Next year is sure to feature an explosive debate over tax issues, such as whether to lower the corporate rate or let the Bush tax cuts expire. But if former Treasury secretary Larry Summers had his way, he’d focus first on transfer pricing and tax havens.
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Although reforming the tax code is important, “far, far less emphasis is placed on the question of cooperation in the enforcement and collection of taxes,” he said, adding that companies are willing to switch their investments quickly to locales that tax them less. “It seems to me that the only satisfactory answer
… is a far greater degree of global cooperation.”
Tax havens are at the top of his list, as they currently shelter about $3 trillion, Mr. Summers said. Further, transfer pricing rules need to be “substantially strengthened.” He estimated the gap between the amount of taxes owed and how much is paid at $400 billion a year and said that could be reducing significantly by focusing on tax havens and transfer pricing.
Mr. Summers said greater cooperation among industrialized countries to craft similar tax rules would help cut back on tax havens and corporate income being shipped overseas. He argued that corporate income is not a “zero-sum game”—if Europe or Asia wins, the United States does not necessarily have to lose—and that tax competition is costly for all countries in the long run.
Financial Week
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