about wildly with no hope of success:
The world’s richest economies for the first time endorsed a blueprint on Friday to curb widely used tax avoidance strategies that allow some multinational corporations to pay only a pittance in income taxes.
It could be years before any changes take place in national tax laws and big corporations and other interest groups are sure to lobby heavily to preserve their tax breaks. But the proposal was the most concrete response yet to the intensifying pressure on governments around the world to address the issue.
The governments have strong motivation for change. They are starved for revenue and face citizenry who see inequity in a system that enables some highly profitable corporations to pay far lower tax rates than workers.
In one widely cited example, Starbucks last year paid no corporate tax in Britain despite generating sales of nearly £400 million ($630 million) from more than 700 stores in that country. Apple, despite being the most profitable American technology company, avoided billions in taxes in the United States and around the world through a web of complex subsidiaries.
In light of such practices — which are entirely legal, taking advantage of differing tax rules around the world — the Organization for Economic Cooperation and Development has proposed that all nations adopt 15 new tax principles for corporations. The plan focuses on corporations only and would, if adopted widely, shift some of the global tax burden toward large companies — the ones big and rich enough to devise complex tax-reduction strategies — and away from small businesses and individuals, which tend to spend a much bigger share of their incomes on taxes.
In theory, the idea is a good one and long overdue. But the G20 has tried it before.
First off, corporations have the ability to use their immense lobbying power to prevent nation-states from making these changes. But more important is the collective action problem: if even a few nations decide not to participate, they can in theory reap the short-term benefit of seeing many corporations relocate their headquarters to those countries and stash their ill-gotten gains in their banks. Attempting to achieve progress on this issue in a cooperative and voluntary manner is a fool's errand.
The idea is definitely a step in the right direction, but the execution is grossly inadequate. What is needed are global treaties with negative enforcement mechanisms, including but not limited to potential tariffs and sanctions, for nations that refuse to put rules in place to curb corporate theft and malfeasance. Nations that allow corporations conduct the worst forms of corporate tax evasion and arbitrage should be made pariahs as surely as those who harbor terrorists and violate the most basic human rights. Like most white collar crime, the cause and effect between harm done and suffering received is indirect, so it lacks the same emotional stigma. But the removal of trillions of dollars from the world economy into corporate tax havens that could have gone to education, infrastructure, climate change abatement and poverty alleviation directly damages and even destroys the lives of hundreds of millions of people, just so that a few can live the most opulent lives of any creature on the planet in its entire history.
The world doesn't currently have such international protocols. But it should. And in time, it will. When it does, our age will have seemed quite barbaric indeed.
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