Out on the wilder lefty shores of the blogosphere there is this idea that if only multinationals reported their results on a country by country basis then everything would be right with the world. You know the thing, mice would smile when caught by kittens because kittens are, after all, cute. I have to admit that I'm somewhat unconvinced for the idea depends upon another: that each and every transaction within a company should be valued and priced as if it was an arms' length transaction.

Which rather goes against Ronald Coases' justification for the existence of companies in the first place: transaction costs.

Put simply, the argument for which he won the Nobel Prize* was that the reason to have one organisation was that sometimes that is cheaper than having many. The cost of writing, monitoring, justifying, contracts is, or at least can be, substantial. So also can be the cost of having one organisation, there will be overheads and inefficiencies, after all. So, companies will exist when those contractual costs exceed the benefits of a more nebulous network of hirees, and that network will exist when the central costs outweigh the benefits.

But this idea that a company should be taxed as if it were not a company violates these Coasean assumptions. We've agreed that the company exists because it is cheaper for it to exist than to have arms length transactions: so why would we tax it as if it were composed of arms length transactions?

I fear that yet another bright idea from the left is refuted by the real world.

Odd how often that happens, eh?

*Yes, we know, not a real one, Swedish Bank in honour of and no, we don't care.