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Economy

How To Stop Trump From Creating The World's Biggest Tax Haven

With its new president, the United States may now become a massive new fiscal haven for global companies. But France, with its own upcoming elections, could lead Europe in undermining Trump's plans.

iPad smile in Beijing
Apple Store, Paris
Gabriel Zucman*

-OpEd-

PARIS — What does our next French president intend to do to build a modern tax system that's prepared for a globalized world? It's difficult to know, given how vague candidates are about the topic in their manifestos ahead of this spring's election. And yet, it's a pressing issue. Without a clear direction, France risks losing significant public revenue.

A major, and unprecedented, disruption of the tax system that's brewing in Washington hasn't yet been weighed in Paris. Adieu to Ireland, Luxembourg and Bermuda. These tax havens are about to be made obsolete by Donald Trump's America. Congressional Republicans want a border adjustment tax meaning that exports wouldn't be taxed while imports would be.

If this effort succeeds, the U.S. will siphon off the fiscal base of countries all over the world. It would become the biggest de-facto tax haven on the planet. It will be in the interest of multinationals to manipulate transfer prices — the prices different branches of one company charge each other for the goods and services they exchange — so as to artificially move profits back to the U.S.

Apple California, for instance, could charge its overseas subsidiaries a hefty price for using their brand and logo, thereby reducing the same amount of taxable profit in France. Yet it would not add one cent of tax in the U.S. since exports won't be taxed. Zero percent — that's a tax rate that even Ireland's 12.5% rate can't compete with.

At this stage, it's not yet certain that these tax policy changes will ever see the light of day. It faces opposition from the importing lobby — companies such as Walmart — that stand to gain nothing.

Even if this effort by the Trump administration doesn't succeed, the alternatives aren't more reassuring. Trump and congressional Republicans unitedly loathe taxes on capital. Reducing corporate tax — with or without border adjustment — is one of their priorities. Trump wants a 15% tax rate, the Congress would be content with 20%. In both cases, the rate is well below the current 35% rate in the U.S. and France's 33%.

In Britain, Prime Minister Theresa May got entangled in a tough fight when she promised to keep her country's corporate tax rate the lowest in the G20. Company profits are now taxed 20%; by 2020 it will fall to 17%, maybe even 15% or lower if Trump does what he said he would.

Fortunately, France and the European Union aren't powerless. Tax optimization can be thwarted: You just need to change how taxable profits are calculated in each country. In concrete terms, the right approach consists of taking the consolidated global profits of companies.

For instance, if Apple makes 10% of its global sales in France, then 10% of its global sales would be taxable in France. This approach would neutralize tax optimization efforts in U.S. and Britain. It would become impossible to register disproportionate profits in Ireland or in the U.S. If companies can now easily choose where they locate their profits, they cannot control the location of their clients; they can't move them from France to the Cayman islands.

Container ship, Le Havre, France — Photo: Thibaut Demare

This solution is well-adapted to tech companies, which have become experts in the fictitious relocation of profits to Bermuda (Google Alphabet), Luxembourg (Amazon) and even — the ultimate absurdity — to non-existing territories (Apple). France's finance ministry knows the total value of the computers, phones, tablets and digital services sold by Apple in France. The company's end clients are fully identified because that piece of information is necessary to collect VAT.

This corporate tax reform is in the interest of most European countries. The only losers would be tax havens like Luxembourg and Ireland, which have turned the manipulation of accounting into their main business. But their opinion is non-binding. Nothing prevents the EU's most important members — France, Germany, Italy and Spain — to decree that they'll start dividing up their companies' profits according to the sales in their countries. Luxembourg's permission isn't required.

If France isn't able to convince its partners, it could adopt this reform unilaterally as a last resort. The finance ministry would demand that companies working in France communicate their global profits and the share of their sales made on French territory, which would be enough to calculate how much tax they need to pay. Access to the French market would be refused to companies that refuse to hand in this accounting data.

If it wants to avoid seeing its tax revenue devoured by the ogre Trump, then France urgently needs to equip itself with a modern corporate tax system that's immune to tax havens. It should allow for the fair redistribution of the fruits of globalization. Cooperation is always best. But in the absence of a quick European accord, let's get ready to do it alone.

*Zucman is a French economist and specialist in tax havens. He is currently a professor at the University of California, Berkeley

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Murdoch's Resignation Adds To Biden Good Luck With The Media — A Repeat Of FDR?

Robert Murdoch's resignation from Fox News Corp. so soon before the next U.S. presidential elections begs the question of how directly media coverage has impacted Joe Biden as a figure, and what this new shift in power will mean for the current President.

Close up photograph of a opy of The Independent features Rupert Murdoch striking a pensive countenance as his 'News of the World' tabloid newspaper announced its last edition will run

July 7, 2011 - London, England: A copy of The Independent features Rupert Murdoch striking a pensive countenance as his 'News of the World' tabloid newspaper announced its last edition will run July 11, 2011 amid a torrid scandal involving phone hacking.

Mark Makela/ZUMA
Michael J. Socolow

Joe Biden was inaugurated as the 46th president of the United States of America on Jan. 20, 2021.

Imagine if someone could go back in time and inform him and his communications team that a few pivotal changes in the media would occur during his first three years in office.

There’s the latest news that Rubert Murdoch, 92, stepped down as the chairperson of Fox Corp. and News Corp. on Sept. 21, 2023. Since the 1980s, Murdoch, who will be replaced by his son Lachlan, has been the most powerful right-wing media executivein the U.S.

While it’s not clear whether Fox will be any tamer under Lachlan, Murdoch’s departure is likely good news for Biden, who reportedly despises the media baron.

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