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by Jerome a Paris Thu Apr 6th, 2006 at 09:35:21 AM EST

EU tax competition drives down corporate rates

Tax competition within Europe has forced corporate tax rates down to levels well below the rest of the world, according to an international survey by KPMG, the professional services firm.

(...)

The countries with the highest tax rates were Japan, with 40.69 per cent, and the US with 40 per cent. At the bottom of the scale was the Cayman Islands with a zero corporate tax rate.

Countries were becoming wary of aggressively cutting rates because of fears that neighbouring countries would follow suit, Mr Hickey said. Increasingly, they were competing on other grounds, such as the "business friendliness" of their tax regimes. Favourable factors included the simplicity and stability of the tax system, the willingness of tax authorities to make rulings ahead of transactions and the absence of an aggressive approach to enforcing tax law.

(...)

The report said: "The progressive lowering of trade barriers particularly in the EU, and the increasingly sophisticated supply chain options available to large, global companies provide credible alternatives for locating investments, so exerting constant downward pressure on headline rates."

When will lowering your taxes be compared to what it is: beggar-thy-neighbor protectionism?

Corporations will always want more. Now they expect the non-enforcement of laws to their detriment. Beyond the terribly shortsightedness of that approach for the companies themselves (how long before such non-enforcement applies as well to laws in their favor?), when will it become clear to politicians that it will NEVER be enough, and that in the meantime, we are ruining each other for the transitory benefit of entities with little loyalty and less empathy.

Do we actually have to see our countries ruined before its too late?


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A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Thu Apr 6th, 2006 at 09:41:51 AM EST
Okay then.

We should then eliminate any obstacles to that ruin, if we have to go through it. The faster it comes, the faster we can built something else.

Now I sound like Arlette Laguiller.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Thu Apr 6th, 2006 at 09:59:36 AM EST
[ Parent ]
I personally think the core problem here is the free movement of capital.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Thu Apr 6th, 2006 at 10:03:55 AM EST
[ Parent ]
If it's any comfort, you don't really look like her. I've never heard you sing l'Internationale (maybe I heard you whistling it once but I won't go there...)
Seriously, it's nothing new, in France at least, that companies can cut tax deals which fall outside of strictly defined law.
Perhaps the tax revenue shortfall will force to make some real decisions about reducing government spending.  I may be pretty much alone around here who thinks this but I'm convinced spending can be cut while still providing the important public services (health care = good, public TV = bad, etc.).

Cheers

by Guillaume on Thu Apr 6th, 2006 at 10:37:34 AM EST
[ Parent ]
You're certainly not alone. Imagine how much you could improve public services and cut taxes if you got rid of military spending.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Thu Apr 6th, 2006 at 10:40:23 AM EST
[ Parent ]
I think the (annual) Defense budget in France is about 30 billion euros. But god knows how much private and company capital is linked to Defense ...

Also, I have no idea how much of that budget is actually spent usefully (coastal pollution watch by the Navy, gendarmerie, etc).

But we all know the global military budget is very high and massively fed by the US's own budget.

by Alex in Toulouse on Thu Apr 6th, 2006 at 10:52:23 AM EST
[ Parent ]
I kinda had that in mind...

And faster than Jérôme can say "data is not the plural of anecdote" :-) let me tell you about my own valiant experience in the military.

It was 15 years ago but I know things haven't changed that much.  I did military service in a military administration where all military personnel from NCO on up had a civilian "double" who held the same job with an equivalent civilian rank.  The military were overstaffed and underworked by any standards meaning that their civilian doubles did practically no work at all.  This left plenty of time for the civilians to study tasks they would never perform.  Once they had passed the test proving they had acquired new skills, they were entitled to a pay raise of course.  The General in charge tried to change things by granting the pay raises to those who actually used the new skills in their job.  Silly general! He almost caused a strike before backing down from his new fascist rule.

I'm not claiming that all administrations are as wasteful as the military but I'm pretty sure we can lop off much gvt spending without crippling real public services.

Cheers

by Guillaume on Thu Apr 6th, 2006 at 11:07:08 AM EST
[ Parent ]
Like I mentioned in one of the DADCSI diaries, I know from an insider source of a base in Britanny where every computer is equipped with Windows NT. That's probably something like a 120 euro overhead for nothing, on each PC. Besides, why would the army not be capable of developing its own version of Linux or BSD? And I won't even get into security considerations ...
by Alex in Toulouse on Thu Apr 6th, 2006 at 11:12:03 AM EST
[ Parent ]
DADVSI
by Alex in Toulouse on Thu Apr 6th, 2006 at 11:12:30 AM EST
[ Parent ]
The key there is "15 years ago" when work-force was cheap for the Army if not particularly efficient nor motivated (draft). Things have changed a lot since. The MoD had to move a lot of people around to handle tasks previously covered by drafted grunts and I don't think your do-nothing civil servants are allowed to sit idle anymore.
by Francois in Paris on Thu Apr 6th, 2006 at 11:22:08 AM EST
[ Parent ]
Well actually, I ran into my old NCO the other day (a great guy who actually did get things done).  A lot of the civilians that I had known were still in the same place and apparently not that much had changed in that neck of the woods.  Admittedly, it was a pretty protected administration which was never going to be on the forefront of spending cuts. I concede your broader point : overall the military has become more efficient than 15 yrs ago having, among others, lost access to freeish labour.

Nevertheless, in my initial post, I dwelt on the labor cost aspect to keep it short but procurement, mandated hardware and software requirements (as Alex mentions), were also quite wasteful. Overall I'm confident that there's still a lot of room for cost reduction.

by Guillaume on Thu Apr 6th, 2006 at 11:54:49 AM EST
[ Parent ]
Do we actually have to see our countries ruined before its too late?

Probably.

by Metatone (metatone [a|t] gmail (dot) com) on Thu Apr 6th, 2006 at 09:42:20 AM EST
Non-enforcement is mad. I wonder if it's happening here? There's been a massive increase in enforcement on most tax here.

Of course that's compared to the time where pretty much everyone who could was dodging tax because the marginal income rate was as high as 65%.

by Colman (colman at eurotrib.com) on Thu Apr 6th, 2006 at 09:52:51 AM EST
One of the big problems in the UK is that there is a huge disparity between enforcement on two groups.

Group 1

Typical individuals, SMEs, etc.

and

Group 2

Large corporations, politically and otherwise connected individuals

Group 1 come under enormous scrutiny and given the powers that the revenue has this can be a ruinous process, which we all fear. (Thus, there's a large business in selling "audit insurance" to SME's to cover the business disaster that is a Revenue audit.)

Group 2 get very little real scrutiny.
It's partially just that the richer you are, the more you can afford fancy tax lawyers to find loopholes in the first place and partly a matter of political will.
But a big issue is simply that compared to a large transnational, the Revenue is up against it. Some big corporation (e.g. Vauxhall/GM at one point) employed more tax experts and lawyers than the Inland Revenue had in the whole region where the headquarters were.

by Metatone (metatone [a|t] gmail (dot) com) on Thu Apr 6th, 2006 at 10:13:20 AM EST
[ Parent ]
Against that trend, I've read also that it's much easier to collect taxes from large companies - they are better organised, provide information in the form you ask for it, know what you're talking about, etc...

I think I remember that the 400 tax collectors in charge of large companies in France collect as much money for the State than the other 160,000 employees of the Ministry's other tax divisions.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Thu Apr 6th, 2006 at 10:19:34 AM EST
[ Parent ]
If there is any corporate fiscalist over here, feel free to correct me but I believe a lot of Group 2 entities don't follow the normal tax code because they have specific agreements with local govs outside of the common law. The idea is that the companies tell the govs "either we pay a lot of lawyers to avoid taxes and you get zilch and you can't do anything about it or we agree in advance on a small sum for you and you leave us alone."

If you want to get rid of that, you need to get rid completely of tax havens and to heavily regulate intangible transfers across subsidiaries of a same multinational (a shell game that moves profits and losses from one subsidiary to another, depending on which local tax codes are the most profitable for each cases). For the little I understand, neither task is technically easy, not to say a word of political will.
by Francois in Paris on Thu Apr 6th, 2006 at 11:36:46 AM EST
[ Parent ]
I'm not a fiscal specialist but I know a thing or two about the topic and I think your description is pretty accurate.

It can get sleazier since with enough tax paying clout and and a decent payroll (ie jobs thank can be relocated) a company can still cut a deal after being caught paying insufficient taxes.  Once the auditor has told you how much back taxes you owe, the haggling can begin in earnest and there's now way in hell the big players ante up the full amount penalty and all.

by Guillaume on Thu Apr 6th, 2006 at 12:08:05 PM EST
[ Parent ]
Prem Sikka, a professor in accounting and suchlike has written some good articles on tax avoidance and corporations.

Some were in the Guardian.

I'd google for a link or two, but I'm rushing out now.
Maybe later.

by Metatone (metatone [a|t] gmail (dot) com) on Thu Apr 6th, 2006 at 10:14:45 AM EST
[ Parent ]
So what are the chances that we can put a common floor on corporate tax in the EU?

Looks like the reasonable thing to do.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Thu Apr 6th, 2006 at 10:39:31 AM EST
Not a chance unless it's 12.5%.
by Colman (colman at eurotrib.com) on Thu Apr 6th, 2006 at 10:41:39 AM EST
[ Parent ]
The EU is now trying to agree on a common corporate tax base [i.e., figuring out how much is taxable], while leaving tax rates free to countries to set as an instrument of policy.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Thu Apr 6th, 2006 at 10:42:00 AM EST
[ Parent ]
The problem with this is that it affects other elements of the tax code as well. These things are interdependent packages that have built up over time.
by Colman (colman at eurotrib.com) on Thu Apr 6th, 2006 at 10:43:22 AM EST
[ Parent ]
I'd like us to think more about this:


lower taxes = protectionism

It might be a way to create a "wedge issue" like the Americans like to say. The downwards spiral of taxes is either empoverishing everybody for the short term profit of transnational companies, or amounts to stealing jobs from your neighbors.

Protectionism.

Do you think that could work?

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Thu Apr 6th, 2006 at 11:04:33 AM EST
You make it sound like a bad thing.
by Colman (colman at eurotrib.com) on Thu Apr 6th, 2006 at 11:05:04 AM EST
[ Parent ]
I still think it's a bad thing, mostly. But more importantly, they think it's a bad thing. The idea is to associate the conept they love (lower taxes) with one they villipend all the time ("protectionism").

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Thu Apr 6th, 2006 at 11:33:05 AM EST
[ Parent ]
You can also wrap your own efforts in their positive concepts - reform, transparency, etc. Who can be again reforms to bring more transparency to corporate taxes, mmm? Reform has to be good for corporations, no? They are always asking for reforms. Let's give them reforms...

I think it holds especially true in that specific case as the issue is not so much the marginal corporate tax rate but recognition of taxable income. One thing really made me gasp for air in your quote:
The countries with the highest tax rates were Japan, with 40.69 per cent, and the US with 40 per cent. At the bottom of the scale was the Cayman Islands with a zero corporate tax rate.
No corporation in the US pays an effective 40% percent tax rate or anything close but rather 10 or 15% for the least "talented". That's because corporate tax cuts don't come under the form of rate cuts but under the form of exemptions - what is taxable and what is not.
by Francois in Paris on Thu Apr 6th, 2006 at 11:48:24 AM EST
[ Parent ]
Reform has to be good for corporations

Must be good stuff you're smoking...

Why would corporations need reform? They are slimmed down and wickedly honed by Competition. Market Forces™ oblige them to be Efficient and lean. Optimal Organization and Cost-Efficiency everywhere. 10-15% tax paid instead of 40% -- that's a good example you cite.

It's the rest of society that needs reform to adapt to corporate reality, an' dat's de troof.

by afew (afew(a in a circle)eurotrib_dot_com) on Thu Apr 6th, 2006 at 03:32:54 PM EST
[ Parent ]
I'm sure corporations can do better with more Reforms. Reforms are good ! Reforms are clean and healthy !

Now available with the new Enhanced Reform+TM formula for a whiter whitewash and bring a ray of sunshine in your corporate lives :>
by Francois in Paris on Thu Apr 6th, 2006 at 04:10:13 PM EST
[ Parent ]
I'm sure of one thing: the ones who are all for the single market and the Commission fighting for free trade within the Union, and the ones who refuse to admit any outside meddling in a nation's sovereign right to dictate its own fiscal and social policies, are the same people.

They're all for the Union on the one hand, and for national sovereignty on the other.

by afew (afew(a in a circle)eurotrib_dot_com) on Thu Apr 6th, 2006 at 03:41:36 PM EST
[ Parent ]
Interesting comment by laughingriverin my dKos thread:


the reality is that what is needed is significant tax increases on high income earners and businesses in general.

Taxes act as an incentive for business to invest in labor and growth because what they don't pay out for either in any given year they will have to pay in taxes. So if a company has to pay 50% on a 50 million profit then its better for them to invest that profit in rewarding their employees and or investment in expansion, etc. And of course the revenue the government receives by taking a higher share of the money supply just forces more money to stay here to  be recycled into the economy rather than sitting in non-contributing money pools which is where most of it is sitting now as more and more income is controled by fewer and fewer people as is the total wealth.

Right now its much less risky for a businesses and individuals to just dump money into the markets and take the 15% capital gains tax as its less that income taxes and its far far less risky than investing in new manufacturing plants, employees, expansion of even starting up a new business.

Raise taxes and all of that goes away as individuals and businesses will once again have incentive to invest in America and Ameicans again...



In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Thu Apr 6th, 2006 at 03:28:14 PM EST
rather than sitting in non-contributing money pools which is where most of it is sitting now as more and more income is controled by fewer and fewer people as is the total wealth.

There's an interesting discussion to be had there, if the money is sitting in a bank account, some would argue that means it is available for investment, rather than "non-contributing."

by Metatone (metatone [a|t] gmail (dot) com) on Thu Apr 6th, 2006 at 03:39:27 PM EST
[ Parent ]
Any tax cut means revenue must be generated somewhere -- as they say, you don't get something for nothing.

In the U.S., it means added borrowing, higher interest rates (which translates into higher costs for Americans who borrow, and higher returns for foreigners who invest), and increased debt.

In the U.S. the share of the national debt for a family of four is now over $120,000.  A large portion of this debt was generated by give-a-ways to the wealthiest Americans and to corporations.  In return, corporations are shifting more jobs to Asia and elsewhere (but not to Europe, of course).

Is this what Europeans want their governments to do?

by numediaman on Thu Apr 6th, 2006 at 03:30:18 PM EST
Why aren't we just saying that corporation must declare profits per country not too far from their actual sales in the given country?

Right now we have a situation where corporations like Dell, HP, Microsoft are doing zero profit everywhere in Europe but in Ireland (by way of intellectual property transfer payments). Getting from there to non zero in all countries even if not that well distributed would be a good step forward, no?

by Laurent GUERBY on Thu Apr 6th, 2006 at 05:23:25 PM EST


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