Declaring no-confidence in the existing system of taxing the global profits of multinational corporations, a group of leaders from government, academia and civil society, including the faith community, having backgrounds, experience and expertise spanning the globe, has launched a worldwide initiative for changing this system and the rules and institutions governing it.
The group has turned itself into an independent commission of nine members: 1) Eva Joly from Norway, a member of the European Parliament where she serves as Vice-Chair of the Special Committee on Tax Rulings; 2) Rev Suzanne Matale, the Head of the Zambian Council of Churches; 3) Manuel Montes of the Philippines, Senior Adviser for Financing and Development at The South Centre; 4) Jose Antonio Ocampo (chairperson) is a Colombian, former United Nations Under-Secretary General and former minister of finance of Colombia. He is currently a professor at Columbia University; 5) Leone Ndikumana of Burundi, a professor of economics at the University of Massachusetts; 6) M Govinda Rao, former member of the Finance Commission, member of the Economic Advisory Council to the Prime Minister of India, and director of the National Institute of Public Finance and Policy in India; 7) Magdalena Sepulveda Carmona of Chile, a human-rights lawyer who recently served as a UN Special Rapporteur on Extreme Poverty and Human Rights; 8) Joseph Stiglitz from the United States, a professor at Columbia University, who in 2001 was awarded the Nobel Memorial Prize in economics; and 9) Ifueko Omoigui Okauru, who served as Commissioner General of Nigeria’s Federal Inland Revenue Service and was a member of the Committee of Experts on International Cooperation in Tax Matters. She is currently a managing partner of Compliance Professionals Plc.
The commission has come up with a set of seven principles, which hope to promote a wider public debate, which it believes is essential to ensure the creation of an international tax system that works for all people. First, tax abuse by multinational corporations increases the tax burden on other taxpayers, violates the corporations’ civic obligations, robs developed and developing countries of critical resources to fight poverty and fund public services, exacerbates income inequality, and increases developing country reliance on foreign assistance.
Second, abusive multinational corporate tax practices are a form of corruption that weaken society and demand urgent action. This is even true when the practices of corporations are within the law, and especially so when corporations have used their political influence to get tax laws that provide them scope for such abuses.
Third, multinational corporations act — and therefore should likewise be taxed — as single firms doing business across international borders. This is essential because multinational corporations often structure transfer pricing and other financial arrangements to allocate profits to shell. Fourth, tax havens facilitate abusive tax practices with enormous negative effects on the global community.
Fifth, greater transparency and access to information are critical first steps to stop tax abuses. Sixth, every individual and country is affected by corporate tax abuse, and therefore the debate over multinational corporate tax avoidance should be widened and made more accessible to the public. And finally, inclusive international tax cooperation is essential to combat the challenges posed by multinational corporate tax abuses.
Based on these principles, the commission has proposed a large set of recommendations for the full overhaul of the existing system of international corporation taxes. The most pertinent of these are: 1) states must reject the artifice that a corporation’s subsidiaries and branches are separate entities entitled to separate treatment under tax law, and instead recognise that multinational corporations act as single firms conducting business activities across international borders; 2) states should develop model bilateral and multilateral agreements to enable participating jurisdictions to apportion revenues and costs attributable to a multinational corporation operating in those jurisdictions; 3) instead of attributing income from the control or ownership of intellectual property to a low-tax jurisdiction, the income should be apportioned to the jurisdictions where the intellectual property was developed or, if sold, apportioned according to objective economic factors such as sales and employment; and 4) states should treat a company affiliate of a resident multinational corporation that carries out business activity in a jurisdiction as a presumptive permanent establishment with tax nexus in that jurisdiction.
Published in The Express Tribune, July 22nd, 2015.
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