Home Economics The Tax Justice Network's Idiocy Over International Tax Avoidance

The Tax Justice Network’s Idiocy Over International Tax Avoidance



Yes, sorry, idiocy really is the word to use here over this new report from the Tax Justice Network. They’re actually believing their own propaganda which is always a dangerous thing to do.

So, they’re totting up how much money gets shifted out of places into lower tax places. Then declaring this is all revenue lost to tax authorities and isn’t this terrible and kill the capitalists now. We know the rest of the story:

The UK and its “spider’s web” of overseas territories are responsible for more than a third of global tax avoidance each year, a study has found.

Abuse of the tax system by multinational firms and wealthy individuals deprived countries of $427bn (£321bn) for hospitals, nurses, schools and other public services last year, according to advocacy group the Tax Justice Network. Of that figure, more than $160bn was facilitated by the UK and its territories and dependencies.

One minor point of interest is that this is all funded by Public Services International. A union for public service workers which shows us where they think the cash to be ripped untimely from capitalist bosoms should go.

This is also amusing:

Tax drives political representation – or anger at its absence – and helps to make
sure that governments are held accountable for their spending and broader
decisions. The higher the share of government expenditure that comes from
non-tax sources, the worse – over time – is progress towards better governance
and strong institutions of state. High reliance on natural resource rents helps
explain why many petrostates suffer from weak political representation and
often incur high levels of illicit financial outflows. The lower the share of
government expenditure that comes from tax sources, the weaker or entirely
absent the accountability of taxation.

Cool. So, if you get taxed you’re interested in how that tax money is spent so democracy increases the more tax does. A logical corollary to that is that if you’re not paying tax you’re not interested and so shouldn’t be determining how the money is raised nor spent. We’ve just reintroduced the property qualification for the vote which does have its attractions.

Another minor point is their inability to understand that corporate taxation – the thing really being complained about – is a bad form of taxation. It has higher deadweight costs than land, consumption or income taxation. By trying to gain our tax revenues from corporations we make ourselves poorer than if we gained the same revenue from elsewhere that is, because we destroy more economic activity by this method than those others. But then they do have Alex Cobham and Nick Shaxson there so economics isn’t going to be their strong point.

And then there’s the real problem with what they’re doing:

The analysis of corporate tax abuse is based on the aggregated country by
country reporting data published by the OECD. We estimate profit shifting using
profit misalignment. Profit misalignment is the difference between reported
profits (pi) and theoretical profits (p). The theoretical profits are calculated
using a combination of labour (using wages and employees) and revenue (using
unrelated party sales).

That’s all a bit technical but here’s what’s happening. The current international tax system – for all its holes – attempts to tax where the economic activity which adds value takes place. Profits, by definition, being the added value. The TJN doesn’t like this because it’s rational, sensible and accords with good economics. Instead the TJN prefers something called “unitary taxation”. That is, forget where the unique and valuable thing is and just allocate profits to where the labour is and where the consumers are.

This contains a number of problems. Say, ooh, growing coffee. It’s often a smallholders’ crop, meaning that many people gain not much income from it. But lots of people partake as a result. So, the profits of the international coffee trade should, in this logic, be assigned to where there’s lots of people growing coffee.

But the value is added by the brand. We can all go into a supermarket and see this for ourselves. Nestle’s Goldwhatever it is sells for more than the supermarket dreck. Same coffee beans in both, possibly even from the same farm. But the TJN insistence is that more of Nestle’s profit must be assigned to the country of the peasant growing the coffee. Umm, why? Because they’re ignoring that it’s Nestle (err, Switzerland?) adding the value, added value being the thing that should be taxed, therefore Switzerland should be doing the taxing, not Zambia – on the assumption that Zambia has smallholders growing coffee.

Or, perhaps more of an example here, Google. The use, say, of Google’s search engine, with associated advertising, in France. The TJN approach would have Google’s profit apportioned by where those consumers are and where the labour is. The rational, and current, system of taxation says that clearly some impressive part of Google’s value add is taking place in San Francisco. Because that’s where the Google search engine was and is written, so too the ad network. Which is where that value added should be taxed.

So, the TJN is using the wrong comparator. They’re using their own desire for what the international taxation system should be – a desired tax system which is wrong in logic and practice – and then claiming that anything that differs from this is tax abuse.

You know, as if a life in which an Arab Princess doesn’t pay me £1.2 million for nookie, despite my possible desires, is sex abuse.

The Tax Justice Network estimation of international tax losses is simply wrong because they don’t understand the current international tax system, don’t grasp the economics of tax and, well, their thinking’s a bit shit so their report is a bit shit.

There is one final joy though. They use figures for the US from 2017. Late in that year the US corporate income tax system changed so that the specific problem they complain of disappeared anyway. An American company can no longer not pay income tax on its profits by keeping them offshore. Trump’s already solved their problem, not that they’d ever admit it.



  1. @Timmy

    “land, consumption or consumption taxation”

    “attempts to ta where the economic activity”

    Might do with a little editing.

  2. Somehow I don’t think an Arab Princess would pay me 1.2 million quid for nookie Tim.

    She might pay 2.4 million to avoid it though.


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expunct (ɪkˈspʌŋkt)
VERB (transitive)
1. to delete or erase; blot out; obliterate
2. to wipe out or destroy

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