Wednesday, November 28, 2012

John Kay in the FT supports unitary taxation

Following Prof. Sol Picciotto's and Nicholas Shaxson's comment piece in the Financial Times, the newspaper's regular columnist John Kay has followed it up with some commentary of his own.

Among other things, he takes to task the notion that tax competition is good:
There is an argument that low rates of corporation tax are one enticement a business friendly government can use to attract economic activity from other jurisdictions, and that such tax competition is beneficial. I am not sure this argument is very strong – the outcome is a beggar-my-neighbour process in which the winning country’s gain is necessarily smaller than its rival’s loss.
He then looks at the case of U.S. states which successfully implement what he calls 'profit apportionment' - a much nicer and more instructive term than the tax profession's term 'formulary apportionment - noting how lobbying by British multinationals in particular helped constrain the use of unitary taxation.
"Instead of attempting to estimate what fraction of a company’s total profit was earned in California and what amount in Wyoming, apportionment states taxed corporations on a share of their aggregate US profits corresponding to the share of their total US activity that took place in the state."
And his brief conclusion:
"Well conceived apportionment is the best – perhaps only – answer to the problem presented by multiple company tax jurisdictions."
Quite so. 

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