The scale of Member States’ (MS) losses through the increasingly aggres­sive use of tax-avoidance schemes by multi­national companies (MNCs) is difficult to estimate, but is considered serious. Press reports have highlighted the low tax paid by well-known, very successful companies.

Corporate tax
© Comugnero Silvana/ Fotolia

The tax reduction methods used by MNCs have been well known for decades. They include transfer pricing, the use of lower-tax jurisdictions, over-charging entities in higher-tax countries to reduce taxable profit and (legally) completing a transaction in a lower-tax country, different to the country which the business relates to. These actions have been significantly aided by the digital economy and a rise in the value of intangible assets e.g. brands. Tax law appears out of date compared to MNCs’ business practices.

While MNCs – who now represent a large part of global trade – benefit, domestic competitors are unlikely to be able to gain similar tax advantages

The problem is relatively clear and law-makers want a situation where businesses not only operate within the letter but also the spirit of the law. MNCs have responded that they are complying with tax laws, pay all the taxes that they should by law, and that it is not companies but governments that decide tax regimes.

The national and international corporation tax environment is complex, with many constraints, and a solution to this long-lasting issue will be difficult to achieve.

Read the whole briefing here.

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