Stiglitz and Piketty call for new tax regime

Political article
Distinguished economists such as Nobel Laureate Joseph Stiglitz and Thomas Piketty are calling for the introduction of Unitary Taxation for multinational enterprises.

The Independent Commission for the Reform of International Corporate Taxation (ICRICT), comprising, among others, eminent economists Joseph Stiglitz, Gabriel Zucmann and Thomas Piketty – author of the standard reference work «Capital in the Twenty-First Century» – are calling for a paradigm shift in the global system of corporate taxation. The Commission is supported by numerous NGOs, including Alliance Sud.

The current system of corporate taxation contains major loopholes that are being exploited by multinational enterprises for indefensible tax optimizations. Under the current system principles – i.e. the «separate entity principle» and the «arm's length principle» – corporations can contrive to conceal from tax authorities around the world amounts estimated at billions of dollars in profits each year. Because the subsidiaries of corporations located throughout the world are deemed to be separate units for tax purposes, corporations do not pay tax on their subsidiaries' profits where they are in fact generated, but where they are taxed at the lowest rate. They do this on the basis of the arm's length principle, which often allows corporations to set prices arbitrarily for intra-group trading in goods and services – in other words, for transactions between subsidiaries of the same group – rather than on the basis of the effective market prices of the equivalent goods and services. These prices are set exorbitantly high, as a means of shifting profits from one country to another.

To halt this practice, which by International Monetary Fund (IMF) estimates is costing developing countries alone some US$200 billion annually, the ICRICT is now proposing the worldwide introduction of Unitary Taxation. Under this principle, corporations would be treated as single units for fiscal purposes, and group profits distributed among their subsidiaries on the basis of their effective economic activity in a country and taxed domestically in accordance with formulary apportionment. The ICRICT is also suggesting possibilities for the unilateral implementation of Unitary Taxation. Alliance Sud will be promoting such measures in Switzerland in the future.

Link to the ICRICT Paper