Wolfgang Schäuble and George Osborne, finance ministers of Germany and the UK, call for “concerted international co-operation” to make corporate taxation more effective. The sentiment cannot be faulted. But they need to prove this is not all talk and no action.
The OECD is already engaged against “base erosion and profit shifting” and is tightening guidelines on transfer pricing. This is how some multinational groups – especially those dealing in intangibles – can locate their profits in low-tax jurisdictions. So the Anglo-German statement merely backs current OECD work. That is better than opposing it, but it falls short of global leadership to right what is wrong with corporate taxation.
What is probably most on Mr Osborne’s mind is not how much corporations pay in tax but domestic political perceptions that they pay too little – currently with the news that Starbucks only paid £9m in UK corporation tax since 1998. Messrs Osborne and Schäuble want to “attract global companies to our countries, but also want global companies to pay those taxes”. However, transfer pricing can be legally exploited to pay effective taxes far below statutory rates.