February 08, 2004

Death and Taxes

A Timely Good Idea as an expanding EU means that countries with little or no corporate tax get to compete for investment with high taxers like France and Sweden.

Here are the money quotes from The Economist

Governments have responded to tax flight in two other ways. The first has been to increase the number of rules and to enforce them more strictly. Much attention has been paid to so-called “transfer pricing”, the prices at which subsidiaries of the same firm move goods across national boundaries. Predictably, firms often set these prices to minimise their tax liability, and sometimes tax authorities object. Transfer pricing is central to the case against GlaxoSmithKline, a big drugs company that is appealing a bill for $5.2 billion of unpaid taxes slapped on it recently by American tax collectors.

Rather than worry about Estonia, all governments would do better to follow its example, ditch corporate taxes altogether and rely more on taxing consumption. One approach would be greater reliance on value-added taxes, These are easy to collect, hard to evade

Getting rid of corporate taxes would save the vast sums spent by taxmen and firms in the cat-and-mouse game of tax avoidance. And it would have another big benefit. It would eliminate any excuse for the complex corporate structures that companies use to play this game. As recent scandals have shown, these complexities mislead not just the taxman but can do even more damage by misleading investors as wel

I'm hopeful and doubtful.