Tax event misses big picture in the global financial system

June 12th, 2009

This morning I attended an event at the National Press Club hosted by TaxAnalysts. Featured were Martin Sullivan, an economist with TaxAnalysts; John Samuels, VP and Senior Tax Counsel of General Electric; Mark Weinberger, Global Vice Chairman – Tax at Ernst & Young; and Lee Sheppard, Contributing Editor for TaxAnalysts. The discussion at the event, titled “Obama’s International Tax Proposals: Where Would They Take Us?” focused on the nation’s economy and the tax treatment of multinational corporations.

After hearing Sullivan’s overview of Obama’s tax proposals I was not sure if he supported or opposed the President’s plan. However, one thing was for certain: for most people in the room the issue of international taxation is not about jobs as the President’s proposal has claimed – the issue is money, plain and simple. More specifically, the question is how multinationals can structure their businesses to increase their profits and how the Internal Revenue Service can tax those businesses to raise revenue.

The use of tax haven jurisdictions, however, makes this picture a bit more complicated. By creating subsidiary companies in “offshore” tax havens, multinationals can escape the higher taxes in the countries in which they are actually operating. Problem is, these subsidiary companies are often not much more than a mailbox and a bank account.

Most of the panelists commented on corporate profits and foreign investment. The following Q+A session focused on US tax competitiveness and international norms in tax policy. While everyone was eager to dispute current US tax mechanisms, it seemed that most were missing the bigger picture: tax havens and low-tax jurisdictions do not only provide favorable business climates for multinational corporations. They also provide a destination for illicit funds coming out of corrupt governments and criminal activities. They foster an environment that allows – perhaps even encourages – multinational corporations to steal from the poor – pillaging third world countries in order to bolster the bottom line.

The participants in today’s event discussed international tax as if using tax havens was a legitimate business practice, and they assumed that all multinationals adhere to the regulations to which they are legally bound. This is a serious issue that one would hope tax insiders would consider. Of course the President’s tax plan won’t solve these moral issues. Obama’s tax plan may attempt to curb US tax evasion, but what about illicit capital flows coming from corruption and criminal activities? There’s a number of issues with the current financial structure that need to be addressed in order for us to have transparency – something that would bolster tax revenues in the US while improving the economies in developing nations, as developing economies lose $10 in illicit flows for every $1 in foreign aid that they receive. If we really want to fix the economy, and avoid a repeat of the current financial crisis, we’re going to need country-by-country reporting, automatic exchange of tax information, and full disclosure of the beneficial ownership of companies, trusts, and foundations.

Check out the audiocast from the event at

Written by Lauren Citrome

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