Here is a reply I started writing to a comment made by Christie Malry on Andrew Jackson’s blog… It got a bit long and off topic as I was also trying to capture some of my thoughts from a conversation I had on twitter earlier (starting with this comment).
So it is a bit of a mess but I’m loathe to delete it. Anyway here it is…
I agree that Richard has a point over IP being problematic.
But his purpose in arguing to remove IP appears to be making unitary taxation a workable solution. Whilst simply removing IP might appear an attractive solution in terms of simplicity, I am sure it would open the door on a whole raft of abusive practices. But I don’t think you even need to consider using the word “egregious” or “scheme” for detrimental effects to occur.
If you have this situation where the value of IP is ignored in determining allocating the tax base, you’ll just end up with IP being moved into high tax jurisdictions in exchange for assets that do alter the tax base. I wonder where we’ll see tangible assets accumulating instead? Low tax jurisdictions, perhaps? That’s one third of Richard’s formula taken care of right there. Probably do wonders for property prices by increasing demand too…
I’m thinking that Ireland has a lot of land which is cheap right now. Worth a punt for when Google want to increase their tangible assets base there?
If you then allocate taxation partly based on employment, another third of Richard’s formula, low tax jurisdictions will be further rewarded with higher employment.
Higher tax jurisdictions currently have the incentive of encouraging costs to be incurred there through increased CT relief. UT will just mean that low tax jurisdictions get the benefit of the costs occurring there and also the taxation on profits.
And where do the sales occur? That’s a big thorn in UT’s side and one which we currently can’ t deal with either. That’s the digital economy for you, creating ambiguity over where a sale occurs. I don’t think that ambiguity will disappear if you start determining taxation of profits on that basis as well as for VAT purposes. I think it might just get worse…
All in all, I think unitary taxation will be a shot in the arm to the competitors in “the race to the bottom”.