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False Profits

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False Profits

Avoidance by multinationals and competition between governments are forcing a rethink of the international tax system

IMF,

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Multinationals have an arsenal of ways to lower their tax bills and shift profits to tax havens.

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Editorial Rating

8

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Recommendation

The tax foundation for companies that operate globally remains fairly similar to what it was a century ago, despite fluid tax borders created by digital technology and the growth of intangible assets such as patents and licenses. This timely report from fiscal expert Michael Keen illustrates the twin problems of “tax avoidance” and “tax competition” in a radically transforming global economy. getAbstract recommends this instructive article to corporate executives, government officials and others interested in the potentially harmful effects of tax shopping by multinationals.

Summary

Today’s international tax system dates from the 1920s, when foreign trade and investment focused on physical goods and infrastructure. The current global tax architecture presents two major problems: The first is “tax avoidance” by multinationals (MNCs) that have devised ways to transfer profits from high-tax jurisdictions to those with lower rates. The second is “tax competition,” in which countries try to outdo each other in lowering corporate taxes, hoping to attract investment and prevent MNCs from moving their money elsewhere. The system that exists now is highly fragmented, involving some 3,000 international...

About the Author

Michael Keen is a deputy director of fiscal affairs at the International Monetary Fund.

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