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Columbia Business School Talks Taxing Multinational Corporations

The first step toward social responsibility is fair taxation. There’s just one problem—for years, multinational corporations have raced to pay the fewest taxes or avoid paying it altogether. For example, Apple employs a few hundred people in Ireland, so they fall under the .005% tax bracket, and they’re not alone.

Many multinational corporations claim to be socially responsible while, at the same time, avoiding paying their fair share of taxes. If everyone avoided paying taxes like these companies, society wouldn’t function. Yet, we haven’t encouraged anything different.

Most recently, President Donald Trump implemented a 2017 tax cut that lowered rates for multinational corporations even further, claiming it would help the US economy. The reality is quite different. US debt increased by more than $1 trillion last year and the boost to the economy was short lived.

The flaws with multinational taxation have long been known. The current transfer pricing model fails to appropriately assess the value of a product within each country. However, attributing total profits to where the final sale takes place doesn’t work either. This takes much-needed revenue away from developing countries.

What Columbia Business School professor Joseph E. Stiglitz proposes is a global minimum corporate-income tax. If the US and EU did this, multinational corporations would finally be forced to pay their fair share of taxes.

Currently, the OECD/G20 Base Erosion and Profit Shifting Project is the only initiative to try to rethink taxation of multinationals. However, these principles are inconsistent with the transfer price system and the system of basing taxes primarily on sales. The problem is that politics always comes into play and governments decide to help multinationals in exchange for political support, even if doing so disadvantages the rest of the country.

For the OECD/G20 initiative to be successful, the framework must be guided by principles, not politics. Read the full report here.

Posted in: Feature Small, MBA News, News

Schools: Columbia

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