Closing the Loopholes on Corporate Tax Policy

Governments are taking steps to stop corporate tax avoidance strategies, but an international effort is required

By: Muneer Huda, Staff Writer

Photography by Shelbi Noble

Apple CEO Tim Cook recently defended his company’s tax avoidance strategy before the US senate. But Apple is only the newest member in this international club. Starbucks, Amazon and Google have also come under recent scrutiny for their tax avoidance strategies. Corporations and wealthy individuals avoiding taxes is nothing new, where some have gone as far as changing nationalities to avoid that extra cut. But how has tax avoidance affected the economy and what steps are governments taking to control this situation?

Mark Keightley’s report to the US senate stated that corporate tax revenue today consisted of only 8.9 per cent of total US federal tax revenue, compared to 32.1 per cent back in 1952. With austerity measures and a dragging economy plaguing the EU, it is easy to understand the chagrin of world leaders against multinational companies avoiding taxes in the country they do business in. The issue has also affected developing countries, like Zambia and Mongolia, who claim to be losing billions of dollars in tax revenue.

Plugging the holes

Current tax policies are like a wheel of Swiss cheese: there are too many holes for tax avoiders to jump through, so governments are taking action to clog them.

 Mongolia is cancelling previous treaties with the Netherlands, the UAE and Kuwait which have allowed dividends from mining companies to leave the country without being taxed. Zambia will soon require money made from mining exports to be brought back and evaluated and properly taxed.

But Pascal Saint-Amans, director of the tax centre for the Organisation for Economic Co-operation and Development (OECD), says independent actions by governments can be “dangerous”, even counter-productive. The OECD is instead pushing for an international effort to rewrite tax policies and close these loopholes.

Corporate tax avoidance will be at the top of this summer’s G8 and G20 agenda. But even if world leaders can follow through with the OECD’s suggestions and reach consensus on an international tax policy – in itself, a long and difficult task – it’s hard to predict if this will have the intended effect. Corporations and individuals have been avoiding taxes for a very long time, and it’s a wonder whether they will simply find new, more innovative ways to tunnel holes and jump through.

Muneer Huda writes out of Waterloo, Ontario. He enjoys all kinds of writing, but has a special love for speculative fiction. He aspires to support himself solely through his writing one day. http://muneerhuda.wordpress.com/