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John Christensen ■ Debate: Has corporation tax had its day?

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We have previously commented on the lobbying effort to kill off the corporate income tax (CIT).  In a debate published in the latest edition of Tax Journal, TJN’s director John Christensen goes head to head in discussion with Stephen Herring, head of taxation at the UK’s Institute of Directors.

Herring’s position is summarised in four points.  First, the CIT is collecting a diminishing share of revenue.  Second (and interestingly), BEPS is likely to lead to a situation in which national governments seek to ensure that their “national champions” are not impacted.  Third, companies will increasingly use intellectual property rights and suchlike to shift profits to avoid paying tax,  Fourth, tax competition will drive down tax rates.

Herring is not positive about current reform proposals.  BEPS, he says, will cause widespread dissatisfaction:

In the 1990s, the increasing emphasis placed upon robust transfer pricing legislation was thought to be the answer to cross-border taxation issues, but it has proven to be neither satisfactory nor acceptable to politicians, the public or, indeed, many tax specialists.  I foresee that dissatisfaction with the BEPS outcomes will arise much sooner.

Christensen responds by saying that the CIT raises considerable sums and the tax serves crucial functions such as preventing wealthy individuals from using asset holding companies to avoid tax entirely.  The CIT, he argues, provides a way to tax foreign shareholders, preventing them from free-riding on locally provided services.  Tax competition, he points out, won’t lead to zero rates of CIT; tax cuts, special incentives and handouts don’t stop at zero – they head into negative territory.

Read both sides of the argument here.

For a much more in-depth look at why the corporate income tax is so precious, see this.

 

 

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Comments • 1

  • AvatarRob Fox
    July 7, 2015 - 10:22 am

    CIT is indeed decreasing as a proportion of tax revenues. It is open to abuse and abitrage across national borders, and the legislation is complex and therefore relatively easy to exploit. The case for replacing it is strong. So what with? I’d go for a tax on distributions, on the distributor, with a wide definition to include all interest, IP, and ‘management fee’ payments to connected persons (over 50% common ownership, worldwide)

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