Students Staff

13 June 2013

Call to close €1 trillion loophole and stop corporations playing tax system

Professor Prem Sikka

Professor Prem Sikka is speaking at the G8 Pre-summit conference

A call for major reform of the international tax system was made by Professor Prem Sikka from Essex Business School when he spoke at the 2013 G8 Pre-summit Conference in Belfast on Friday (14 June).

The conference was held at Queen’s University Belfast to coincide with the two day G8 summit set to be held in Northern Ireland from Monday 17 June as the culmination of the UK’s presidency of the G8 in 2013. The G8 summit will be attended by influential world leaders such as Barack Obama, Angela Merkel and Vladimir Putin.

Professor Sikka argues the G8 needs to halt large corporations shifting profits to low tax jurisdiction to avoid paying higher taxes in the countries where the profit was actually generated.

Professor Sikka said: “With the intensification of globalisation corporations are able to roam the world, often playing off one country's tax regime against another's to secure the best deal. This has become destructive as nation states are now engaged in tax competition from which no one can ultimately benefit.

"Companies are also engaged in a variety of profit shifting techniques. Profits are often shifted to low tax jurisdictions to avoid taxes in other places. There is virtually no relationship between the place of trade and where profits are booked. This is matter of concern as it is undermining national tax bases and the social settlements enjoyed by citizens.

“The European Union is losing about one trillion euros (£850 billion) of tax revenues each year due to tax avoidance/evasion, the amounts are large enough to make a huge difference to the quality of life of millions of people.

“The loss of tax revenues is a major reason for the economic turmoil. The current corporate tax system is the outcome of treaties from over a century ago. Since then the world has changed a great deal and corporations have become more mobile and powerful. So a variety of new developments are needed.”

The G8 Pre-summit Conference was organised by the School of Politics, International Studies and Philosophy at Queen’s University and the G8 Research Group at the University of Toronto.

The conference is an annual event held at an institution close to the summit venue and attracts the attention of the world’s media, public intellectuals and academic specialists in world politics and global governance.

Reforms being called for by Professor Sikka include:

  • The adoption of country-by-country reporting
  • International treaties so that nation states are required to share information about cash/profits stashed by foreign nationals, corporations and trusts within their financial system
  • Greater transparency and accountability: Tax returns of corporations to be made publicly available.
  • Global sanctions against the tax avoidance industry and tax avoiders: For example, no taxpayer funded contracts, loans, grants and subsidies for any organisation involved in tax avoidance.

Professor Sikka said: “At the conference I will be calling for a redesign of the international system for taxing corporations. The proposed system would tax companies (such as Microsoft, Google, Apple, Amazon) as single economic units. In other words, each subsidiary would not be treated as a separate taxable unit, something that encourages companies to shift profits through spurious techniques.

"The profit of each company would then be allocated to each country based on the variables that generate profits. These are likely to be sales, assets and the number of employees. Since companies in tax havens have very few sales, employees or assets, they would not be able to book profits there. Thus companies would not be able to avoid taxes.”

Professor Sikka provides a brief outline of a proposed new system on The Guardian website

Professor Sikka explains how country-by-country reporting could work

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