Unitary taxation would make it harder to dodge tax.
Anti-tax-evasion campaigners have praised Labour’s manifesto commitment to making multinational companies pay tax based on where they employ workers and do business – rather than where they say their headquarters is.
The ‘Funding Real Change’ section of the manifesto promises Labour would introduce something called ‘unitary taxation’ of multinational companies.
Anti-tax-avoidance campaign group Tax Justice Network celebrated this commitment and explained what unitary taxation is.
Their chief executive Alex Cobham said: “We celebrate this commitment to a unitary tax approach, the first from a major political party in one of the world’s leading economies.”
“Unitary taxation offers a reprogramming of the tax system which would reduce corporate tax abuse at a stroke. This once-radical idea is now the subject of discussions at the OECD, and the UK could play a leading role in driving towards international consensus – as well as benefiting from an additional £6bn or more in UK revenues each year.”
“When multinational corporations abuse their tax responsibilities to society, they weaken the supports that our economy needs to work well and create wealth.”
“A unitary approach to tax means we can finally make sure multinational corporations contribute tax based on where they employ workers and do business, not where they rent letter-boxes and hide ledgers.”
“By ensuring multinational corporations pay their fair share locally for the wealth created locally by people’s work, we can strengthen our economy to run smoothly and make a good life possible for everyone.”
The party estimate that, by the end of the next parliament, this would bring in £6.3bn. Tax Justice Network say this is a conservative estimate. Based on the research of Proffessor Sol Piccciotto and Daniel Bertosso, the upper estimate is £14bn.
Tax Justice Network said it was possible to enforce unitary tax without other countries adopting it and that the UK doing so may set a precedent other countries would follow.
On the question of whether multinationals would stop doing business in the UK, Tax Justice Network said:
“Multinationals operate in the UK because they make money in the UK. A distribution of some percentage of that profit towards the UK exchequer, just as any domestic business makes, doesn’t stop it being profitable to operate in the country.”
“While there would no doubt continue to be a lot of work from professional service firms including accountants and lawyers trying to game the system, unitary tax offers a much simpler way to determine taxable profit than the current rules and so is likely to be much less open to abuse.”
In its manifesto, the Labour party also said that “corporate tax dodgers have had a free ride for too long” and pledged to “launch the biggest ever crackdown on tax avoidance and evasion”.
Specificially, it pledged to make tax compliance a factor in which private companies the state choses to buy goods and services from and it also promised to ban political donations from tax avoiders and tax evaders.
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