On so-called “tax competition”

   1   0 Blog, Corporate Tax, Taxing corporations
financerace

Tax wars, in pictures

Someone has just posted an article about the need for multinational companies to protect their reputations from investigation of their tax affairs.  The gist of the article is that MNCs need to step up their public relations effort to communicate their tax affairs more effectively. So we can all look forward to more corporate spin as they try to explain away their dodgy deals in Luxembourg.

But one line in particular caught this blogger’s eye and perfectly exemplifies why so many tax accountants, tax lawyers, corporate spin doctors, uncle Tom Cobley and all, are so wrong about tax avoidance.  The line reads:

“Tax has long been an area in which companies — especially multinationals — can gain competitive advantage.”

This blogger studied the microeconomic theory of the firm for several years.  Prior to that he worked for one of Europe’s largest manufacturing / food processing companies with plant and distribution networks spread across many countries.

Neither in theory nor in practice should companies be seeking a “competitive advantage” through tax avoidance, or tax breaks, or tax holidays, or milking all manner of subsidies and incentives gulled out of politicians.  Tax, as we have said many times, is a lower order of consideration in investment decisions than factors such a good transport infrastructure, trained and productive workers, access to markets, law and order, and the availability of production inputs, including energy.  After all, if there’s a profit to be made, investors are likely to invest regardless of sweeteners provided by governments.

The theory of market competition is based on the notion that companies compete against one another by innovating to improve on production efficiency, product and service quality, and on price.  The constant pressure of competition should yield optimal allocation of resources.  What we all know, or should know, however, is that most markets are far from perfect, and tax avoidance by Transnational Corporations (TNCs) renders them still less perfect, since few locally-based companies will or even can shift their profits to Jersey or Luxembourg.  If multinational s can squeeze out their locally-based competitors through being better at tax avoidance, this reduces consumer choice and increases the monopolistic rents that TNCs can obtain from already uncompetitive market conditions, since they don’t contribute to the provision of the infrastructure and services that all markets rely on.

When companies “compete” on taxes the whole market dynamic changes: instead of promoting innovation, better services and lower prices, the advantage goes to those companies that can secure the best tax breaks or the largest amount of subsidy.

Theories of comparative advantage are turned on their head as armies of CEOs, tax advisers, lobbyists and corporate location agents, scour the corridors of political power seeking tax loopholes, subsidies and whatever tricks are available to not pay tax and free-ride of public services and resources.

This is increasingly the way of the world: things have got so out of hand that these days one might call these corporate welfare chasers “Davos Man.”

Far from promoting efficient resource-use, so-called ‘tax competition’ – a phenomenon which is far more accurately described as ‘tax wars‘ – actually achieves the exact opposite; it rewards the rent-seekers and free-riders.

In every respect, this type of “competition” causes market failure which acts against public interest.

Few things are more dangerous than a Big Lie repeated time and time again.  This is why we must now urgently tackle head on the nonsense peddled by people like Joe Dalton, the author of this particular article for EY, the tax avoidance advisory business formerly known as Ernst & Young).  The entire notion of “tax competition” is a Big Lie, whether at the microeconomic level of the firm, or at the political level of the race-to-the-bottom between countries.

Henceforth, TJN will be making tackling tax wars a high priority.  Meanwhile we invite Joe Dalton or any of his colleagues to explain what benefits flow to societies from companies – especially multinationals – obtaining a “competitive advantage” through tax avoidance.

And while waiting for Joe to get back to us, take a look at this short article about the myth of ‘tax competitiveness’ of nations.

 

 


Related Posts

UN must defend target to curtail multinational companies’ tax abuse

Photo by Luca Santori, Creative Commons LicenseThe Tax Justice Network, The Independent Commission for the Reform of International Corporate Taxation, and the Global Alliance for Tax Justice call on the UN Secretary General to make sure the commitment to action on tax abuses by multinational companies remains part of the new UN Sustainable Development Goals.

READ MORE →

The BVI: Responsible for worldwide tax losses of $37.5 billion a year

BVI report blogAn extraordinary report by consultants Capital Economics, for BVI Finance, claims that the British Virgin Islands are responsible for $1.5 trillion of assets invested around the world, and that these result in 2.2 million jobs and $15 billion in tax revenue. A better approximation would be that the BVI imposes global tax losses of $37.5 […]

READ MORE →

Event: Making Tax Work for Women in the UK and Globally

Invitation_ Tax and Gender eventOn Wednesday 28th June 2017 at 16.30 our very own Liz Nelson will be speaking at an event in London that aims to bring together gender and tax justice advocates to highlight the need for coherent and gender-responsive fiscal policies to safeguard the rights of women and girls both in the UK and globally. The […]

READ MORE →

Historic event on women, human rights and tax justice in Bogota

BogotaLast week civil society organisations, researchers, labour union activists and policy makers met in Bogota, Colombia to explore how tax justice issues can ensure governments, multinational corporations and others meet their obligations to women in order to secure their full range of human rights. The Women’s Rights and Tax Justice conference opened with a conversation […]

READ MORE →

The Offshore Wrapper: the Panama Papers, one year on

Photos from the Protest outside PwC 1 Embankment Place, part of the Global week of action for tax justiceWelcome to the Offshore Wrapper – your weekly update from TJN.  Happy Paniversary! This week it’s been one year since the Panama Papers were leaked, and a number of organisations around the world have been marking the occasion though the global week of action for tax justice. In London, activists from the TJN and the […]

READ MORE →

One thought on “On so-called “tax competition”

  1. Jobs says:

    The wikipedia article on tax competition needs a review in that sense.

    https://en.wikipedia.org/wiki/Tax_competition

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to Top