The pile of unspent corporate cash that has built up since the start of the financial crisis is being held by an increasingly concentrated pool of companies that will be crucial to hopes of a pick-up in business investment to stimulate the world economy.
About a third of the world’s biggest non-financial companies are sitting on most of a $2.8tn gross cash pile, according to a study by advisory firm Deloitte, with the polarisation between hoarders and spenders widening since the financial crisis.
The reason this is currently happening is that the tax system encourages it. It is the sign of a stupid tax system that encourages piles to grow.
So I, and the Justice for Taxes Network, have invented unitary taxation to solve this problem. This taxes multinational groups of companies as a single entity on the basis of where their assets are, amongst other factors.
Given that these MNCs’ assets, these massive piles of cash, are in tax havens, these companies will be recording a similarly large amount of their profits in these tax havens. Up to one third of their profits, according to my favoured unitary taxation formula.
I can’t imagine how unitary taxation would not deter these companies from maintaining their grotesque piles of cash in low tax jurisdictions.
Neither can I imagine how taxing investment within a country (as opposed to giving relief for it) would discourage investment in jurisdictions with higher tax rates.
Another compelling case for unitary taxation.