2nd April 2014
The corporate tax system is not broken and its base is not being eroded, according to research commissioned by ACCA.
An academic report from RMIT University School of Economics, Finance and Marketing in Melbourne, Australia, argues that the fall in corporate income tax revenues is not down to aggressive tax planning. It found “no evidence” to support the belief that that UK or the US corporate income tax base is being worn away.
Entitled 'Multinational corporations, stateless income and tax havens', the report warns that advanced economies face a “fiscal challenge” that is creating the right environment for a “tax grab”.
Sinclair Davidson, author of the report, says there is a lack of evidence to support the prevailing belief that corporate income tax base is being eroded by aggressive tax planning by multinational corporations. This is key argument of national governments around the world, particularly those in the G20, which is leading efforts to clamp down on offshore tax systems.
“It is one thing to point out that multinational corporations do not pay tax in some jurisdictions but that says nothing about the actual corporate income tax base,” he explains. “To the extent that corporate income tax revenues have fallen in recent years, this is more likely to be a result of poor economic conditions than aggressive tax planning.”
The report argues that multinational corporations add value to both their home and host economies. Tax havens add value, says Mr Davidson, as they allow multinational firms to reduce their tax liabilities while increasing their corporate investments. “An increase in their tax burdens would reduce those levels of investment, leading to reduced employment opportunities, reduced consumption and reduced innovation,” he says.
The report concludes by querying whether “tampering with the tried and tested norms of corporate income tax” to generate more tax revenue is good policy.
But questions remain around the issue of avoidance and evasion, says Chas Roy-Chowdhury, head of taxation at ACCA, who suggests that companies must see the management of tax obligations as part of a process of creating long-term value.