Tax avoidance fuels global inequality
By Joseph E. Stiglitz – October 9, 2015
(CNN) Two things in life are inevitable: death and taxes. But not for big corporations.
Although they are “legal persons” and can fund politicians of their choice without limit, they don’t have to be limited by time and, thanks to our outdated system of taxing global profits, they can easily shirk paying taxes.
While multinational companies can get away with paying little or no taxes, average workers have no choice in the matter because their income taxes are paid even before they receive their paycheck. And while big businesses can exploit tax loopholes and shift profits to offshore subsidiaries by employing sophisticated tax planners, small and medium-size businesses have little choice but to pay the full rate.
This week, the Organisation for Economic Co-operation and Development, or OECD, unveiled its package of reforms to the global tax system. This joint G20/OECD exercise is known as the Base Erosion and Profit Shifting Project, or BEPS. The BEPS Project is commendable: it is important to own up to the mammoth problem of tax avoidance and the outdated tax system its member countries have created. Just five years ago, a reform like BEPS would have been unthinkable. But after the financial shocks and revelations of widespread tax abuse by global companies, the G20 called on the OECD in 2013 to propose reforms to the global tax system.
Getting the issue on the table and admitting the problem is a start. And the BEPS Project has made remarkable progress in addressing the problems. However, this is just the beginning, and one should not view it as a successful fix of the broken system of taxing global corporate profits. Although several of the reforms inch toward the project’s goal of taxing profits “where economic activities take place and where value is created,” there is much more work to be done and many more countries to be included in the conversation.
The proposed requirement under BEPS of country-by-country reporting to tax administrations of revenues, profits and taxes paid is an impressive step forward for transparency. However, the home countries of multinational companies will need to require their multinationals to file these reports. Moreover, country-by-country reporting will only be required for entities with revenues above $845 million and even then, these reports will not be made public.
Click here to read the full article.