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United Daily News: FATCA, Starbucks and Morris Chang's call

2013/01/20 16:15:12

The United States has stepped up efforts to require rich people to pay more in taxes.

The Congress passed a deal to raise taxes on the wealthiest 2 percent of Americans at the beginning of the year, and the U.S. government has also begun implementing FATCA.

Formally known as the Foreign Account Tax Compliance Act, FATCA requires foreign financial institutions to notify the U.S. tax bureau of offshore accounts of more than US$50,000 held by American citizens.

The legislation is aimed at combating offshore tax evasion by American taxpayers.

To facilitate the crackdown, the U.S. government has signed intergovernmental agreements (IGAs) with several major countries on tax information sharing or exchange.

Taiwan is still debating whether to adopt the "European model" or the "Japanese model" in IGA negotiations with the Internal Revenue Service (IRS) under the U.S. Treasury Department. Some critics have even said our government does not need to negotiate such a pact because FATCA compliance is none of Taiwan's business.

At a time when asking the wealthy to pay higher taxes has gradually emerged as an international consensus, we don't think that our country should or can stay on the sidelines.

Moreover, we believe that signing tax information sharing accords with the U.S. and other countries will also contribute to our own efforts to crack down on money laundering and offshore tax avoidance.

Just a few days ago, Taiwan Semiconductor Manufacturing Co. Chairman Morris Chang urged our government to follow the U.S. example and have rich people assume a tax burden more in line with their income to help bridge the increasingly widening wealth gap.

He said that well-to-do Taiwanese have too many ways to "avoid" taxation under the current system. As a result, the highest income earners pay an effective tax rate as low as 7 to 8 percent of their income while honest high-income white-collar workers face marginal tax rates as high as 40 percent.

Chang described such a phenomenon as extremely unfair. He stopped short, however, of pushing for a hike in income tax rates for the wealthy. Instead, he urged the government to act immediately to plug loopholes in the existing tax system to prevent rich people from legally avoiding taxes.

We share his view. We believe that as long as the government can effectively close legal tax avoidance channels, our tax revenues will increase substantially even without a hike in tax rates.

The recent controversy over the corporate income tax paid by Starbucks in the United Kingdom best reflects the seriousness of problems with flawed tax systems.

The U.S. coffee chain has had revenues of US$4.8 billion during the 14 years it has operated in the U.K. but paid only US$13 million in corporate income tax over that time, and none in the past three years, despite telling investors the company was profitable.

The coffee chain used complex arrangements to legally reduce its corporate tax burden.

The exposure of the company's practices sparked an outcry in the U.K. In the end, Starbucks UK promised to pay nearly NT$1 billion (US$34.36 million) in corporate income tax over the next two years even if it fails to make a profit. (Editorial abstract -- Jan. 20, 2013)

(By Sofia Wu)