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Global Tax Shifting requires Global Solutions

Global Tax Shifting requires Global Solutions. Dr Elfriede Sangkuhl. Introduction. The size of the transfer pricing problem Normal transfer pricing explained Abusive transfer pricing considered Late Sovereignty examined

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Global Tax Shifting requires Global Solutions

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  1. Global Tax Shifting requires Global Solutions Dr Elfriede Sangkuhl

  2. Introduction • The size of the transfer pricing problem • Normal transfer pricing explained • Abusive transfer pricing considered • Late Sovereignty examined • Proposal for the global taxation of the profits of Transnational Corporations

  3. Possible Global Taxes • Environmental • Currency speculation: a Tobin Tax • Global profits taxes on Transnational Corporations (TNC’s)

  4. Corporations and Globalisation Corporations earn profits worldwide, shift profits by the use of transfer pricing and therefore shift tax payable into favourable tax jurisdictions. In order for nations to effectively tax transnational corporations (TNCs), nations have to make a claim to sovereignty as the authority to impose that taxation.

  5. The Global Impact of TNCs It has been estimated that “the world’s largest 100 corporations control 20 per cent of global foreign (to the United States) assets and around 60 per cent of world trade is internal to multinational corporations”. (Woodiwiss M, Gangster capitalism: the United States and the global rise of organised crime, Constable and Robinson Ltd, United Kingdom, 2005, p187)

  6. Global Impact of Transfer Pricing The 1,000 Billion dollar question.

  7. The impact of Transfer Pricing on Australian Taxation Revenues

  8. Transfer Pricing The single most effective tool that corporations use to minimise their tax liabilities is transfer pricing. Transfer pricing is uniquely available to corporations and is the most common tax planning tool used by corporations.

  9. The Great Banana Scam

  10. The Banana Business • Most bananas are grown and eaten locally • The world trade in bananas is from the south to the north • The world trade exceeds 50billion Euros annually • The world trade is dominated by 3 companies, Chiquita, Dole and Del Monte

  11. The Great Banana Scam

  12. Google the Good Corporate In the US in 2010 Google used Transfer pricing to avoid about $US60 billion In Australia in 2009 Google shifted between $500 to $700m of Australian sales to Ireland avoiding about $160m in company tax.

  13. Abusive Transfer Pricing • Abusive Transfer Pricing is a subset of ‘dirty money’, that is money illegally earned, transferred or utilised.

  14. Dirty Money (2005) Global Dirty Money in US$ Billions. • Criminal money from organised crime, 331 – 549 • Corrupt money, ie bribes, 30 – 50 • Commercial tax evading 700 – 1000 • Total 1061 – 1599

  15. Abusive Transfer Pricing • Of the global dirty money estimated by Baker, abusive transfer pricing accounts for $US300b to $US500b per annum.

  16. Examples of Abusive Pricing Exports from the US • Bulldozers $527.94 • ATM Machines $35.93 • Missile Rocket Launchers $40.00 • TV Antennas $0.04

  17. Examples of Abusive Pricing Imports to the US • Flashlights $500.00 • Ink-jet printers $179,000.00 • Razor Blades $461.00 • Tweezers $4,896.00

  18. Westphalian Sovereignty • Understood as the move from medieval system “to a territorial form of rule with internal hierarchy and horizontal equality among all members”. • Friedrich Kratochwil, ‘Legal Theory and International Law’, in David Armstrong (Ed) Routledge Handbook of International Law, 2009, 59

  19. Definition of Sovereignty • ‘a plausible and reasonably effective claim to ultimate authority... made on behalf of a society, which is (more or less successfully) constitutive of that society as a political society, or as a polity. (Walker 2003)

  20. Australian Sovereignty

  21. European Sovereignty

  22. Sovereignty Now The capacity of sovereignty is its ability to deal with what Walker calls ‘sovereign sites’. Sovereign sites encompass both the territorial and normative reach of sovereignty. Neil Walker, ‘Late Sovereignty in the European Union’, in Neil Walker (ed), Sovereignty in Transition, (Hart Publishing, 2003), 30

  23. Messy Sovereignty The challenge of multinational capital, of global communications and of free movement of goods, services, persons and capital is beyond the regulatory grasp of the state, and the grant of regulatory authority to non-state polities (as happens in the EU, NATO, ASEAN and other supranational bodies) consolidates and reinforces that process.’ Neil Walker, ‘Late Sovereignty in the European Union’, in Neil Walker (ed), Sovereignty in Transition, (Hart Publishing, 2003), 24

  24. Messy Sovereignty – the solution? • The band aid solution

  25. Proposal for Global Taxation of TNCs US profit apportionment between the states on the basis of; • Sales • Property • Employees

  26. Global Apportionment • Requires consolidated profit reporting according to International Accounting Standards to an international taxing authority • Requires the international apportionment of profits between national jurisdictions

  27. Global Apportionment Positives; • Profits only taxed once • Process is transparent • Nation states retain autonomy over revenue raised • Formula can be adjusted, refined eg to take account of externalities

  28. A Global Taxing Authority

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