Time for the EU Parliament to Act on Corporate Taxes

 March 28, 2013

Now that Cyprus has ceased to be an offshore financial centre, Martin Schulz and his colleagues have the opportunity to go a step further and tackle the issue of unpaid corporate taxes within the European Union over the past ten years. According to The Economist, the amount of money spirited away by corporations avoiding taxes has reached the staggering global figure of 20.000 billion dollars, deposited in some 60 financial havens.

National EU governments are powerless to redress such massive tax avoidance practices that currently cause mass unemployment and a dearth of financial resources for their treasuries. Corporations , especially from outside of Europe, have been quick to speculate national politicians’ desire to attract FDI, and have extracted unreasonable concessions from them for establishing operations within the EU.

To contain the public’s outrage, gimmicks like the ones employed by premier David Cameron in Britain – getting some US corporations like Starbucks or Apple to make symbolic financial contributions – are simply not acceptable anymore. Such policies will do nothing to deter corporations, which make their profits off the backs of EU consumers and governments, to renounce their massive tax avoidance schemes in the future.

The European Parliament could thus impose a flat 30 percent tax rate on profits made within the EU and deposited offshore by European, Japanese or US corporations. This rate of taxation could subsequently be adopted as the EU-wide minimal norm.

The sums involved in the recovery of back taxes could be as high as 3.000 billion euros, to be collected by national governments. Some of the money thus recovered could go towards shoring up the EU budget and enhancing the pool of money available to the European Stability Mechanism, enabling the latter to deal with problems experienced by countries like Italy. This prevents the tendency of some governments to want to impose top tax rates of 75 percent or more. By the same token, the European Parliament could forbid countries such as Ireland to act as tax avoidance hosts in keeping their corporate taxes exceedingly low. Finally, the European Parliament is the right institution to legislate and mandate member states to : collect corporate taxes there where profits are being made; outlaw transfer pricing and other tax avoidance techniques; and eliminate tax loopholes from national member-states’ legislation.

To be sure, this is no easy undertaking, but in these disastrous economic circumstances exceptional measures are needed, if we are to avoid the implosion of democracy and the parallel rise of populist and fascist parties in Europe.

Today's Predator Class

 March 26, 2013

The days of Cyprus as an offshore banking centre for rich Russians or Britons are well and truly over. All things considered, however, the 30 billion dollars held by them in Cypriot bank accounts is a paltry amount next to the 20 trillion dollars held by Western corporations and individuals in some 60 fiscal havens. ( The Economist)

For a while now, the G20 political leaders have been promising concerted action against these tax shelters. So far, nothing of substance happened, though such bellicose declarations make for great television .The absence of results in this area will irreparably damage the reputation of concerned politicians, highlighting their utter impotence .

Consider for a moment Apple, for instance. The US corporation holds in its treasury no less than 147 billion dollars. For years, its directors refused to distribute dividends to shareholders, let alone pay normal tax rates. The iconic i-pod and i-phone manufacturer builds them cheaply in China; distributes them at premium prices in the West and stashes away the profits on an island .

Bare a few exceptions, this new breed of entrepreneurs and corporate top brass are, at best, a mixed blessing for the global economy. Sure, a large quantity of consumer goods are being produced and sold around the world. But who benefits from it all? Certainly not the workers, the host states or the consumers . If Henry Ford believed a corporation should pay decent enough wages to workers, to enable them to buy the goods being produced, no such scruples bother today’s business leaders; A large amount of corporate time and money is being devoted instead on devising ways to avoid taxes, circumvent national legislations or fight in court against fines imposed on their excesses in some parts of the world, notably in the European Union

These regressive ways of doing business are mainly responsible for the high unemployment rates in the West, a dearth of financial resources affecting governments, whether rich or poor, and low growth rates, even as enormous amounts of unspent cash sit idle in fiscal havens. Not surprisingly, many leading economists believe that this harmful form of capitalism has to end, although there is not yet a consensus as to how. Failing this, we may very well witness the implosion of the whole system as we knew it for the past few hundred years.