ACCA: Falling corporate income tax revenues not down to aggressive tax planning, says new research

An academic report from RMIT University School of Economics, Finance and Marketing provides extensive evidence that the corporate income tax system is not ‘broken’ and that it is not being eroded. 

Commissioned by ACCA (the Association of Chartered Certified Accountants), the report Multinational corporations, stateless income and tax havens asserts that there is no evidence to support the belief that that UK or the US corporate income tax base is being worn away. 

The report also states that advanced economies face a fiscal challenge, which creates the environment for a ‘tax grab’.

Sinclair Davidson, author of the report and professor at the School of Economics, Finance and Marketing at RMIT, says: 'The argument is that the corporate income tax base is being eroded by aggressive tax planning by multinational corporations – yet the evidence to support this argument is lacking. It is one thing to point out that multinational corporations do not pay tax in some jurisdictions but that says nothing about the actual corporate income tax base. To the extent that corporate income tax revenues have fallen in recent years, this is more likely to be a result of poor economic conditions than aggressive tax planning.'

Chas Roy-Chowdhury, head of taxation at ACCA, comments: 'This paper may well show that the global corporate income tax system is not broken, but questions remain about the evasion/avoidance/aggressive tax planning debate. ACCA has always been clear - tax evasion is a criminal activity and ACCA believes companies should not, in principle, pursue aggressive tax avoidance. Multinationals need to be clear about the value they bring for the benefit of their shareholders and wider society, and to communicate to all stakeholders their underlying commitment to the building of a sustainable business. Companies must see the management of tax obligations as part of that process of creating long-term value.'

Sinclair Davidson concludes: 'My report ends by saying that multinational corporations add value to both their home economies and their host economies. Tax havens add value by allowing multinationals to reduce their tax liabilities while increasing their investments in high-tax economies. An increase in their tax burdens would reduce those levels of investment, leading to reduced employment opportunities, reduced consumption and reduced innovation.

'It is not clear that tampering with the tried and tested norms of corporate income tax to possibly generate more corporate income tax revenue while reducing the corporate income tax collected in foreign economies, and possibly reducing investment, employment and consumption at home, is good policy.'