Multinational Corporations, Stateless Income and Tax Havens

Multinational Corporations, Stateless Income and Tax Havens

Sinclair Davidson, March 2014. This report provides evidence to show that the corporate income tax system is not ‘broken’ and that the corporate income tax base is not being eroded. It offers a critique of the stateless income doctrine and the interaction between tax havens and multinational corporations.

The corporate income tax system is not broken. It is true that some multinational corporations do not pay as much tax in their host economies as their consumers and voters in those economies might expect. Yet this does not necessarily imply any wrongdoing on the part of those corporations. As Kleinbard makes clear, multinational corporations are fully compliant with the law of the land in those economies where they operate and the governments of those economies have been unwilling to change the international income tax norms and tax architecture.

It is in this environment that fiscal illusion can be deployed to increase the tax burden on corporations. Yet there is no evidence to support the view that the revenue already collected by corporate income tax has declined in recent decades. There is no evidence to support the view that the corporate income tax base has been eroded in recent years. There is no evidence to support the view that a decline in corporate tax revenue has contributed to current budget deficits. If anything it is clear that expenditure decisions, not decreased revenue, has contributed to these deficits.

Nonetheless, the stateless income doctrine may be used as a catalyst for re-writing the corporate income tax system. In the same way that an old tax is a good tax, so an old tax system is likely to be a good tax system. If one were the accept Kleinbard’s argument at face value, then governments would need to modify substantially how corporate income tax works and various norms underpinning international double taxation agreements in order to redefine stateless income as being sourced in either the UK or the US (or indeed in any other economy).

The question that needs to be answered is this: ‘What would be the consequences of expanding the definition of source for corporate income tax purposes?’ At present ‘stateless’ income is not stateless at all, it is simply not UK- or US-source income. Stateless income is not some form of economic rent, as Kleinbard would have us believe. Rent can be taxed with impunity. To the extent that stateless income is really a return on the development and ownership of intellectual property, then increasing taxation will have allocative efficiency consequences. At the same time it would also adversely affect the Irish and Dutch tax bases. It is known, however, that multinational corporations add value to both their home economies and their host economies. Tax havens add value by allowing multinationals to reduce their tax liabilities while increasing their investments in high-tax economies. An increase in their tax burdens would reduce those levels of investment, leading to reduced employment opportunities, reduced consumption and reduced innovation.

It is not clear that tampering with the tried and tested norms of corporate income tax to (possibly) generate more corporate income tax revenue while reducing the corporate income tax collected in foreign economies, and possibly reducing investment at home, employment at home and consumption at home, is good policy.

Source: http://www.accaglobal.com/zm/en/technical-activities/technical-resources-search/2014/march/multinational-corporations-stateless-income-and-tax-havens.html

Why We Need More Powerful Multinational Corporations

Why we need more powerful Multinational Corporations

(But only after we make some changes in them)

Presenter: Professor William H. Starbuck (Professor emeritus at New York University and Courtesy professor-in-residence at the Lundquist College of Business of the University of Oregon)

The world faces very serious challenges and existing social institutions have been unable to address these challenges effectively. There is need for more powerful institutions that can cross national boundaries and act rather speedily and with purpose. The corporation is the most effective organizational form that mankind has created, and it is possible for corporations to counteract and compensate for some of the deficiencies of governments. However, we dare not give more power to corporations in their present form. We need to reformulate the concept of corporation so as to moderate corporations’ propensity for sociopathic behavior. Is it possible to make corporations more beneficial without undercutting their advantages?

http://www.essec.edu/news-programs/programs-news-detail/article/why-we-need-more-powerful-multinational-corporations.html?no_cache=1

Codes of Conduct for Multinational Corporations

Codes of Conduct for Multinational Corporations

External Codes of Conduct

Since the 1970s, public and private expectations of multinational corporate behavior have grown commensurate with the boom in foreign investment. This change in expectations, however, has not resulted in a clear-cut set of directions for governments or businesses to follow in developing codes of conduct. At times, purely voluntary codes evolved into codes that subsequently were adopted as national legislation.

 

The United Nations lists ten major principles that are recognized by international declarations and agreements that have been developed by the three main organizations, the UN, the ILO, and the OECD. These main principles comprise the UN Global Compact which covers four main areas: human rights; labor standards; environment; and anti-corruption. The ten principles of the UN Global Compact are:

1. Businesses should support and respect the protection of internationally proclaimed human rights.

2. Businesses should make sure that they are not complicit in human rights abuses.

3. Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining.

4. Businesses should uphold the elimination of all forms of forced and compulsory labor.

5. Businesses should uphold the effective abolition of child labor.

6. Businesses should uphold the elimination of discrimination in respect of employment and occupation.

7. Businesses should support a precautionary approach to environmental challenges.

8. Businesses should undertake initiatives to promote greater environmental responsibility.

9. Businesses should encourage the development and diffusion of environmentally friendly techniques.

10. Businesses should work against corruption in all its terms, including extortion and bribery.

 Corporate and Industry-Specific Codes of Conduct

A broad range of factors are influencing firms to adopt codes of conduct. Some firms see it as enlightened self-interest, while others see it as a necessary part of risk management. Corporate codes of conduct and industry-specific codes now exist in one form or another among most large multinational corporations and among most of the developed countries. A recent study by the OECD concluded that most corporate codes tend to be highly specific and to deal with the idiosyncrasies of a particular company, project, or location. Industry-specific corporate codes dealing with environment and labor issues appear to be the most common, and most U.S. manufacturers and retailers in the apparel industry have adopted corporate codes that prohibit using child, sweatshop, or prison labor. U.S. companies in such diverse industries as footwear, personal care products, photographic equipment and supplies, stationary products, hardware products, restaurants, and electronics and computers have adopted corporate codes of conduct.

Multinational corporations generally support the concept of codes of conduct that standardize rules of corporate behavior across a broad range of countries and industries. While the motivation behind adopting corporate codes of conduct can be quite complex, multinational firms generally adopt codes of conduct because they believe they represent good business practices. Generally, multinational corporations desire national treatment as a basis for any investment agreement, but are concerned that standards negotiated in one agreement could be applied to their worldwide operations, regardless of the disparity in economic conditions between locations, local customs, jurisprudence, or differences in local business practices. Some firms also argue that codes which allow foreign groups to submit complaints to U.S. regulatory bodies concerning the overseas operations of the subsidiaries of U.S. firms could be used as a competitive tool to damage the worldwide reputations of U.S. firms.

Industry-specific codes of conduct are as varied and as extensive as the multitude of industries they cover. Labor and environmental issues, however, are the two most frequently covered areas in the codes, regardless of industry. Environmental standards often comprise commitments from firms to be open to the concerns of the communities in which they locate. The most common labor codes include commitments for firms to provide a reasonable working environment, provisions against discrimination and a commitment to obey laws regarding child labor and compensation. Concerns over child and sweatshop labor, in particular, have spurred some public groups to take action on their own.

Concerns of Stakeholders

While traditional economic theory holds that corporations strive to maximize their profits to benefit the stockholders, a broad group of “stakeholders” is pressing to have their interests represented as well. These stakeholders argue that corporations have responsibilities beyond the narrow scope of their legal charters, or that they should abide by a “social contract” that reflects society’s changing social and cultural mores. The size of the group of stakeholders and the social responsibilities they expect varies with the size of the firm, the industrial sector it is involved in, and its products and operations. This group of stakeholders and the associated social responsibilities also become vastly larger for firms that operate in more than one country and can include issues beyond the common areas of workers’ rights, environmental concerns, and business production or financing operations. At times, the issues sought by stakeholders in one country can clash with those sought by stakeholders in another country, for instance when workers in developed countries push for job security, health care and other benefits, and environmental issues, while workers in developing countries push for more local jobs and local managers, worker training and education, technology transfers, and higher levels of local production.

Multinational Corporations and Global Governance

Multinational Corporations and Global Governance

The rise of globalization and a globalized economy, particularly the proliferation of Multinational Corporations (MNCs), have raised questions about the role of business in global governance. The increased presence of MNCs in the International Political Economy has led to the startling reality that companies can be political entities and their influence as political actors can be sizeable, both in positive and negative capacities. A contemporaneous trend used to combat the negative actions of MNCs has been the emergence of Corporate Social Responsibility (CSR), the principle that companies have a duty to practice better business norms and use their resources for the best interest of the international community. Nevertheless the nature of certain corporate practices continues to be controversial, sparking a debate on the best way to regulate business across national borders. MNCs have been evaluated and studied from both internal and external frameworks with accountability awarded to the companies themselves, the governments of the home country, the governments of the host country, the citizens of the host country, transnational soft law agreements, and the global social community. There is no transparent path to standardize to corporate citizenship.