Institute for Research in Economic and Fiscal issues

IREF Europe - Institute for Research in Economic and Fiscal issues

Fiscal competition
and economic freedom


Taxing corporations: why it is not only bad, but unjust

In recent years the issue of how much taxes corporations pay (and how much they should) has become extremely salient in Western countries. The attention to this issue has been mainly raised by news organizations on the corporate income tax paid by the subsidiaries of some major multinational corporations, like Apple, Amazon, Facebook, Google or Starbucks.
These reports gave new arguments to tax-loving politicians and pressure groups and strengthened their allegation that corporations do not pay their “fair share”. The latest years have been marked by an abundance of proposals to reform national tax codes to patch these alleged “loopholes”. Among them, the Base Erosion and Profit Shifting package (BEPS) of the Organization for Economic Cooperation and Development (OECD) is the most alarming one because of its global ambition.

The OECD thereby assumes, without any substantiation, that the corporate income tax is both just and an efficient way for governments to collect revenue. This assumption raises many concerns.

The purpose of this paper is to explain why. To do so, it is structured in three sections, with a conclusion. The first section analyzes the corporate income tax in the context of all tax revenues generated by business activity in OECD countries and exposes how corporate profits are taxed. The second section states some basic principles of just taxation and explains why the corporate income tax is incompatible with them. The third section adds that, even if a government is willing to compromise justice to increase tax revenues, the corporate income tax is an inefficient tool to achieve this aim. A conclusion states the recommendation to abolish the corporate income tax in order to foster both justice and efficiency.

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Taxing corporations: why it is not only bad, but unjust

by Pierre Bessard and Fabio Cappelletti

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