Multinational Tax: No Change Any Time Soon

Lisa De Simone

Stanford accounting professor Lisa De Simone says that multinational corporations shift income to low-tax jurisdictions at twice the rate of previous estimates:[bold added]

In our European sample, instead of $54 billion being moved, we find that it’s more like $99 billion..... a change in the tax code could have a bigger effect on the tax base than previously thought. Say, for example, a country raises its tax rate, hoping to generate more revenue; you could get enough outward income shifting that tax revenue actually goes down. In a global economy, the corporate tax base is a very leaky vessel!

To repeat, after raising the tax rate countries sometimes find that total collections go down as multinationals shift income.

One of the principal mechanisms is "transfer pricing," that is, a high-tax French subsidiary "sells" product to an Irish sister company at a low price, thereby making France less profitable and Ireland more so. Income and expenses may also be shifted through other structures such as loans, leases, and service fees.

With the multiple jurisdictions and entities involved, international corporate taxation is much more complicated than U.S. individual income taxes. Trying to increase tax collections from multinationals would involve changing the law country by country in dozens of jurisdictions, which will be difficult and extremely time consuming.

Do not expect change any time soon.