
Ten Reasons to Defend the Corporation Tax [pdf] - hippich
http://www.taxjustice.net/wp-content/uploads/2013/04/Ten_Reasons_Summary.pdf
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StephenCanis
I think an open discussion of tax policy is important and thankfully
organisations like the OECD are working to create frameworks for countries to
use to make good policy choices. (especially in the international context) I
recommend looking into their papers if you're interested.

That said I found the arguments in this document missing some important
points.

They don't clearly separate the benefits of corporate taxes from a domestic vs
international standpoint. These are two very different issues. On the
international side they talk about the race to the bottom where counties are
attracting companies through lower tax rates. They suggest this is a negative
trend but don't offer solutions - because it's a complex issue with no easy
fix. Sovereign countries can chose their tax regime and therefore there is an
incentive for some to become tax havens. As an individual country it will hurt
you to raise the corporate tax rate since there is a higher incentive for
companies to move profits. So are they suggesting all counties agree to raise
their corporate tax rates? It's not clear. Countries are obviously aware of
this issue and are working with the OECD to draft solutions.

On the domestic side they gloss over the fact that most countries work to have
an integrated tax system. That is, no matter how you structure you taxes when
income flows to an individual the total tax paid on that income should be the
same. So having a corporation (which usually has a lower tax rate than
individuals) gives you a deferral of tax. This is to encourage businesses to
reinvest.

They claim that if there is no corporate tax then companies will create shell
companies and put income there. Tax authorities aren't stupid. Even now it
would be beneficial to do that since corporate rates are lower than personal
rates. Thats why if the company isn't earning business income (I.e. you just
throw your personal wealth there invested in passive income) the tax rate of
the corporation is bumped up to the highest personal rate on that income. So
doing what the document suggests would be illegal.

The only real argument for changing the corporate tax rate should be (from a
domestic standpoint) based on the deferral. That is, do you think companies
should pay less tax to help grow their business faster and only pay tax when
the owner stops reinvesting in the business?

Obviously this is a complex topic and I think that this document glosses over
alot of that complexity. Just to note that I'm most familiar with the Canadian
tax system so that's what I've based the domestic discussion on. However, all
countries have similar tax policy objectives and should have similar rules in
place.

