By Maia Bishop
In 2017 it was revealed that Amazon, one of the world’s largest companies, payed 0% in U.S. federal income tax, despite being worth almost 700 billion dollars and reporting 5.6 billion in U.S. profits the same year. Although this might sound extreme, it’s really not that unique, as this goes for countless international corporations and even smaller businesses. The truth of the matter is that in a globalized world with taxation agreements that haven’t kept up to the times, tax avoidance has never been this easy.
Globalization means assets can easily be moved, unrelated to where your consumers are, where the companies’ owners live or where it’s operated from. For example, a company can quite easily move immaterial property like software or servers to a tax haven without having their business affected by “relocating”. Having subsidiaries in different countries can also be beneficial as it means you can exploit international treaties intended to eliminate double taxation for multinational companies, as well as differences in national tax legislation to minimize taxes.
Aside from it being easy, I would argue that for many companies avoiding taxes is also necessary to be a competitor on the market. From a competition standpoint, avoiding taxes isn’t really a moral issue, or at least categorizing it as such might not be the most constructive approach since – generally – most people and corporations will take the lower tax option that’s available to them. Further, focusing on those who are exploiting obvious loopholes instead of the loopholes themselves may work as an excuse not to address the problem by getting countries to work together to adopt a more up to date regulation.
Two years ago, the U.S. shocked the world with a new tax reform that has since been called a “global tax”. The bill enforces a worldwide tax for U.S. owned assets, while lowering the corporate tax from being the world’s highest at 35 % down to 22 % (in comparison, Sweden’s corporate tax is 20,6 %). This reform is avant-garde to say the least, as it challenges WTO- and the OECD-agreements and enforces an expansive minimum tax to favor foreign ownership of U.S. assets.
Even though it can be argued that the bill was brought forward without diplomatic tact, it can’t be denied that the reform addresses a real and extremely concerning issue – albeit in the most domineering way. The OECD:s former negotiator and expert within international tax evasion, Torsten Fensby, argues that the installation of an American ”tax firewall” can be interpreted in two ways – either as a last desperate effort to preserve disappearing corporate tax incomes in a globalized world, or as a dramatic shift in methods for taxation, where other countries will follow lead.
The most prominent indication of an international shift of that kind is the OECD:s project ”Base Erosion and Profit Shifting” (BEPS) that is bringing the issue forward within the international community in a collaboration with over 100 countries and jurisdictions. Chances are that BEPS will lead to reforms that will fundamentally change the international landscape for taxes. However, the project has many hurdles to overcome. For example, a more stringent reform might be hindered by the problematic relationship between tax sovereignty for EU countries and the EU principle of free movement. This “double standard” within the European system can be exploited for tax benefits, and is likely to remain, at least in the near future.
On the other hand, there is a lot of incentive for change, since the alternative to taxing corporations is to tax consumers instead. This might work for large countries like India or China, but it would be detrimental for a small country like Sweden that relies on industry and export. In summary, the American tax reform and BEPS means international taxation is at a crossroads – and chances are it might go through a rather dramatic facelift in the next decade.
She’s not sure how it happened, but Maia Bishop is thrilled to be President of The Uppsala Association of Foreign Affairs – which involves the privilege of publishing Uttryck Magazine. When she’s not studying law, Maia enjoys cities with good public transportation, convincing people to visit Boston and trying to improve her limited abilities in French.