How to tax TNC's

Submitted by Matthew on 28 November, 2012 - 6:47

Law professor Sol Picciotto has proposed a new approach to stop tax avoidance by transnational corporations (TNCs).

Over a third of all world trade is within TNCs. That gives them enormous scope to manage their affairs so that their profits appear, and are taxed, in the lowest-tax parts of the world.

Starbucks, Google, and Amazon all use this scope so as to pay very little tax in the UK.

Socialists object to this; and so do ordinary capitalist governments. There have been many efforts by governments, since the 1930s, to fix the problem, none of them effective.

Picciotto bases himself on what has been "applied by California, for example to prevent Hollywood film companies from siphoning profits through distribution affiliates set up in neighbouring Nevada..."

Each transnational corporation should have to draw up a single worldwide set of accounts for its whole business. An agreed formula, based on assets, payroll, and sales figures country-by-country, would then determine the percentage of the TNC's operations attributed to each country it operates in.

Tax on the TNC in each country would be based on its worldwide accounts and the percentage of its operations attributed to the country.

Picciotto points out: "Despite the high costs of separate accounting [for each of their country-by-country operations], most TNCs seem to prefer it. The main reason undoubtedly is that it allows them freedom to organise their internal structure, and generally to deal with national tax administrations one-on-one... the ability to exploit the opportunities for international tax avoidance, especially through the tax haven and offshore secrecy system".

Picciotto's scheme is certainly workable, because it is based on what happens between states in the USA. That current political realities give it little chance of being implemented signals the enormous power of the TNCs.

As is documented in detail in a new book by Leo Panitch and Sam Gindin, The Making of Global Capitalism, capitalist globalisation depends heavily on action by states. When TNCs are in trouble — like the big US car firms, and many international banks, in 2008 — they turn to their home states for bail-outs.

But the priority for capitalist states, more and more, is to shape their countries so as to be able to attract activity from a world market dominated by TNCs.

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