The tax affairs of large prominent multinationals have been in the political and media spotlight over the past few years. National newspapers, boycott campaigns and the House of Commons Public Accounts Committee have all sought to shed light on these issues. Underlying this focus is a clear public perception that the amount of UK corporation tax these companies pay is too low and that this is unfair, benefiting the rich at the expense of everyone else. This article will set out and explain some of the complications associated with multinational corporation tax payment and look at what economic theory has to say on these issues.
We must first consider what we are trying to tax. Corporation tax aims to tax profit — that is, revenue from sales minus any (allowable) cost deductions, such as wages, purchase of input materials and expenditure on capital investment. A company might have strong sales yet pay little tax if it also has high costs, and so low profits. Quoting a large sales figure is not a good argument that a company should face a high corporation tax bill.
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