Crucial practical recommendations of global trade unions include taxing profits where they are generated and ensuring corporate and financial transparency. Corporate tax minimization has been taken to such an extreme that many developed countries’ economic and political systems are in danger of collapse. Trade unions could play a key, constructive role in changing the harmful systems and mindsets behind this crisis, according to the Council of Global Unions and Education International’s (EI) new report Global Corporate Taxation and Resources for Quality Public Services.

How to determine where real economic activity takes place

Formulary apportionment involves taking a company’s total profit worldwide (or amongst those countries taking part) and deciding the amount to be taxed in each country in proportion to measures of real economic activity such as staff numbers and sales figures.  Formulary apportionment is already used successfully within countries including between the U.S. states, Canadian provinces, and German Lander. The hardest part of implementing such as system internationally would be getting agreement amongst participating countries, so it is effectively a matter of political will. Formulary apportionment has been proposed at the EU level, with the potentially fatal flaw that it is voluntary, meaning companies can chose the most favorable option between the EU proposal the Common Consolidated Corporate Tax Base (CCCBT) and national rules.

Corporate and Financial Transparency:

The report’s other key recommendation is greater corporate transparency. Two methods for ensuring transparency which are promoted by the Trade Union Advisory Committee to the OECD (TUAC) are, firstly, beneficial ownership disclosure to identify which humans actually own and control, companies, bank accounts and financial instruments. Secondly, country-by-country reporting. Recent CSO reports Addicted to tax havens: The secret life of the FTSE 100 and L’économie déboussolée, multinationales, paradis fiscaux et captation des richesses have shown that companies use tax havens extensively and consequently reduce their overall tax bills. It is very welcome that the TUAC calls on the OECD to investigate country-by-country disclosure as well as working to further it as an international requirement. Equally the TUAC also calls for standards to make countries transparent such as automatic exchange of information between tax authorities.

The report is a welcome contribution to the corporate taxation debate. It rightly argues that in the long run failing to pay for a high standard of public services will prove counter productive for corporations. It is estimated that eliminating one tax dodge, abusive transfer-mispricing, would pay for achieving the Millennium Development Goals and providing quality public services in developed countries.

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