@RichardJMurphy entirely ditches country by country reporting

Now this is amusing:

Fortunately, a far better system is available: unitary tax. Instead of taxing multinationals according to the legal forms that their tax advisers conjure up, they are taxed according to the genuine economic substance of what they do and where they do it. Each company submits to the tax authorities of each country where it does business a “combined report” providing consolidated accounts for the whole global group, ignoring all internal transfers. The report specifies the group’s physical assets, workforce and sales and the overall profits are then divided up among jurisdictions according to a formula weighing these three factors. This system would benefit everyone, particularly developing countries.

So that\’s his muckers, Nick Shaxson and John Christiensen.

And Ritchie adds:

This is the only way forward.

At which point we should note this:

Each company submits to the tax authorities of each country where it does business a “combined report” providing consolidated accounts for the whole global group, ignoring all internal transfers…….overall profits

This entirely obviates the need for country by country reporting. The very thing that Ritchie has been campaigning for for near a decade.

Ooooops!

For the point of country by country is to insist that the corporation shows where it makes its profits so that profits can be taxed in that jurisdiction where they are made. But unitary taxation entirely ignores this distinction. We don\’t care – indeed we don\’t even look at – where the profits are made. We just look at the total and divide it by the formula.

Poor old Ritchie. He\’s simply too dim to realise that he\’s supporting something that entirely wipes out his last decade of work.

30 comments on “@RichardJMurphy entirely ditches country by country reporting

  1. And so, as far as possible, you put all your physical assets and workforce in low-tax countries. Then they whinge that tax paid isn’t proportionate to sales.

  2. I’m not sure that it is stupidity. I think it is arrogance. He can’t admit that this is a better idea than the one he nicked previously until he has consolidated his position as it’s champion in British lefty (and particularly his funding) circles.

    Or, being even more cynical, you can assume (as Arnald does – for reasons there, clearly, of stupidity) that country-by-country is worthwhile even if it isn’t used as a basis for taxation. As more work for accountants. In the best Bastiat tradition.

    And we should applaud his movement away from the extremes of imbecility – unitary is simpler by far than country-by-country and, other things being vaguely equal, Occam applies to tax systems.

  3. Works perfectly, because all it requires is that every country uses exactly the same formula for apportioning profits to itself. Clearly there’ll be no incentive for, say, a country with higher labour costs to put a higher weight on sales than on workforce compared to one with lower labour costs.

    And after all, countries find it very easy to agree on accounting standards, and the tax standards game isn’t exactly going to be more complicated or have higher stakes.

    Also, it completely ignores the value (and indeed the existence) of any intangible assets, which is an excellent idea given that no-one ever pays for intangibles except as a tax dodge. Amazon, for example, derives absolutely no external revenue from selling intangibles to third parties.

    Oh, wait.

    OK, all this needs is a single world government…

  4. The report specifies the group’s physical assets, workforce and sales and the overall profits are then divided up among jurisdictions according to a formula weighing these three factors. This system would benefit everyone, particularly developing countries.

    I’m not sure why. If companies are going to be taxed on workforce, they’re going to be looking to reduce headcount (probably by mechanisation). This will effect developing countries far more than the developed ones.

  5. Tim Newman>

    Thinking it through, wouldn’t it only benefit the developing countries in the case of companies like Apple with huge profits largely made in other countries? Ironically the Murphster is now arguing that where a company makes its profits is not actually morally important – so Google, Amazon, and so-on are fine.

  6. I am really looking forward to Apple’s tax on this basis!
    “Everything is made in China, we Chinese will tax all profit”
    “Everything is designed in California, we Californians will tax all profit”

    The result? You’ve got to guess at a war (either a fully fledged guns one, or a trade war). But for sure it would destroy trade.

  7. I bet you he’s *actually* proposing that shareholders still fund the expense of two parallel and different sets of reporting

  8. OK, all this needs is a single world government…

    Lol, Pellinor, well done for spotting the fatal flaw.

    the overall profits are then divided up among jurisdictions according to a formula weighing these three factors.

    By whom? He doesn’t like the EU’s tax policy (as our host keeps banging on about), what makes him think he can get the whole world to agree on something he likes?

    And apparently something like that could never be gamed with inflated headcount in the right countries or adjustment to asset valuations. Sales, admittedly, are harder to hide. Internal transfers are only one way to play the game. Whether there’s a problem or not, this ain’t the solution.

    I think he’s seeing this through a very narrow lens – two people in Luxemburg selling product all over Europe. Whereas what I see is the sweatshop equivalent of an office in Africa hiring enough people at a low rate to offset their European employees, whether they sit around all day or not.

  9. “I’m not sure that it is stupidity. I think it is arrogance. He can’t admit that this is a better idea than the one he nicked previously until he has consolidated his position as it’s champion in British lefty (and particularly his funding) circles.”

    Oh, I’m pretty sure stupidity is the overriding factor in this… I doubt Murphy is even aware of the contradiction at this point.

  10. It really obviate anything of the sort, Worstall. We all know that the financial reporting for tax and for the benefit of investors etc is different.

    The CbC transparency campaign is to get MNCs to be honest. The tax stuff is for them to pay tax according where it does stuff.

    The fact that anyone is talking about either is testimony to their campaigning.

    Your nonsense obviates their failure. What does that say about you, and these numbskulls on here. Not a sane word among them.

    Well done!

  11. Murphy has been saying for ages that tax should be paid in the country where the profits are earned, not where the company is headquartered. Now suddenly he argues in favour of a system of apportionment of total (consolidated) net profits based on some arcane formula details of which are yet to be worked out. This does look inconsistent. However, I don’t think it is. I think it is a different way of doing it.

    The next stage presumably will be to develop the apportionment formula. At this stage I expect Murphy will show how unitary taxation works with country-by-country reporting. I’m actually looking forward to seeing this – it could be quite fun to take apart in a blogpost. As far as I can see, the formula would have to deconsolidate the consolidated accounts on a country-by-country basis in order to determine the profits actually earned in that country and therefore the tax payable in that country. This strikes me as being rather similar to unscrambling eggs, and probably impossible unless there is ALSO country-by-country reporting. I wouldn’t do it this way, personally – trying to reconcile consolidated and unconsolidated accounts across profit centres and legal entities is a complete nightmare which no-one in their right mind would attempt. But if your aim is world domination, I guess that’s what you would go for.

    The opportunities for gaming this system would be wonderful to behold. As would the fights over ownership of the formula, and the arguments about whether or not what it spat out was “fair”. I’m off to buy shares in popcorn.

  12. it took a while but arnald eventually showed up to say that everyone is wrong apart from Murph…of course he doesn’t go into any explanations but he only gets short breaks from flipping burgers.

  13. “The tax stuff is for them to pay tax according where it does stuff.”

    Arnald gets technical on us…

  14. Frances
    There are, and have always been, two distinct aims for the campaigning for transparent recording of company activity and for the accurate assessment for the rates of taxation their operations are locally involved in.

    The EU discussions proves how Worstall is removed from the issue by continually voicing against Murphy’s stance against a race to a corp tax bottom. His wish for Big Lobbyists to have more control than elected government positions is so well known that I find it unbelievable that any liberal could even entertain most of his nonsense.

    The only summation is that Worstall wants a few people (that he probably knows) to do very well indeed, whilst others suffer reductions.

    You may be able to argue the mechanics and technical detail, but you are effectively positioning yourself in favour social die-back and in the consolidation of more power in the hands of sociopaths.

  15. Arnald,

    “…you are effectively positioning yourself in favour social die-back and in the consolidation of more power in the hands of sociopaths.”

    No, I don’t think I am. I would have made exactly the same remarks on Richard Murphy’s blog if I thought they stood any chance at all of being published. But I know he will delete anything remotely critical of his ideas, so I’m not going to waste my time. Here, I know that what I say will be allowed to stand even if I disagree with Tim – which on this occasion I did (or didn’t you notice that?).

    Mechanics and technical details do matter. We are trying to move away from reliance on opaque, complex formulae to determine value. But the apportionment formula would be very complex and the derivation of its results inevitably opaque – and therefore fought over and challenged. Unless we set up an ultimate authority – a World Government, as Pellinor says – there isn’t a hope in hell of this proposal working. All it would do is create huge amounts of work for a huge number of very well-paid accountants and lawyers. I don’t think this is progress.

  16. “the consolidation of more power in the hands of sociopaths.”

    As a supporter of a group of people with a monopoly of violence and land and absolutely zero morals this is what you are aiming for.

    A company like Amazon doesn’t put a gun to your head and steal your money, telling you it knows best, while at the same time having the nerve to tell you to be more “transparent”.

  17. And you weren’t being ‘ironic’, ‘sarcastic’, or ‘making a joke’.

    You were being a twit. Which, of course, doesn’t surprise anybody around here. Except, if you are self-deluded as well as merely deluded, yourself.

  18. This isnt going to work -

    The reason why transfer pricing exists is that we dont have any idea what sales are inside a company. Yes, it probably is being gamed to transfer profits to a low tax jurisdiction, but the point is that there are no market prices/sales. Someone is still going to have to calculate the “value”. Obviously particularly true for intangible assets.

    More importnantly, what is the correct weighting of taxable profits between the capital equipment, where sales are made, where employment is? Countries with lots of labour/capital/sales will insist on weighting each of them more highly. The reason why we dont have unitary taxation is that countries disagree on who and what should be taxed. This would not miraculously change if we had a single global report. Everyone wants a slice of the pie.

    It also would likely have some very negative effects on trade – imagine a situation where all corporate tax revenue was based on the location of workers and capital. It would then make sense for developed countries to encourage plants in-country, reducing the transfer of jobs to developing countries.

    It is a stupid argument made by people who dont understand accounting, tax, economics and politics.

  19. thought I would post this here as I doubt Richard Murphy will publish it on his moderated site:

    i have read your cbc publication and its left me wondering whether you have changed your position on all this.

    your post above is calling for unitary apportionement as a basis for taxation. The cbc paper is suggesting that the unitary apportionment formula is used as a basis for assessing the risk of an international group artificially moving profits around (presumably then prompting a TP enquiry or similar) rather than an actual basis of taxation.

    para 7.3.1 reads:

    “Whichever approach is used, without having to actually put a unitary apportionment formula system of calculation of taxable profits in place country-­?by-­?country reporting would allow the use of such data to determine whether the
    profits declared in a jurisdiction were likely to be appropriate given the allocation
    of the underlying drivers of profit that the formula method of attribution recognises with the jurisdiction.

    If the declared profits accorded closely with the formula apportioned profits then there would be little point in pursuing a tax investigation into the affairs of the multinational corporation in question on the basis of transfer mispricing; no serious error would be likely to be found. Alternatively, of course, high risk might be identified and then an investigation could follow with a much increased chance of the cost incurred proving to be remunerative for the jurisdiction in question. “

  20. I think that people are missing the horror story here.

    take a UK group with legal entities in the UK, Germany, Belgium, Congo, A captive insurance co in Gibraltar and a vehicle in the Virgin Islands.

    Currently, with the possible exception of the company in the kleptocracy, each entity will prepare and statutory accounts in their country of residence. In addition, group accounts will be prepared in the Uk. In each separate country, the entity accounts will be adjusted – add back depreciation and deduct capital allowances, disallow this, disallow that, allow this…etc to get a profit figure for corporation tax. Everyone happy apart from Murph, the troughers in Parliament and Arnald on his
    tea-breaks.

    Under a unitary policy, each jurisdiction is allowed to peek at the consolidated group accounts and do a relatively arbitrary apportionment exercise. They then compare against the entity accounts and …if their view of the unitary tax is more than the legal tax, raise an additional tax claim. If it is lower, they say nuffin’.

    That will work just fine, won’t it!

    How it works in a kleptocracy is difficult to say. Many countries forbid publication of local accounts because they do not want the competing companies to see the deals that have been struck.

  21. “He’s a Yank, you idiot.”

    Be kind to Arnald. After all, the fryer never sleeps… so it’s easy for him to lose track of the time.

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