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Finance and Economy

What Will It Take to Achieve Tax Justice?

As digital, delocalised transactions increasingly become the norm, how can we ensure that corporations pay their dues in taxes when there seems to be no end of loopholes that can be exploited? And why are politicians failing to bring those who abuse the system to task? Economist Yann Moulier-Boutang and Philippe Lamberts, Co-President of the Greens in the European Parliament, tackled these and other questions.

Green European Jounrnal: How will the “Uberisation” and “digitisation” of the economy reframe the issue of taxation? Can there be a Europe-wide approach?

Yann Moulier-Boutang: We are essentially witnessing a three tiered system: multinationals pay 2-3% in corporate tax, French CAC40 companies pay 11%, SMEs pay 34% in France, 32% in Germany and 34% in the United Kingdom. It is the opposite of what you would think. We’d expect SMEs to be paying the lowest rate.

This system exists because the economy and politicians have failed to grasp the digital revolution and its impact on production and taxation. They haven’t understood the second revolution that is currently underway, i.e., the data driven economy, which is currently underway and which is overhauling employment and the shape and future of employment. Earning money the “natural” way through full-time employment is becoming increasingly rare. Uberisation shows this is happening in many different sectors of the economy, involving many things, such as services and even core industry. Generally, people working in this Uberisation are unemployed, temporary workers or low-income retirees. According to the French Minister of Economy, Emmanuel Macron, who does not shy away from reactionary language, “It is easier for a young person to find clients than it is for him to find an employer.”

The question we should be asking is what is worth defending in the Uberisation of the economy? Should resistance be focused on protecting rights already acquired, and jobs, and forcing the digital economy to protect employment conditions and employees’ rights? Or should we attempt to invent a new approach?  For example, by taxing Uber’s turnover, rather than its profits (which would be impossible to ascertain).

Philippe Lamberts: Taxation serves three purposes: funding public services; redistribution; incentivising behaviour. The debate on funding public services is still quite open (for example, which public services should be funded as a priority). However, when it comes to redistribution and incentivising behaviour, it is hard to contest the fact that the current tax system does the exact opposite of what we would want it to do. Yann rightly emphasised that we are increasingly not redistributing – this is true for corporate individual tax. When it comes to steering behaviour towards a more resource-efficient, low-carbon economy, I don’t think we can assert that environmental taxation is a priority for our governments.

That being said, I don’t share Yann’s assessment when he says that politicians don’t seem to have understood. I believe, on the contrary, that they’ve understood perfectly well. The system has no response to the ecological emergency and is profoundly anti-redistributive in its approach. This is the result of a conscious decision. Belgium, Ireland, Malta, the United Kingdom have all given huge tax breaks to big fortunes and multinational companies. This is not by accident. They are making a deliberate choice. When the redistributive nature of income tax was reduced this was a policy choice. When we cut corporate contributions, that was a conscious choice. It has taken SwissLeaks, LuxLeaks, Offshore Leaks and the Panama Papers for the authorities to feel some pressure to do something.

When it comes to the changes to our economy, I am a bit sceptical. These businesses are all tangible businesses. Take Amazon: people order goods; the goods are sent to a physical location; the goods are dispatched from an identifiable location. Uber has vehicles with drivers that transport passengers. It is ridiculous to say that the tax base is intangible. It’s not true! Even on-line trade in software and video games happens through an IP address that can be easily located. Otherwise, how do you reckon China can regulate the internet?

Philippe believes the focal point should be taxation in general. Yann is more focused on the new economy. What’s the difference between the two points of view?

YMB: Let’s look at Amazon. Amazon’s turnover from the delivery of actual physical goods is essentially in the red. Amazon makes its money from what Marx would refer to as “Absolute Surplus Value”, a.k.a. through the abominable working conditions of its employees. What people don’t know, however, is that Amazon makes a lot of money off of its web services as the largest corporate cloud provider. Much of its turnover comes from that and it slips through the cracks of taxation.

In a partially open economy, within the European Union, transfers – even closed international trade of multinationals – means that it is possible to establish financial transfers that are not tangible, and that unfortunately means we cannot measure tangibility. We know where the end customer is and we know that because of VAT tax. We are taxing consumption. I would like to see the tax levied at the production phase.

PL: The only way to do away with aggressive manipulations of the tax system by multinational corporations is to end the fragmentation that exists in European tax systems. This would require first establishing a single definition of profit and fair division amongst Member States based on an objective criteria. This would include physical investments (an Amazon distribution site in Luxembourg; this can be identified and located), employment and turnover (we know that Amazon sells to Germany, for example, via its cloud services). Unfortunately, plans for a Common Consolidated Corporate Tax Base (CCCTB) is currently stuck in Council.

YMB: I would add a fourth element: transactions. We know that corporations, for example, tax havens in Panama, are not just a way to hide personal fortunes – they are also a part of how international business pay kickbacks. Everywhere. Kickbacks are commonplace and the less focus on redistribution a country has the higher the kickback. Scandinavian countries are the least prone and have the best social protection systems. The countries with the weakest political systems and governance use corruption and kickbacks as a mechanism for distribution. I’d like to correct this and would do so, not by targeting only turnover, but also by differentiating between a corporation with 5 million euros a year in turnover –which uses a complex system of shifting money through offshore accounts and tax havens – and a company with 5 million euros a year in turnover with farther fewer transactions of the sort. The same would apply for private wealth.

PL: The real challenge for corporate tax is a common consolidated tax base for the 28 Member States. For money flowing out of the Union, it’s pretty simple, really: if the money is not going to a tax jurisdiction, where we know that it will be taxed, it should be taxed automatically and proportionally prior to transfer. That could be decided within the European Union. This would require a move away from what I call dogmatic protection of the free movement of capital. In other words, until there is worldwide democracy, with a worldwide tax system, clearly the borders of democracy – in this case, the borders of the European Union – will have to be borders to trade, too. Borders are not impervious. Borders just require formalities to be completed prior to crossing. Right now, the system is consciously biased in favour of the free movement of capital across the internal borders of the European Union. Migrants cannot cross borders, but capital can flow freely. These channels and flows of capital can be monitored. That is the beauty of the digital economy.

Turning now to fair taxation, notably the impact of redistribution measures, social justice, and employment, where could European Union policy improve and what policy prescriptions are the Greens making?

PL: The first area for improvement is that we need to change the system. It is currently unfair and ineffective in promoting transition for the very people and institutions that set it up. We can see that there is major resistance being erected. That is precisely why I believe that the current system was established because of choices that were made and not because of lack of understanding.

To change the system, we have some instruments nationally, which are not available in Europe. The main parameter that leads to discrimination is the size of the taxpayer: big corporate or individual taxpayers can play the borders to their advantage; meanwhile, small corporate or individual taxpayers cannot. It would not be so difficult to flip the balance in redistribution in favour of the small taxpayers and this could be done nationally. However, it would take Europe-wide action to offset that with higher taxation of big taxpayers.

The problem is, the 28 Member States of the European Union and their respective politicians consistently prefer a semblance of national sovereignty – it is a class and power thing – in areas including tax, rather than working together on tax whereby reclaiming control.

What really stands in the way is not the complexity of the issue but the lack of political will. When the Greens asked for a LuxLeaks committee of inquiry in the European Parliament, it was a battle to even get a special committee set up. For the Panama Papers, we need an exhaustive list of beneficiaries of shell companies, trusts, and foundations. Yet, we are constantly told that this cannot be done because – while it is possible within the EU – it would not be possible in the rest of the world (meanwhile, in the United States, FATCA requires all financial institutions to directly inform the tax authorities – private companies and governments alike).

We have the tools, but the political class currently in power in Europe built the current system. They will not change it unless put under pressure to do so or if they are removed from power. Fighting tax avoidance, tax evasion and an unfair system is not outside of our reach, especially in a globalised – digitised – economy!

To achieve wealth redistribution, employment, the workforce and societal changes, are there other instruments besides fair taxation?

YMB: I fully agree with what Philippe just said about the current governments in place. The problem is that we need to work in the EU on social protection, the tax system, economic governance and industrial policy all at the same time.

Looking at issues related to employment and the workforce – and I firmly believe that these are crucial issues – we have to avoid assuming that these are strictly European problems. Japan, the United States, and the whole world is grappling with this as well. Digitisation has changed the way we work, productivity, production, and what they mean. There is a sphere that seems to be rallying and mobilising and is not something strictly related to the private and public economy, in the traditional sense of the term. This sphere of activity is broad and is broadening. It relates to wages, whatever the amount be, that are not covered by our current system of codification of employment relations.

Then, there is the sphere – broader still – of all that is contributive, i.e., activities that are not work and therefore not paid, but contribute productively. Example: social solidarity economy, whistle blowers, all those that the Greens promoted, and that play a key role in what I refer to as pollination.

These three spheres are broadening. The sphere of traditional employment is shrinking. It is detaching from the employment sphere via digital platforms and the mass of people who are now pseudo-freelance. In addition to that, I’d say there are also the contributive platforms that substitute for non-existent public services, which should exist.

In the transition that we are currently experiencing – which is not ecological, but towards a digital economy – the real risk is the loss of the traditional employment model, with all of the associated social protection. It is becoming permeable. It won’t disappear overnight; it will remain on the landscape like a beautiful building full of un-mended holes that is progressively drained. Meanwhile, real life will be taking place outside. By real life I mean real work for the unfortunate ones who will have to find some form of income. To re-stitch the stitches, employment can be defended by defending public and private jobs separately. Except that some of these jobs are going to disappear, and protection will have to be sought, perhaps in the form of universal income.

We can discuss taxation but what I’m most concerned about is employment. We agree that some people are aware of the situation, but defend national interests – as Philippe said – and do not want a Europe-wide solution because they think that a non-cooperative approach will bring them more. They justify themselves with the general public on the issue of employment. The real problem isn’t if it is true or false. The real problem is that it works.

PL: I don’t think it works: the voter base of the traditional political parties that use that type of policy is becoming smaller by the day. It is not a strategy that wins elections. At some point it is going to cost them their job; people don’t buy it anymore. The National Front will likely do the same thing, but that is not the real issue. Those who are using those policies today think they will win, but in my opinion, they are cutting off their nose to spite their face. The way I understand it, an increasing portion of added value today is created by machines: computers, robots, etc., and therefore by capital and increasingly less by people. The goal is to ensure that in the capital-labour balance, capital takes an increasing share, by replacing labour with machines. As Yann said, the little bit of salaried work that is left is being annihilated by the Uberisation of the economy. For capital, the best-case scenario is to pick up workers when you need them and drop them when you don’t.

Piketty brilliantly made the case for taxing capital, to undo inequalities, but, again, to fund social security and public services. For all of those reasons it makes more and more sense to tax capital. Clearly, by doing that we would be hitting at the very heart of those who currently benefit from the system in place. We shouldn’t be surprised if they are loath to let that happen. If someone like Marine Le Pen can find convergence, like Hitler did, with the interest of big capital, the whole thing will be tied up. To put it another way, set up a strong State so that the new authorities in place protect the vested interests.

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What Will It Take to Achieve Tax Justice?

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