The Problem with the Low-Tax Backlash: Rethinking Corporate Tax Policies to Adjust for Uneven Reputational Risks

When a major corporation is found to be paying little or no taxes, public backlash and media furor over the issue may ensue. Some governments may well be just fine with it, while others like U.S. may take steps to ensure companies pay more tax. Sometimes, companies being in a non-taxpaying position properly reflects appropriate tax policy. That explanation, however, does not sell lattés, which is why in 2012, after the British public grew outraged over the discovery that Starbucks was paying no corporate taxes in the U.K., the coffee retailer actually volunteered to just write a cheque to the government. The reputational damage to Starbucks’ brand, the company calculated, was not worth the money it was saving in avoiding taxes, even if it was doing so perfectly legally. The fear of this kind of reputational damage can foil the very taxation policies that governments design specifically as a means to tax corporations fairly, efficiently and competitively. It may be good tax policy to allow corporations various deductions, or the ability to carry forward or carry back losses, but it can be politically vexatious. U.S. President Barack Obama demonstrated that explicitly when he suggested certain American companies using so-called tax inversions to relocate their headquarters to low-tax jurisdictions, were failing in their “economic patriotism.” Yet more multinationals than ever are legally and quite appropriately using tax strategies to minimize their taxes in various jurisdictions to the point where they are paying little to no corporate tax. For some corporations, the risk of public backlash is greater than it is for others: Starbucks and Facebook, being consumer-facing companies with a great deal of brand goodwill, have a lot more at risk than do Pfizer and Oracle. This risk makes the playing field for taxation less level, jeopardizing the fundamental tax principle of horizontal equity — that those of similar means should pay similar taxes. If Starbucks feels pressured to pay extra taxes, then the tax system is not functioning optimally. This emerging reputational risk is a new dimension governments are going to have to take into account when designing tax policy. Understanding that there is more to consider than the financial implications of a tax policy should and will have an effect on the way policies are designed. One important approach that governments should take is to avoid the practice of targeted tax incentives, such as tax holidays or accelerated depreciation. The reputational risk will see some companies willing to take the government up on tax breaks, but others may prefer to pass. Better to focus on more general corporate tax reductions, which will be less distortive and unfair to those companies at greater risk of reputational damage. In some jurisdictions, governments could also consider requiring some level of minimum taxation (as Ontario does), ensuring that every profitable company pays at least something every year. This will have an impact on economic efficiency, but it will help level the playing field for all corporations, regardless of their varying degrees of reputational risk. The most effective measure still available to governments is one they should be pursuing anyway: tax levels that are internationally competitive and, therefore, broaden the corporate tax base while promoting neutrality. Canada’s several targeted programs — such as accelerated depreciation for manufacturing equipment and a generous capital-cost allowance for liquefied natural gas plants — only hurt neutrality. They also make it more likely that a particular company may find itself in an uncomfortable controversy, as Starbucks did. Focusing on international tax competitiveness, rather than targeted tax breaks, is the way to build the fairest system for all companies, whether they are nervous about their reputation or not

Taxing Stock Options: Efficiency, Fairness and Revenue Implications

The federal Liberals and the NDP are right about this much: There is a more sensible way to tax the stock options that are granted as compensation by corporations than the approach the federal government takes now. But both parties are wrong about how much revenue an appropriate change in current tax policy will add to the treasury. Far from the half-billion dollars or more that both parties claim they will raise in federal tax revenue by changing the taxation of stock options, the appropriate reform will virtually raise no revenue. It could actually result in marginally lower tax revenue. As it stands, stock options are treated differently than salary and other forms of cash compensation when it comes to taxing an employee or director, in that they are subject to only half taxation, similar to capital gains. They are also treated differently than cash compensation for the corporation granting the options, in that they cannot be deducted from corporate income tax. The federal NDP and Liberals have both accepted the growing criticism, which only intensified in the aftermath of the 2008 financial crisis, that the lower tax rate is an unfair tax break for those employees who receive stock options. Both parties have proposed to change that, leaving an exemption for startup companies only, with the NDP proposing full personal taxation for all stock options except for start-up companies and the Liberals proposing it for options-based compensation exceeding $100,000. Treating stock options the same as cash compensation would indeed be more tax efficient, reducing the distortionary effect that can influence company compensation packages to give more weight to stock options and less to cash than they might otherwise. But the only way to ensure that efficiency is by treating both the personal tax side of the benefit, and the corporate tax side of the benefit, in the same way as other employee compensation. That is, applying full taxation to the recipient means also allowing the same deduction to an employer allowed for other forms of compensation. Changing only the personal side merely replaces one type of distortion with another, and discourage employers from granting options, by making it a more expensive form of compensation compared to any other. The NDP predicts that its proposal to impose full personal taxation on stock options will raise annually$500 million leading to a tax revenue collection of $2 billion in the next four years. The Liberals also predict that their similar proposal will actually raise more: approximately$560 million annually. But neither proposal acknowledges the necessary symmetrical adjustment for corporations — the tax deductibility of stock-option benefits. If we estimate the federal and provincial revenue effect from the full taxation of stock options using data from recent years reflecting the options granted by the largest 100 public corporations in Canada, projected forward to 2015, we find that the tax revenue gain is actually $1.168 billion. But the tax revenue loss, by allowing corporate tax deductions for stock-option benefits, is$1.318 billion. After one more adjustment for the gain from the personal tax on corporate tax saving on the dividend received by the investor, the net effect for federal and provincial governments is a slight net loss of $12 million. The NDP and the Liberals are onto a good idea in proposing a more efficient way to tax stock options. Regardless of who wins the election, it is the right approach. But it cannot be done fairly, or successfully, without also including a deduction for the employer. And once that is accounted for, as sensible as their proposals may be, neither party should expect any extra spending money to come from implementing this change

Tax Policy Trends: Small Business Tax Cut not Enough – U.S. Tax Reforms will make U.S. more Attractive for Start-Ups

SMALL BUSINESS TAX CUT NOT ENOUGH  U.S. TAX REFORMS WILL MAKE U.S. MORE ATTRACTIVE FOR START-UPS Big businesses start small. With the proposed Republican tax reform announced on September 28th, small business taxes will be dropped sharply making it attractive for start-up companies to locate and grow in the U.S.This is in sharp contrast to the recent debate in Canada whereby small businesses will be taxed more heavily under the recent proposals despite a further reduction in the small business tax rate

Comparison study of existing bowl piston and modified bowl piston diesel engine performance emission and combustion characteristics by using diesel

In this investigation, the Modified bowl piston (MBP)diesel engine performanceemission and combustion characteristics have been studied by using diesel (100%D)and compared with theExisting bowl piston (EBP). From the results, it is evident that the MBP has given higher brake thermal efficiency (BTE) at an engine load 80%, 100% and higher exhaust gas temperature (EGT) has been given in engine all loads, when compared with EBP. In emission point of view,the MBP has given lower hydrocarbon (HC),carbon monoxide (CO), smoke at all loads when compared with EBP, However nitrogen oxide (NOX), carbon dioxide (CO2)have increased for MBP. In the combustion point of view MBP has given higher cylinder pressure (CP) and higher cumulative heat release rate (CHRR) at full load condition when compared with EBP.  From the experimental results, it has been concluded that the MBP is anapt one in performance, emission and combustion perspective when compared with EBP by using 100%D

On the r-dynamic coloring of the direct product of a path with either a complete graph or a wheel graph

In this paper, it is explicitly determined the r-dynamic chromatic number of the direct product of any given path with either a complete graph or a wheel graph. Illustrative examples are shown for each one of the cases that are studied throughout the paper.Junta de Andalucía FQM-01

Turkey in Africa: voyeurism, neo-Ottomanism and Islamic humanitarianism

Wetensch. publicati

Real-space imaging of quantum Hall effect edge strips

We use dynamic scanning capacitance microscopy (DSCM) to image compressible and incompressible strips at the edge of a Hall bar in a two-dimensional electron gas (2DEG) in the quantum Hall effect (QHE) regime. This method gives access to the complex local conductance, Gts, between a sharp metallic tip scanned across the sample surface and ground, comprising the complex sample conductance. Near integer filling factors we observe a bright stripe along the sample edge in the imaginary part of Gts. The simultaneously recorded real part exhibits a sharp peak at the boundary between the sample interior and the stripe observed in the imaginary part. The features are periodic in the inverse magnetic field and consistent with compressible and incompressible strips forming at the sample edge. For currents larger than the critical current of the QHE break-down the stripes vanish sharply and a homogeneous signal is recovered, similar to zero magnetic field. Our experiments directly illustrate the formation and a variety of properties of the conceptually important QHE edge states at the physical edge of a 2DEG.Comment: 7 page