In “Tax Justice: A Christian Response to a New Gilded Age,” the Presbyterian General Assembly recently adopted some recommendations for international tax reform. Here are two key points:
F. International Corporate Tax Avoidance
1. With respect to laws, including “transfer pricing” laws (described more fully in the background section), which today facilitate the movement of income by businesses to tax havens, the church should support work that has been begun to cause nations to change laws so that tax avoidance through income-shifting to tax havens is no longer permitted. This is to affirm the direction of charitable and religious organizations and research institutes seeking tax justice, as well as intergovernmental bodies including the OECD (Organization for Economic Co-Operation and Development) and G-20 governments working for greater tax policy coordination. The toleration of today’s porous tax laws by countries around the world reflects a dangerous “race to the bottom” by which countries compete to offer tax favoritism to businesses; the result is to deprive governments, particularly of poor countries that depend especially heavily on revenues from international businesses, of funds needed for urgent social needs.
2. Greater clarity and transparency in lawmaking are needed so that today’s opportunities for arguably legal tax avoidance, for example, by the use of tax havens, are eliminated. International tax laws, including transfer pricing laws and highly technical provisions such as “check the box,” appear innocuous at first impression, especially by those without technical backgrounds in taxation, but they allow such room for tax avoidance that multinational firms often can “pick” the jurisdiction in which to pay taxes (and not to pay taxes) without regard to the country of residence of owners, employees, or customers or location of raw materials or manufacturing. Logically the firm picks the lowest tax jurisdiction possible. Any solution must deliver transparency and real force to transfer pricing rules. The method of “formulary apportionment,” while requiring careful technical work on the necessary implementing laws, may advance solutions in this area.