Tax Avoidance and Reputational Damage - When Corporations Move Profits to Avoid Taxes

CALGARY, May 21, 2015 /CNW/ - 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 take steps to ensure companies pay more tax.  But companies also need to consider the impact that reputational damage can have on their profits. It's a high stakes game, with billions at stake.

We've all heard the stories of profit shifting and tax avoidance from the U.S. But what is the situation in Canada?  A report released today by The School of Public Policy and authors Prof. Jack Mintz and V. Balaji Venkatachalam examines effective tax rates on Canadian businesses, which have not been the subject of much analysis in recent years. In addition to finding that Canada does not face the same threat of profit shifting and tax avoidance that the U.S. does, they consider reputational risk as a factor in both corporate and government decision-making around 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.

According to Mintz "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." The difficult issues arise with respect to taxation of international flows of income - Global neutrality is not easy to achieve since it depends on both domestic and foreign tax systems. Therefore, 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.

The paper can be downloaded at http://www.policyschool.ucalgary.ca/?q=research

SOURCE The School of Public Policy - University of Calgary

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