In a recent article I summarised a proposal for a new approach to the taxation of multinationals, based on a report from Public Services International by Danny Bertossa and I. In summary, it would treat multinationals in accordance with the economic reality that they operate as single global firms, and tax them by allocating their profits to each country based on the three, basic profit-generating factors: labour, fixed capital, and sales.
This approach has long been advocated by many academics. More recently it has been taken up by campaigners and some practitioners, and it is now being advanced by countries such as India.
I recently welcomed the Labour Party’s inclusion in its election manifesto of a commitment to adopt the proposals, which gives it a further boost. As with the other Labour tax proposals, it was properly costed. Our paper estimated that it would bring in increased revenue for the UK of between £6 billion and £14 billion, before adjusting for behavioural response, at current rates of tax. This was based on two economic evaluations, one by the IMF and the other by independent researchers. The figure in the Labour Party’s Grey Book of £6.3 billion is therefore on the conservative side.
