Who Is The Bad Guy?

March 30th, 2011

As the United States budget deficit currently looms large in the national conversation, Lesley Stahl of CBS News’ 60 Minutes explored American companies’ use of tax havens this past Sunday (Watch the full segment in the video below). Every year, U.S. companies avoid paying $60 billion in tax by moving the “headquarters” of their corporations abroad, at least on paper. As Stahl notes, this is not a new issue as American companies also moved their assets abroad in the 80`s and 90`s to places such as the Cayman Islands and Bermuda. However, after Obama`s promise to crack down on this practice, American companies moved their businesses to safer tax havens, mainly Ireland and Switzerland.

Not surprisingly, Stahl’s trip to Switzerland reveals that these newly situated headquarters are little more than fronts; often they’re nothing more than a mailbox. Yet, as Stahl interviews politicians and businesspeople about the practice, the question emerges: Who is the bad guy?

Is it the American government and, as the CEO of Cisco, John T. Chambers, put it, its “dinosaur tax system”? Indeed, as economist Martin Sullivan expresses it, “you are stupid if you are not in Ireland… You owe it to the shareholders”. Or, is the bad guy the companies?  Are they shirking their moral responsibility to pay their fair share through tax?

The answer, of course, is both.  Corporations have shirked their moral responsibility, but the American government has allowed—nay encouraged—them to do so.  Not just because of the high, 35% tax rate, but due to the loopholes in the U.S. tax code which allow companies to avoid paying taxes indefinitely by keeping their money stashed abroad, and which allow companies to relocate their headquarters to a post office box in Geneva as their corporate executives live and make decisions in the United States.

Tax avoidance by multinational corporations is not solely a U.S. problem. Neither is it just a tax revenue problem; it’s a transparency problem. The lack of transparency makes it impossible for authorities to monitor for potentially corrupt practices, evaded taxes, or laundered money.  Rather it enables corruption, crime and the flow of illegal money. The Task Force on Financial Integrity and Economic Development advocates country-by-country reporting (CCR) as a means to expose tax avoidance and enhance transparency. An international country by country reporting requirement is an inexpensive way to dramatically curtail the creative book-keeping of multinational corporations seeking to evade/avoid paying tax. CCR would bring a lot of money back home.

Written by Synnøve Mjeldheim Skaar

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