Imagine a Swedish company with 25,000 employees in Sweden, 25,000 employees in France, and five tanned accountants throwing paper aeroplanes in a sweaty booking office in the Cayman Islands.
Thanks to some clever wizardry, the company’s advisors claim that most of its business takes place in the Cayman Islands.
Ah, the Cayman Islands. Fantastic climate, awesome watersports and lovely fresh seafood.
Plus a tax rate that’s close to zero.
So the company’s nifty footwork means that it avoids paying vast amounts of tax in Sweden and France, which means less money for public services in those countries.
Enter Unitary Tax!
This would involve taxing multinational corporations according to the real economic substance of where they actually do business.
Where is their workforce based? Where are their assets actually held? Which country’s resources do they depend on to do business?
Under unitary taxation, France and Sweden would get to tax (almost) half of the corporation’s overall profits at their own tax rates, and only tiny weeny amounts of its profits would be allocated to Cayman to be taxed at its zero percent rate.
For more details on unitary tax, click here.