IN ALL THE chatter about tax avoidance by Apple and other multinationals, it is easy to ignore what corporate tax is all about. A company’s attitude to tax will differ depending on what it believes its purpose is.
Many believe that tax is an inconvenience, a business expense to be minimised at all costs. That’s a commonly held view in the US and enjoys support in Ireland also. It is in part tied up in the ideology that companies are creators of jobs and in turn societal wealth and should not be constrained by having to pay taxes.
However, there is a different way of looking at taxation, one that puts citizens above corporate gains and that is built around what we call the four Rs.
1. R for resource generation
This is about raising revenue to fund human rights-related expenditures. It funds our schools, our hospitals, our judiciary and all the other public services we depend on as a society.
It is particularly important for developing countries, which according to the IMF lose between $200 and $300bn to corporate tax avoidance each year, far in excess of what they receive in aid.
2. R is also for representation
We are all affected by global tax rules, yet not all relevant sectors of society are represented in the formation of these rules.
The development of tax rules has been carried out almost exclusively by tax accountants and lawyers, with no input from other disciplines such as human rights lawyers, international law experts, development experts, etc, which makes tax rules representative of a very narrow point of view.
A recent reform of the global rules developed at the OECD was done essentially without input from poor countries, making them by definition, unrepresentative. This seems particularly harsh, as these countries are worst affected by corporate tax avoidance, yet have the least amount of financial resilience to cope with it.
3. R is also for redistribution
Whether a state’s tax structure is progressive or regressive, shapes the allocation of income and assets across the population and thereby affects various types of inequality.
And as mentioned above, the reform of the global rules under the OECD are heavily skewed towards the interests and priorities of rich countries, which will only deepen inequality between rich and poor countries.
4. And finally, R is for repricing
We are all familiar with the use of taxation as way of incentivising and disincentivising certain types of behaviour.
For example, taxation is used to discourage smoking and the plastic bag tax is to encourage us to be more environmentally aware. Taxation therefore has an important role in setting the priorities of a state.
Priority setting
Professor Philip Alston, the UN special rapporteur on extreme poverty and human rights, talks about priority setting and tax. If one wants to understand the true priorities of a state, look at what sectors of the economy they seek to incentivise and who they chose to disincentive or ignore.
If the tax rules that prevail in Ireland were representative of, and formulated by, a broader section of society, would we be as reliant on one section of the economy – US multinationals – as we are?
If we were serious about the redistributive aspect of taxation, would almost 250,000 children be living in poverty around Ireland?
And if we were committed to raising sufficient revenue to fund public services, would Apple have been facilitated in paying as little tax as they did?
It’s time that the Irish government and multinationals start to consider tax not as an expense, but as a societal good and an investment in all our futures.
Sorley McCaughey is Head of Policy and Advocacy at Christian Aid Ireland. He spoke at a recent corporate tax conference: Corporate Tax: Fairness, Responsibility and Leadership, which was organised by the Department of An Taoiseach.
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