How the G20 corporate tax agenda affects you. (Yes, you.)

Governments have to get the money somewhere


One of the big items on the agenda for the leaders of G-20 economies gathered today and tomorrow in St. Petersburg, Russia, is re-shaping international regulations and practices to stem corporate tax evasion and avoidance. Yawn, right? Well, consider these two stories:

Apple has paid little or no corporate tax on some $74 billion in income over the past four years. That’s because the tech giant oversees all of its business outside the Americas through a number of units in Ireland. These subsidiaries are virtually tax-free because America doesn’t tax companies incorporated outside the U.S. and Ireland exempts locally incorporated companies if they are managed abroad.

Now read this:

Under U.S. tax law, citizens and permanent residents must file and, if applicable, pay income taxes, even if they don’t live in the U.S. and have no U.S. sources of income. Some time ago, the IRS fined an American retired widow who’d been living in Canada for 30 years $75,000 for failing to file U.S. tax returns. The penalty was 25 per cent of the woman’s $300,000 in savings.

The tax treatment of Apple and the woman seems unjust to say the least. But that’s not the only reason why international corporate tax reform matters.

The other reason is this: The IRS can’t do anything against legal but morally questionable corporate tax practices. It can, though, slam individual taxpayers who commit forgivable, and often unintentional, infractions. And it has to get the money somewhere.

(A quick note here: The IRS does wave or reduce penalties for individuals in some cases, and the woman from my anecdote might have been spared — but the horrendous fines remain an ordeal for many average taxpayers.)

In a recent report calling for action on global corporate tax loopholes, the Organization for Economic Development and Cooperation noted: “When tax rules permit businesses to reduce their tax burden by shifting their income away from jurisdictions where income producing activities are conducted, other taxpayers in that jurisdiction bear a greater share of the burden.”

According to the U.S. Congressional Research Service, estimates of how much corporate tax avoidance costs Uncle Sam range from $10 to $60 billion a year. For individual tax evasion, the range is $40 to $70 billion. Both are a hefty drain on government coffers, but cracking down on individuals, it seems, is easier.

Of course, catching and punishing individual tax cheats is a good thing. But anecdotal evidence suggests the IRS’s tighter net is trapping lots of small fish, average-income taxpayers who simply missed the fine print. And there are many of them among the millions of Americans living in Canada and Canada-U.S. double citizens.

Eliminating loopholes and opportunities for legal arbitrage by international corporations might reduce the pressure on tax agencies to go after people who were obviously unaware they were breaking the law.

This article appeared first on Canadian Business.


How the G20 corporate tax agenda affects you. (Yes, you.)

  1. Any corridor whispers about a financial transactions tax, which is
    a coming thing in Europe ?

  2. Untaxed corporations create a terrible burden on citizens of that country. I have been saying this for years. Corporations use up more than 50% of our infrastructures (in many cases it is more than 80% of infrastructure services) yet contribute next to nothing for its maintenance or its sustainability. This amounts to a huge subsidy which is compounded by right wing governments that insist that corporate taxes should be reduced even further. In the U.S. a supreme court ruling that now entrenches corporate rights as being identical to those of individuals allows corporations free reign when interfering in political and social matters without their being accountable or providing any fiscal returns to the country they operate in. We have been conned into believing that corporations need this free reign in order that they continue to create jobs when all the research shows that the jobs trade-off has never occurred. Jobs are being exported to countries with little or no regulations and absolutely no accountability.

    • You could charge for the use of the infrastructure to solve that problem. We already do, in many cases.

      Besides, the taxes paid by corps are funded by reducing salaries to workers, investment returns to owners (including CPP, your grandma, etc. not just evil nameless faceless capitalists), or reduced consumer surplus for customers. Notice how corporations themselves don’t pay any tax. Also notice how investors can invest anywhere in the world and receive a given expected rate of return. If we increase taxes on corp profits, they’ll just invest elsewhere where the investment return after tax is below the world investment return. So much of the tax corps pay falls on workers and customers.