Amongst my favourite theories in philosophy is what became known as Meinong’s Jungle. It’s mainly that I like the name. The theory is principally used where metaphysics meets epistemology to ascribe facts concerning non-existent subjects.
Yup, it’s a real useful theory in taxation…
Anyway, I think I’m correct in saying that people agree that a unicorn is basically a horse with a horn coming out of its forehead. So a unicorn has four legs. From a certain epistemological point of view, however, this isn’t actually a fact. There is no real thing called a unicorn. The problem is one of assigning truth (which appears to be widely agreed upon with regard what unicorns are) to a statement about something which does not exist.
Alexius Meinong essentially argued that these nonexistent objects, whilst not existing, were being in some way. So, whenever you refer to a unicorn, you are referring to something that subsists in some sense, but doesn’t actually exist.
Thus, it can be a fact that a unicorn has a single horn. And that the golden mountain is actually golden.
Now, following my post yesterday, I had a brief conversation on twitter with David Quentin. He was, I think, arguing the fictitious nature of determining the profit using the arms length principle. That is, the profit of an individual entity within a group is a fiction.
I should point out I’m going off the general criticism I’ve heard from various people, so I’m not addressing any specific points he raised, more the general argument I’ve heard before.
I think that somebody arguing this view should distinguish between the profit of the group and the profit of entities within that group. The group profit may not be regarded as fictitious because it measures the interactions of the entity with unrelated parties. All intragroup transactions cancel out.
The argument for unitary taxation is that it focuses on real numbers. The group profit is real and that numbers of employees, staff, assets are real.
From this point of view, I do appreciate the fiction argument against transfer pricing and the arms length agreement. The profit allocation is considered to be an internal fiction of the group.
However, I don’t think this argues in favour of unitary taxation. Unitary taxation adopts a different fiction, the unitary allocation formula. I have drafted a post which I may or may not publish exploring this idea, but I essentially think the whole ‘fiction’ reference is misleading and irrelevant.
Returning to Meinong’s Jungle, we are looking at the criticism that the ‘arms length profit’ is ‘fiction’, it does not exist. So let us take it as a fact – the arms length profit is a nonexistent object.
Existence is no impediment to something being logically sound. Just as Meinong argues that the golden mountain is golden, I would argue that if the ‘arms length profit’ is the correct profit to be taxed, it really doesn’t matter whether it actually exists or not.
I think that correctness applies morally too. If an arms length profit is morally the ideal profit to be taxed giving up the attempt to determine it is a moral failure.
Of course, it is arguable whether an arms length profit is morally the ideal profit to be taxed, but I do not think there is a better candidate using a deontological principle-based approach.
I can see how consequentialists might arrive at a different conclusion.
But all I wanted to do with this post is to make the point that the fictional nature of something does not preclude its being logically sound or useful. Or being full-stop.
The discussion of whether an arms length profit is a fiction or not is somewhat of an ignoratio elenchi.