Last week, Apple’s tax avoidance strategies were revealed at a US Senate hearing. The company created subsidiaries in stateless nations in order to avoid paying taxes that are said to worth billions of dollars. The strategies could inspire copycats.
After the hearing, the European Union leaders said they will pass a new law that would require corporations to reveal the amount of taxes they paid in each country they operate on. The officials placed the measure on a legislative fast track as they hope it would be signed into a law this summer.
The transparency resulting from the measure could result to forcing corporations to reveal revenue, profit, head count, and taxes paid in each country. The European Union would ask companies that pay less than their fair share to be a subject of a public scrutiny. In December, Starbucks Corp. voluntarily paid the United Kingdom more than it legally owed to quell the controversy regarding its low tax payments.
Because of the resulting public pressure, politicians in low-tax nations such as Luxembourg, Ireland, and the Netherlands would be dissuaded to offer their countries as tax havens and deprive others of revenue.
The EU must also overhaul its tax laws in order to make companies pay more tax. But behavior modification via transparency is the next best thing. The strategy would work better if the United States implements the same.
According to two advocacy groups in 2011, a lot of US corporations pay little income tax to the individual states as well as low federal taxes. They report showed that 68 of 265 companies paid no state income tax in at least a year between 2008 and 2010 despite earning profits of $117 billion in the same period. Over the three year period, 265 companies avoided around $43 billion in state taxes.