ACCA research disputes corporate tax base erosion

RESEARCH commissioned by ACCA has found “extensive evidence” that the corporate income tax system is not broken, and is not being eroded.

The paper, produced by Australia’s RMIT University School of Economics, Finance and Marketing, asserted that there is no evidence to support the belief that the UK or the US corporate income tax base is being worn away. It added advanced economies face a fiscal challenge, creating the environment for a ‘tax grab’.

The report sits starkly against the prevailing feeling from the government and international tax community.

In February, an OECD report from the G20 showed multinationals frequently pay rates of around 5% in corporate taxes, while smaller businesses generally contribute closer to 30%. It also noted some small jurisdictions act as conduits, attracting disproportionately large amounts of foreign direct investment compared to large industrialised countries and were also investing disproportionately large amounts in major developed and emerging economies.

“At best, the concern about the tax base is not so much that it is being eroded, but rather that multinational corporations do not pay tax in every host economy,” ACCA’s report stated. “The difficulty facing both the UK and US tax authorities is that there is little evidence of any wrongdoing by any of the three corporations that are regularly singled out for abuse.”

The driving force for the aggressive approach taken by G20 nations, the report said, is that advanced economies have large fiscal deficits and little prospect of returning their budgets to surplus. One possible solution to the fiscal challenges that these economies face is to increase taxes, it found.

Chas Roy-Chowdhury (pictured), head of taxation at ACCA, said: “This paper may well show that the global corporate income tax system is not broken, but questions remain about the evasion/avoidance/aggressive tax planning debate.

“Multinationals need to be clear about the value they bring for the benefit of their shareholders and wider society, and to communicate to all stakeholders their underlying commitment to the building of a sustainable business. Companies must see the management of tax obligations as part of that process of creating long-term value.”

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