The leaders of the G8 countries are meeting this week at their annual Summit, held in Northern Ireland. For this assembly, British Prime Minister David Cameron established a central agenda defined as “the three Ts”: taxes, transparency and trade. Mexico was part of this summit as a special guest. Within this context, one of the highlights of the country’s involvement was President Peña’s announcement of agreements in the coming months with the United Kingdom, Italy, France, Germany and Spain regarding the exchange of information on tax evasion of multinational companies. Why is this relevant?
In 2012, the IBE survey in the UK showed that tax evasion was the second most worrisome ethical concern of that country. On the other hand, in times of austerity in public expenses, which boosts governments worldwide to find solutions in order to cover their budgetary loops, the issue requires further attention. Taking advantage of the strong impact that the consequences of budgetary cuts have on public opinion, there is also the fact of elusive behavior of major corporations on the payment of their duties. For instance, last May, a research made by the U.S. Senate concluded that the company with the highest market value in the world uses its affiliates abroad to avoid paying billions of dollars in taxes, which would probably had been invested in social spending.
The losses in tax recollection justify countries agreeing on cooperation programs for the scrutiny and sanctioning of illegal practices. However, it is essential to distinguish between the thin line that exists between tax avoidance and tax evasion. Minimizing fiscal costs, that is, avoidance within the boundaries of law, is a legitimate practice of companies. The revenue for the capitalist is the clearest indicator to continue investing in a business and not in other. The subsequent benefits, that generate a real impact in society, include guaranteeing jobs, future reinvestments for innovation, new companies, more job recruitments and a sustainable expansion of the economy. From that point of view, it is positive that companies minimize their tax burden through fiscal planning. Besides, the law enables tools for businessmen to attract investments and guarantee a country’s economic stability. These mechanisms are a consequence of the friction created by the competence among nations to attract investors, which stimulates tax benefits to a minimum. Some of these practices include setting ranges for transfer prices, migration of intangible assets towards fiscal havens, splitting up of supply chains, location of different jurisdictions capitalizing on competitive advantages, delay of tax deficit balances, authorized tax deductions and exemptions, among many others.
For Mexico, within the context of a tax reform to be discussed in the coming months, the issue is of highly relevant. The heavy tax burden that the government has to undertake on matters such as the pensions system, liabilities on social security and even potential support for states and municipalities’ finances, will be highlighted with the current administration’s social and infrastructure projects. Finding more efficient tax recollection forms is essential. It is also important for authorities to be held accountable regarding the use of that money. Otherwise, the incentives for tax avoidance and tax evasion will remain as high as they are now.
CIDAC
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