The first step toward social responsibility is, arguably, fair taxation. There’s just one problem—for years, multinational corporations have raced to pay the fewest taxes or avoid paying it altogether. For example, Apple employs a few hundred people in Ireland, so it falls under the .005 percent tax bracket. And Apple isn’t the only multinational company to do so.
Many corporations claim to be socially responsible while, at the same time, avoiding paying what many argue are a fair share of taxes.
Most recently, President Donald Trump implemented a massive tax cut,lowering rates for multinational corporations, claiming it would help the U.S. economy. While stocks have soared and unemployment remains low, the reality is quite different for some. U.S. debt increased by more than $1 trillion in just 2018, and the economic boost appears relatively stilted to companies and individuals already doing financially well.
The flaws with multinational taxation have long been known. The current transfer pricing model fails to appropriately assess the value of a product within each country. However, attributing total profits to where the final sale takes place doesn’t work either. This takes much-needed revenue away from developing countries.
What Columbia Business School professor Joseph E. Stiglitz proposes is a global minimum corporate-income tax. If the U.S. and EU did this, multinational corporations may be finally forced to pay a fair share of taxes.
CBS professor Joseph E. Stiglitz proposal of a global minimum corporate-income tax may act as a larger balance to companies that avoid paying taxes.
Currently, the OECD/G20 Base Erosion and Profit Shifting Project is the one of the only initiatives trying to rethink taxation at this level. However, these principles are inconsistent with the transfer price system and the system of basing taxes primarily on sales. Politics always comes into play, and governments may decide to help multinationals in exchange for political support.
For the OECD/G20 initiative to be successful, the framework must be guided by principles, not politics. You can read the full report here.