Multinationals choose to Pay their Income Taxes in Countries with less Confiscatory Tax Rates

Posted by PITHOCRATES - December 2nd, 2012

Week in Review

Do tax rates matter?  Do businesses make decisions based on income tax rates?  Yes.  They do (see MPs call for tax crackdown on multinationals by Tom Bergin posted 12/3/2012 on Reuters).

A committee of MPs has called on government to crack down on multinational companies that make substantial sales in Britain but pay little tax here, echoing demands from leaders across Europe for measures to tackle corporate tax avoidance…

“Global companies with huge operations in the UK generating significant amounts of income are getting away with paying little or no corporation tax here. This is outrageous and an insult to British businesses and individuals who pay their fair share,” said Margaret Hodge, who chairs the PAC…

Amazon pays little income tax in the UK because it channels UK sales through Luxembourg, which offers some of the lowest effective tax rates in Europe…

The French government said last month that it was discussing new measures to tax internet companies such as Amazon and Google, which minimises its tax bill by booking sales through an Irish subsidiary.

These high tax rate countries look at these multinationals as tax cheats.  The domestic businesses look at them as getting an unfair tax advantage.  The multinationals simply choose to pay their income taxes in low-tax countries.  They’re not avoiding paying their income taxes.  They’re just paying them in countries with less confiscatory tax rates.

These countries aren’t getting away without paying any local taxes.  Most of these countries have a sales tax.  A VAT tax.  And other taxes and fees.  For every cup of coffee Starbucks sells a percentage of that sale goes to the state.  Just not as much as the state would like.  Who would prefer something closer to all of it.  But the more they raise their tax rates the less tax revenue they collect.  Because businesses and rich people avoid high-tax states.  And take their income to countries with less confiscatory tax rates.

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