Here's a solution: It's time for a global companies to pay a Global Profit Tax
The cascade of revelations in recent months showing multinational companies doing a huge amount of business here and yet paying virtually no corporation tax has provoked widespread public demands for something to be done. But people tend to be rather hazier on what that "something" should be.
To define a solution we first need to grasp the nature of the problem: a global tax loophole. In our age of liberalised cross-border trade and free capital flows, multinational companies find themselves with a considerable level of freedom to choose where they pay tax on profits.
With some sophisticated planning from their accountants, many of these corporations (especially those whose commercial value is derived from a piece of intangible intellectual property such as a search engine algorithm or a drug patent) are able to register their profits in tax havens.
Here's how it works. A multinational typically registers its intellectual property in a subsidiary company based somewhere like Bermuda or the Cayman Islands. This subsidiary then charges another subsidiary operating in a big customer market, such as Britain, a massive fee for the right to use that intellectual property. So any trading surplus resulting from activities in the large market is offset by the cost of the fee. And then the profits accumulate in the tax haven.
National governments could and should try to put a stop to this egregious "profit shifting" on their own. But a unilateral approach is plainly second best.
The natural solution is to secure an agreement by all the world's governments to tax the profits of multinational firms collectively and to divide up the revenues fairly between them. This division could be based on the amount of business done by the multinational in their various territories as revealed by their turnover and number of employees.
It sounds complicated, but American states have long operated a system designed along these lines known as "apportionment". Another name used is "unitary taxation". Those names are a bit of a turn-off to the layperson. What's required is a reform banner that the general public can easily understand. I suggest: "Global Profit Tax". After all, doesn't it make sense that global companies should be compelled to pay global taxes?
- 1 Games of Thrones actor Lena Headey makes emotional promise to her unborn daughter
- 2 Isis burns woman alive for refusing to engage in 'extreme' sex act, UN says
- 4 Female Muay Thai champion hustles coaches to give them a beating
- 5 16-year-old girl beaten and burned alive by lynch mob in Rio Bravo, Guatemala
Isis burns woman alive for refusing to engage in 'extreme' sex act, UN says
Purity balls: Girls in the US making virginity pledges as fathers vow to 'protect purity'
Female Muay Thai champion hustles coaches to give them a beating
Puerto Rico, island of lost dreams: People are leaving the debt-hit territory in droves as near neighbour Cuba's star rises
16-year-old girl beaten and burned alive by lynch mob in Rio Bravo, Guatemala
As a white man, I'm surprised more women aren't tweeting the hashtag #KillAllWhiteMen
Scotland may have to leave the EU even if it votes to stay in, David Cameron confirms
Report finds that Britain's wages are the most unequal in Europe
The day that Britain resigned as a global power
Almost a third of school pupils believe 'Muslims are taking over our country', study claims
SNP fury as HS2 finds 'no business case' for taking fast train service to Scotland
iJobs Money & Business
£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...
£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...
£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...
£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...