Wednesday, September 05, 2012

Survey: business wants tax harmonisation,fear reputational damage from tax

Three fascinating facts from a new survey of multinational CFOs by tax advisers Taxand. First, from Economia:
"Multinational CFOs believe that exposure to their tax planning could damage reputation, according to a new survey. Of those surveyed, 87% believe it could be detrimental to a firm's reputation to be seen to be actively engaging in tax planning. This is a 19% increase on last year's survey."
Second, from Accounting Today:
An overwhelming 87 percent of respondents from the Americas do not believe that economic turmoil can be resolved through tax policy.
Third, from The Economic Voice:
67% of multinationals in Europe think global tax harmonisation is desirable, with 71% believing it’s achievable in the next 5-10 years.
(although a much lower proportion of them believed that in the Americas.) The survey is here.

The first fact shows that we and others like us have been asking the right questions, and we think it shows we have been having an impact. The shift is, of course, also driven very substantially by budget deficits and the scramble for tax revenues, amid wider concerns about inequality.

The second fact stands to reason. As we have frequently pointed out, overall taxes as a share of GDP, and tax rates, have very little impact on the long-term effect of economic growth. (Just look at the chart here, for instance.) Martin Wolf of the Financial Times sums up:
"There is no relation between the share of government revenue and the rate of growth of real output per head (that is, productivity) over the 1989-2011 period."
(And see more evidence here.) What is more, we have shown repeatedly that - particularly at the moment - corporate tax cuts are worthless: the economic equivalent of pushing on a string. In fact, in the current environment of massive, idle uninvested corporate profits, tax cuts are exactly, precisely the wrong approach, as we noted:
"Corporate taxes transfer money away from a sector (corporations) that is letting money sit idle, into the hands of a sector (government) that puts it straight to work, educating children, building roads and so on: investing in the future."
Even The Economist now accepts that the arguments against taxing capital may have been wrong.

The third fact is heartening (and we knew this already): European multinationals are showing warm feelings about tax harmonisation. The multitude of different tax regimes that they have to navigate, using idiotic and worse-than-useless rules dreamed up half a century or more ago, are quite frankly a headache for corporate bosses - as is the cost of compliance and the reputational damage that is now starting to bite.

Here's the problem. Multinationals currently feel competitive pressures to engage in costly and foolish race-to-the-bottom tax games, under ridiculous rules. There is no alternative. If they could stop this race -- on a level playing field with their competitors -- then they would love to do so. Tax harmonisation is the way to do it, and Europe is currently trying to do exactly that, through its horribly named European Common Consolidated Corporate Tax Base (CCCTB).As Algirdas Šemeta, a top EU official tax put it:
"The CCCTB will make it easier, cheaper and more convenient to do business in the EU. It will also open doors for SMEs looking to grow beyond their domestic market. Today's proposal is good for business and good for the EU's global competitiveness."
Quite so. Read more about the CCCTB here. (Hat tip: Holly Sklar.)

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