Taking a bite out of Apple? Fixing international corporate taxation
Ruud de Mooij, Michael Keen, Victoria Perry 14 September 2014
Multinational companies’ ability to pay little corporate income tax has grabbed headlines recently. This column argues that the details of international tax rules matter for macroeconomic performance – especially in low-income countries. This emphasises the importance of the G20–OECD Action Plan on Base Erosion and Profit Shifting. However, dealing properly with tax spillovers will require a deeper global debate about the international tax architecture itself.
It’s hard to pick up a newspaper these days (or, more likely for those reading this, do the digital equivalent) without reading about Apple, Amazon, Google, or a host of others managing, by some magic, to pay little corporate income tax – and the consequent outrage of duly shocked and horrified politicians. Entertaining though all this is, understanding the rules that make such tax avoidance possible is a dull task that many of us are happy to leave to the tax nerds – detail really matters (just ask an international tax lawyer).
tax, taxation, IMF, corporate taxation, corporate income tax, spillovers, tax treaties, tax avoidance, multinationals, tax competition, tax harmonisation
Tax harmonisation in Europe: Moving forward
Agnès Benassy-Quéré, Alain Trannoy, Guntram Wolff 22 July 2014
Tax harmonisation has been controversial since the establishment of the European Economic Community, and corporation tax proposals are currently on the table in the EU. Although tax competition can be beneficial, tax harmonisation could curb tax competition that leads to the under-provision of public goods or to burden-shifting from mobile to immobile tax bases. As yet, no agreement has been reached on any ambitious harmonisation plan for mobile tax bases. This column explores the possibility of implementing partial tax harmonisation for corporate taxation and the taxation of the banking sector.
The issue of tax harmonisation has been repeatedly debated in the EU since the European Economic Community was established. Substantial tax harmonisation exists in the area of indirect taxation, and proposals regarding corporations are on the table, such as the project of Common Consolidated Corporate Income Tax (CCCTB, see European Commission 2011a). According to widely accepted economic theory (Zodrow and Mieszkowski 1986), tax harmonisation is a way to curb tax competition that leads to either the under-provision of public goods or to burden-shifting from mobile to immobile tax bases.
EU policies Financial markets Taxation
EU, tax, multinationals, tax competition, tax avoidance, banking union, tax harmonisation, corporation tax, Tiebout competition, financial activity tax
Migration and wage effects of taxing top earners: Evidence from the foreigners' tax scheme in Denmark
Henrik Kleven, Camille Landais, Emmanuel Saez, Esben Schultz 17 September 2013
How responsive is international migration by high-skilled workers to tax differentials across countries? This column provides evidence from Denmark suggesting that a preferential scheme was highly successful in attracting rich foreigners. It warns that, absent international tax coordination, preferential tax schemes to high-income foreigners could substantially weaken tax progressivity at the top of the distribution.
Tax-induced international mobility of talent is a controversial public-policy issue, especially when tax rates differ substantially across countries and migration barriers are low as in the case of the EU. High top-tax rates may induce top earners to migrate to countries where the tax burden is lower, thereby limiting the redistributive power of governments and potentially creating harmful tax competition.
EU, tax competition, migration
Revisiting the debate on tax competition vs. tax coordination
Assaf Razin, Efraim Sadka 21 January 2011
Does the free movement of factors of production lure tax authorities into a race to the bottom? This column argues that, when a group of host countries faces an upward supply of immigrants, tax competition does not lead to a race to the bottom; competition may actually lead to higher taxes than tax coordination.
In 1992, the EU established a single market for capital and labour. While the benefits are often lauded, the worry ever since has been that, in the absence of a fully-fledged harmonisation of the income tax system, tax competition among member countries might undermine the welfare state.
Referring to tax competition among localities in the presence of capital mobility, Oates (1972, p.143) argues that competition may lead to inefficiently low tax rates (and benefits):
Global governance Taxation
tax competition, tax coordination
Tax competition tames big government
Marius Brülhart, Mario Jametti 02 November 2007
Opponents of international tax harmonisation argue that tax competition can rein in the tax-raising powers of big-government ‘Leviathans’ and thereby act as a force for good. An analysis of taxation across Swiss municipalities lends support to that argument.
Is tax competition good or bad for the well-being of society?
tax, tax competition