How should multinationals be taxed?

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The share of American multinationals’ foreign profits booked in tax havens has risen from 30% two decades ago to 60% in 2019

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FOR YEARS governments have grumbled, simmered and raged as multinational companies have shifted profits out of tax collectors’ grasp and into low-tax havens. The OECD, a club of mostly rich countries, estimated in 2015 that avoidance robs public coffers of $100bn-240bn, or 4-10% of global corporation-tax revenues a year.

There is a huge mismatch between where tax is paid and where real activity takes place. Analysis by the OECD suggests that multinationals report 25% of their profits in investment hubs, although only 11% of their tangible assets and less than 5% of their workers are based there. Parents can allocate paper profits to affiliates in tax havens by having them hold intellectual property that is then licensed to other affiliates in high-tax places.

have become a target. More than 40 governments, from France to India, are either levying or planning to levy digital-services taxes on the revenue of firms such as Amazon, Google and Facebook.The building sense of anarchy over how to tax Silicon Valley, the global desire to raise more tax revenues and a more conciliatory White House all mean the scene is set for a global deal.

As a result any deal will involve compromises. The amount of profit that is reallocated in order to resemble economic reality more closely could be capped. For example, the OECD‘s blueprint does take the radical step of considering companies as a whole, rather than separated into affiliates. Still, most profits would remain taxed as they are. The right to tax, say, 20% of profits above a routine rate of 10% of revenues would be reallocated according to a formula that could be based on sales.

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This has to happen anyway. Market access should be taxed everywhere and we have to stop buying bad jobs with bribes when they are just excuses to steal tax dollars. Tax policy needs a reset so that it's encouraging activity we want and discouraging actions we don't want.

Multinationals get taxed? First I've heard of it.

This problem is easily solved - by widespread recognition that corporate tax avoidance can be ended via sales taxes. Imports would also become less of an issue, as they would be subject to the exact same taxes. Lots of lawyers would lose a lot of business.

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