The respected English Accounting Group the ACCA (“Association of Chartered Certified Accountants”) has released findings suggesting the onshore Corporate Tax System is NOT being unduly affected by the judicious use of Offshore Companies, Tax Free Companies and Tax Havens.
In a statement issued today the ACCA claimed, according to the findings of a study commissioned by it, the system is neither “broken” nor being eroded.
The research was conducted by the RMIT University School of Economics, Finance and Marketing, and published in a final report, Multinational corporations, stateless income and tax havens. The report asserts that there is no evidence to support the belief that UK or US corporate income tax bases are being worn away by the use of tax haven companies. It acknowledges that some multinational companies do not pay as much tax in their host economies as consumers and voters might expect, but stresses that this does not necessarily imply any wrongdoing on the part of these companies.
Report author Sinclair Davidson was quoted as saying “It is one thing to point out that multinational corporations do not pay tax in some jurisdictions but that says nothing about the actual corporate income tax base. To the extent that corporate income tax revenues have fallen in recent years, this is more likely to be a result of poor economic conditions than aggressive tax planning.”
The report also apparently takes issue with the concept of “stateless income.” According to Davidson, there is no such thing as stateless income. Instead, there is “income that the governments of the UK and the US do not tax because under their own legal systems that income is not sourced in their economy. When these governments complain about stateless income, the question rather should be, ‘Why do the owners of intellectual property not locate their property in your economy?’”
Davidson does nevertheless note that the “stateless income doctrine may be used as a catalyst for re-writing the corporate income tax system.” Going forward, governments will need to think about the potential consequences of expanding the definition of source for corporate tax purposes.
“To the extent that stateless income is really a return on the development and ownership of intellectual property, then increasing taxation will have allocative efficiency consequences. At the same time it would also adversely affect the Irish and Dutch tax bases,” the report warns.
Davidson said: “It is not clear that tampering with the tried and tested norms of corporate income tax to (possibly) generate more corporate income tax revenue while reducing the corporate income tax collected in foreign economies, and possibly reducing investment at home, employment at home and consumption at home, is good policy.”
It’s refreshing to see sound research based logic being applied to the tax haven debate for once as opposed to hysteria. Let’s hope this marks the beginning of a rational dialogue on the merits of the flawed “income tax” focussed international tax system.