Anyone see the steam rising from Ely?

But is it feasible to tax corporate profits in the country of destination? And is it legitimate? In 2014 Michael Devereux and I set out the reasons why we think it is both.

That Devereux is being praised for laying out a method of beating tax dodging would be bad enough. But that he’s being credited with inventing the idea will cause an explosion:

In 2008 a paper by professors Michael Devereux at Oxford University, Alan Auerbach at the University of California, Berkeley, and Helen Simpson at Bristol University came up with a new solution: what if we taxed profits in the country where the customers are? Their idea was to tax corporations at the least movable point of the production chain, at a point that corporations could not shift or manipulate.

It’s still a shitty idea of course.

16 comments on “Anyone see the steam rising from Ely?

  1. Interesting.

    Presumably consolidated turnover and consolidated profit are the two bits of external information required for Country A to calculate a pro rata profit tax in Country A based on Country A’s sales?

    I might then be tempted to pick a country (Z) to headquarter in that was favourable wrt accounting standards and related reporting requirements.

    How about an associated company also in Country Z (not part of the group, but say the same shareholders), charging costs to that group, which might be quite legitimate and normal in Country Z (though perhaps not in Country A). No “associated” disclosures required in Country Z. Or whatever.

    That’s too simplistic for large multinationals, sure, but give someone five minutes to start dreaming up ruses…

    They won’t learn.

  2. https://en.wikipedia.org/wiki/Destination-based_cash_flow_tax

    Was part of the original republican tax bill – shot down by the losers from the tax bill. Known as a border adjustment tax.

    If we keep corporation taxes (something that is unpopular with many) then I’d guess this is the likely direction. Unlike the wibblings of the Murph, it has some intellectual heft to it. It resolves a lot of the problems caused by the intangible nature of corporate assets today.

  3. I wish someone would do a “simple” diagram to explain how this would work for a company such as Shell or Rio Tinto,and where the tax would arise. If it is such a good idea it must be ridiculously easy to produce a diagram with properly worked-out figures, not just conceptual bullshit

  4. ‘Imagine a world where we do not need to constantly close loopholes with anti-avoidance measures; where countries do not have to erode their tax bases to attract investment; where developing countries can take back control of their tax systems; where digital businesses are fully integrated and taxed like any other business.

    No tax is perfect, but this vision of the world may just be worth fighting for.’

    Imagine a world run by the likes of Richard Murphy. Where the state takes an ever-increasing share of your income without you having right of appeal under the spurious claim of serving ‘society’. Where such an arrangement is protected by a bloated bureaucracy and a powerful coalition of vested interests. Where you can pay any tax rate you like in any jurisdiction provided its between 90 and 99%. Imagine citizens of countries like Zimbabwe, Eritrea and North Korea, being at the whim of governments who would be able to extort, torture and inflict all manner of suffering on their citizens on the grounds that they are sovereign states who have ‘an absolute right’ to tax their subjects without a thought to their well -being. Imagine a world where digital businesses are subjected to massive censorship and even free discourse is not permissible because it might undermine the state’s ability to extract more than 9/10ths of your income with menaces.

    no tax is perfect, but those advocating the kind of vision above ought to be most strenuously opposed whenever they rear their head and their abysmal ignorance and frankly monstrous lust for power over their fellow man ought to be exposed, causing them to feel a sense of great shame if they had even a scintilla of self-awareness or historical knowledge.’

    Fixed that for the author…

  5. I bring up my standard trope. How is the tax extracted from Kenkysha Publishing in Tokyo when I in the UK buy one of their dictionaries?

  6. @ jgh
    There is a very simple way to do this – it called a sales tax.
    Only drawback is that is terrible unpopular because the visible incidence is upon the consumer instead of the satanic corporation.

  7. J77,

    But that’s not the same as a corporation tax and the evil capitalists will still be making a profit that has to be taxed.

  8. jgh

    If Kenkyusha are the sellers in the UK, their local sub will be responsble for paying a tax based on the net cashflow (sales – costs) and the parent will be responsible for paying tax on net cashflow in Japan. If Kenkyusha have sold the book to Amazon at the border, Amazon will be responsible for any net cashflow (profit) in the UK and Kenkyusha will pay tax on their profits in Japan.

    https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2908158

    See page 16

  9. net cashflow (sales – costs)

    Sigh. Define “costs” in this equation. That’s what the whole argument is about.

  10. @ BiND
    (i) If fhe corporation has no presence in the country that is the only way to tax it.
    (ii) Murphy will set the tax at a level that makes the optimum price for sales into the UK a break-even level – will only be earned by domestic sakes in China or thge USA (as appropriate)

  11. So make companies pay tax in the rich countries that their consumers are in, rather than the poor countries in which their producers are.

    I assume that we will then be looking at expanding the bureaucracy doling out our aid budget?

  12. Mr Worstall

    You are obviously a very well-informed and intelligent man, able to give much useful commentary on various aspects of economics.

    The charlatan Murphy is your exact opposite.

    Some time ago, it seemed there was a real danger that people able to influence things might take his blithering seriously. I don’t think anyone of significance now does.

    Would this not be an appropriate time for you to cease for a while from flogging, incinerating, pouring explosive bullets into what is too obviously a dead, indeed decaying carcass of a horse (if not donkey)? We could then have the benefit of your undistracted wisdom on more important matters.

    Without prejudice to your returning to the demolition work if some more significant idiot can be found to start to take a few of the microencephalic’s delusions half-way seriously.

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