Tuesday, June 08, 2010

Tax wars: Swiss radio investigates

Jurisdictions around the world race each other to the bottom on tax, regulation and secrecy, in a process sometimes known as "tax competition." But this has allowed demagogues in Washington and elsewhere to fit this pernicious process into simplistic "competition is good" formulations, glossing entirely over the fact that competition between companies in a market place to produce the best and cheapest goods and services is absolutely nothing like competition between jurisdictions.

In this interview programme on World Radio Switzerland, TJN's director John Christensen calls this process by a more appropriate name: tax wars:

CHRISTENSEN: "We have nothing against low corporate tax rates as long as they apply to activities within the cantons themselves. Our concern lies with the way in which cantons in Switzerland—and some other secrecy jurisdictions—are trying to attract headquarter activity largely involving shifting profits which are being generated in other places into the canton so they can be taxed at a very low rate there. What this involves is a process of tax war against other jurisdictions, undermining their tax regime an promoting beggar-thy neighbour policies."

Christensen says the cantons are free-riding on activities elsewhere and that the entire global framework for taxing multinationals needs to be fixed.

CHRISTENSEN: The solution lies with much stronger international cooperation, a completely different way of taxing companies so they can’t shift their profits artificially to tax haven centres like the cantons in Switzerland, but in fact are taxed on the basis of where those profits are generated at root. That is, they are taxed on where the actual economic activity happens.

The Brazilians, with the routine use of the term Guerra Fiscal, have it right (and they are thought leaders in other areas, too). Language matters: it is time to start using this kind of language in English and other tongues. As US Senator Carl Levin rightly observes:

"Offshore tax havens have declared economic war on honest U.S. taxpayers."


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