Taxation should not only procure government revenue but also influence business and consumer behaviour. This goes for tobacco, gasoline and alcohol excise taxes as well as for VAT and income taxation.
Profit taxation is becoming increasingly difficult in a global environment.
Globally operating companies deriving their profits from subsidiaries across the the world try to submit them to taxation where the tax level is lowest.
No legislation prevents them from moving headquarters to countries with low taxes or even adopting the nationality of a low-tax country when they acquire a company there.
For US corporations the UK that taxes profits at half the US level (20 per cent instead of 39 per cent) is a particularly attractive host country.
In a $ 100 billion take-over of the British pharmaceutical company AstraZeneca, the US giant Pfizer might seize that opportunity. Not surprisingly, the plan arouses political noise on both sides of the Atlantic, in the USA for losing substantial federal tax revenues and one its leading pharmaceutical companies, in the UK for abandoning the control of one its remaining big manufacturing companies
Within the EU the risk of a tax-induced company exodus is limited, as corporate income tax rates do presently not exceed 33 per cent.
To minimise this risk even further the EU should recommend a minimum rate of 15 per cent, which would oblige Bulgaria, Cyprus, Ireland and Malta to raise their levels of profit taxation.
In parallel, USA would be well advised to reduce its corporate income tax to about 33 per cent, which would be in line with France and Germany.
Eberhard Rhein, Brussels, 12/5/2014Author : Eberhard Rhein