Organization for Economic Cooperation and Development Advocates Raising Corporate Taxes

March 20, 2013

The Organization for Economic Cooperation and Development (OECD) is an international economic organization dedicate to stimulating economic progress and free trade. Traditionally, the organization has collected statistics and published economic reports. Recently, the Paris-based bureaucracy has started lobbying for policies that expand government powers. A new OECD study that says governments should seize more revenue from multinational companies is inconsistent with previous policies and seeks to undermine tax competition, says Daniel Mitchell, a senior fellow at the Cato Institute.

  • According to the study, multinational firms reduce their tax burdens by taking advantage of differences in national tax policies.
  • Average corporate tax rates as a percent of gross domestic product in the OECD have already risen over the last 40 years by almost 1 percent.
  • Though it calls for higher tax revenues, the Addressing Base Erosion and Profit Shifting report provides no evidence that a revenue problem exists.

The OECD argues in the report that it is illegal for businesses to shift economic activity from one jurisdiction to another to avoid local tax policies. German, British and French finance ministers advocate for coordinated action to raise taxes.

  • The report does not offer any concrete solutions but the fuzzy wording suggests that the OECD intends to push for global formula appointment.
  • Formula appointment would give governments the power to reclassify income earned in tax-friendly countries as sourced from its home country and then tax that income.
  • The OECD contends that formula appointment will allow governments to recuperate massive revenue losses yet there is little evidence supporting this claim.

Progrowth countries like Ireland, Hong Kong, Switzerland, Estonia, Luxembourg, Singapore and the Netherlands stand to lose revenue that nations with high tax rates would gain.

  • Enacting global formula appointment would not result in larger tax revenues but instead shift tax revenues from country to country.
  • According to a previous OECD report on taxes and the economy, tax competition pushes OECD governments to lower corporate taxes, which is the most beneficial action for growth.

Source: Daniel Mitchell, "OECD Launches New Effort To Undermine Tax Competition," Cato Institute, March 2013.

 

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