Emmanuel Saez on Tax Evasion - Dictionary of Arguments
Saez I 119
Tax Evasion/Saez/Zucman: A mutually agreed minimum tax among G20 countries would not solve all the problems. Companies could still dodge taxes by moving their headquarters to tax havens. >Tax Competion/Saez/Zucman.
Saez/Zucman: (...) the danger is exaggerated. For all the talk about tax inversions, very few firms have moved their headquarters to tropical islands. Among the world’s two thousand largest companies, only eighteen are headquartered in Ireland, thirteen in Singapore, seven in Luxembourg, and four in Bermuda today.(2) Close to a thousand are headquartered in the United States and the European Union, while most of the others are to be found in China, Japan, South Korea, and other G20 countries. The reason few companies invert, despite the incentives to do so, is probably because a business’s nationality is not easy to manipulate.
Saez I 120
American firms can only change their nationality in the context of foreign acquisition; that is, by merging with a foreign company.
Saez I 121
Example: the Swiss company Nestlé. Assume that Switzerland refuses to police its multinationals, (...). Nestlé therefore is taxed at very low rates and Switzerland declines to apply the 25% country-by-country minimum tax.
Solution: In a nutshell, high-tax countries should collect the taxes that Switzerland refuses to collect. The simplest mechanism involves apportioning Nestlé’s global profits to where the Swiss giant makes its sales. If 10% of Nestlé’s global sales are made in France, then Paris can similarly consider that 10% of Nestlé’s global profits are taxable in France. Is this idle fantasy? Not at all, for this is already how most US states collect their own corporate tax revenues. Forty-four states have their own state corporate tax (at a rate of up to 12%, in Iowa) which adds to the federal corporate tax. To determine how much of Coca-Cola’s profits are taxable in California, the Golden State’s tax authority apportions Coca-Cola’s US-wide profits to where the company makes its sales.
Saez I 122
(...) an even more robust mechanism can be used to fight tax dodgers. Instead of apportioning Nestlé’s global profits, high-tax countries could apportion Nestlé’s tax deficit. Concretely, the United States (and any other nation that wished to do so) would compute Nestlé’s global tax deficit—that is, the extra tax that Nestlé would pay if it were subject to an effective tax rate of 25% in each of the countries in which it operates.
Advantages of this solution:
1) (...) it is immediately doable. (...) information about the country-by-country profits, taxes, and sales of multinational companies already exists.(1)
Saez I 123
2) (...) it doesn’t violate an existing international treaty. Over the years countries have signed myriad conventions to prevent the risk that firms would be taxed twice.
Problem: In practice these treaties - and the inconsistencies therein - have opened the floodgates to all sorts of tax dodging.
Solution/Saez/Zucman: (...) since the defensive tax we propose is collected only to the extent that a firm pays less than the minimum standard of 25%, our solution by construction does not introduce any form of double taxation. As a result, it does not violate double-taxation treaties.
Tax havens: Even firms headquartered in Bermuda would face a minimum effective tax rate of 25%. There would be no place to hide.
Saez I 125
Solution: With a high enough tax floor, the logic of international competition would be turned on its head. >Globalization/Saez/Zucman.
1. Organisation for Economic Co-operation and Development (2019b) Base erosion and profit shifting. Country-by-Country exchange relationships. Paris: OECD Press, 2019b. Available at www.oecd.org/tax/beps/country-by-country-exchange-relationships.htm (08/21/2020)_____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Author1]Vs[Author2] or [Author]Vs[term] is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition.