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A Solution for Corporate Tax Avoidance

Tax the gross receipts of multinational companies in each of the countries in which they are earned.

12:00 AM, Feb 22, 2014 • By IRWIN M. STELZER
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“Equity is a roguish thing. For Law we have a measure, know what to trust to; Equity is according to the conscience of him that is Chancellor, and as that is larger or narrower, so is Equity. ’Tis all one as if they should make the standard for the measure we call a “foot” a Chancellor’s foot; what an uncertain measure would this be! One Chancellor has a long foot, another a short foot, a third an indifferent foot. ’Tis the same thing in the Chancellor’s conscience.”   

Anyone with experience of the difference in the definition of fairness between, say, tax-cutters such as John F. Kennedy and Ronald Reagan, on the one hand, and Barack Obama’s desire to squeeze what he calls “the rich,” will agree with Selden.

And yet, and yet ... If we are to preserve support for a tax system that relies heavily on voluntary compliance by unrich individuals, there is something to be said for attempting to have the tax burden considered “fair” by the sensible majority that bears no animus to market capitalism. So, as Lenin once asked, “What is to be done?” One approach would be to ratchet up the public pressure on companies that do lots of business and earn lots of money in venues in which they pay little or no taxes. Starbucks responded to British prime minister David Cameron’s admonition to “wake up and smell the coffee” over tax, and to a consumer boycott, by making a quasi-voluntary contribution of £20 million to Her Majesty’s Treasury. But relying on the kindness of strangers is not a policy. Consumers are more willing to do without their morning caffeine fix, or to switch coffee suppliers, than to boycott the manufacturers of their medications, or threaten the developers of the systems that run their mobile phones with a renewed reliance on land lines.

Nor would it do much good for governments to continue the unequal battle between their tax collectors and the lobbyists that persuade congressman that what is good for their clients is necessarily good for the nation, and their lawyers who face the fire-power of  Wall Street firms. Or to hope that the Group of 8 will come up with a feasible plan to persuade some distant tiny island not to offer haven to multinational companies.

About the best that can be done is to tax the gross receipts of multinational companies in each of the countries in which they are earned, avoiding the need to battle over intra-company charges for the use of intellectual property and other components of a profit calculation. Otherwise, these companies and, worse still, the tax system, “shall forfeit fair renown,” to revert to Scott.  

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