EU/US trade talks should have included corporate tax - Piketty

The thorny issues of taxing corporate profits and transparency over the rates being paid by large multinationals should have been included in the transatlantic trade agreement currently being negotiated by the European Union and the United States, French economist Thomas Piketty told a conference in Dublin yesterday.

“I think this is crazy,” he said. “In 2014/2015, international trade is already very much close to free trade. It would be crazy to have a treaty without a strong fiscal and social [element].”

The EU and US are currently negotiating a new bilateral trade agreement, called the Transatlantic Trade and Investment Partnership, that will be the world’s biggest-ever bilateral trade and investment deal.

It is aimed at boosting economic activity between the regions by eliminating red tape and tariffs to reduce costs and open up new markets.

Global co-operation

Mr Piketty, who is associate chair at the Paris School of Economics and author of

Capital in the Twenty-First Century

, said he was not calling for a global tax rate but advocating greater co-operation internationally to help ensure fairness in the distribution of income.

He noted the EU and US together account for half of global gross domestic product, and collective action by them to tackle tax avoidance by large multinationals would pressurise tax havens and the corporates to change the way they do business.

Mr Piketty said if we want to have a “minimum tax applied to multinational corporations”, or want to put in place a “binding treaty” to tackle tax havens over their lack of transparency or establish a global registry of financial assets, “this is the place [the treaty negotiations] to do it”.

“Let’s do it,” he said to applause from the 650 delegates gathered to hear him speak at the Tasc annual conference in Croke Park.

When asked by The Irish Times if it was fair for corporations to only pay a maximum 12.5 per cent tax on their profits when citizens have to pay up to 52 per cent of their gross income, Mr Piketty said such regimes were counter-productive and denied valuable income to a State for education, health and other social services.

“It’s a zero-sum game. I’m not trying to blame Ireland [for this]. Every country in Europe is at the game.”

Mr Piketty said it was important tax rates were set at a fair rate across the board to ensure the poorest members of society did not end up paying a disproportionate part of their income to fund the State.

“Is it easy to have more information and co-ordination [between countries on tax]? No. Is it impossible? No. I think it’s possible to make progress. Five years ago people were saying that bank secrecy in Switzerland would be with us forever. Then the United States placed sanctions on the Swiss banks and suddenly there was automatic transmission of information. Suddenly Luxembourg did the same. It was the beginning of a move in this direction.

“If you have proper sanctions you can make progress. So it is sad that European countries did not move to reform. ”

In his bestselling book, the French economist uses data on wealth from Forbes magazine, which carries such rankings each year. He said this was as reliable a source of information available as any other in the absence of official figures.

This data shows the top 1 per cent of wealthholders saw their incomes grow by an average of 6.8 per cent a year between 1987 and 2013, including the rate of inflation.

This was more than three times the average wealth per adult and just more than twice the growth in world GDP.

Call for change

Mr Piketty said taxation might need to be tackled at a pan-European level as part of a broader fiscal integration. “It’s not going to happen in 28 countries and it might not even happen in 18 [euro zone] countries but it will for certain countries. We need to change the way we do things in Europe.”