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Taxation After Lots Of Representations

12:00 AM, May 11, 2013 • By IRWIN M. STELZER
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It would, of course, be ironic but of no concern to revenue-hungry politicians, if taxation of Internet sales does nothing for the small retailers who are its intended beneficiaries. The convenience of Internet buying (no store hours to worry about), and the saving in time and gasoline just might overwhelm any effect new taxes would have on where consumers spend their money.

This is only one of several battles going on in which the fairness of the tax system is at issue. Giant multinational companies (I have been a consultant to several) sell large amounts of goods and services in countries to which they are legally obliged to pay little in tax. So does Starbucks, with its ubiquitous shops doling out caffeine fixes in many countries in which the parent pays little or no tax. At least not directly. It and others like it provide employment for tens of thousands of local tax-paying citizens, who spend their earnings with local merchants, themselves taxpayers.

No one has challenged the legality of such tax avoidance, which is a different thing from tax evasion. The former is legal, the latter unlawful. If the tax collectors are unhappy with the results of the laws governing the companies subject to their jurisdiction, they might consider replacing taxes on profits, which can often quite legally be recorded in the jurisdiction of the accountants’ choosing, with a simpler tax based on gross receipts, the locations of which are more easily located. Otherwise, they are reduced to putting moral pressure on the companies to pay more than they are legally obliged to do -- Starbucks caved under such pressure from the chancellor and the prime minister and wrote a check for £20 million -- very much like the system of taxation preferred by Vladimir Putin: pay what I think you should pay or earn an all-expense-paid trip to the new Gulag.

Prime Minister David Cameron, set to chair next month’s G8 meeting and therefore in a position to suggest the agenda, wants that meeting of richer, industrialized countries to develop a system of taxation that will apply to companies that operate in multiple jurisdictions. But that is not going to happen. Another solution would be for the countries with high taxes to lower their rates so as to make it unnecessary for multinational companies to jurisdiction-shop in order legally to minimize their tax bills, which they must do in order to discharge their fiduciary responsibility to shareholders. That’s not going to happen either. Some problems are, indeed, insoluble. This might be one of them. 

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