Tax evasion by multinational corporations has become a contentious issue of global concern. In 2022, a substantial $1 trillion in profits was reportedly stashed in tax havens by major companies, comprising around 35% of foreign profits. This practice results in considerable corporate tax revenue losses, estimated at almost 10% of the total corporate tax revenues collected worldwide. Notably, U.S. multinational corporations have been particularly aggressive in shifting their profits to tax havens, with roughly half of all U.S. foreign profits adopting these practices.
The Organization for Economic Cooperation and Development (OECD) has been at the forefront of international efforts to address these challenges, with initiatives such as “Pillar One.” However, progress in achieving a global consensus on corporate tax rules has been sluggish. In response to this inertia, African countries, led by Nigeria, are now spearheading a campaign for greater transparency and fairness in international tax at the United Nations. They are advocating for an intergovernmental committee on global tax rules with a focus on eliminating tax evasion, tax base erosion, and profit shifting.
The United Nations has been proposed as an alternative platform for more inclusive and effective international tax cooperation. A report from the secretary-general highlights the potential for the UN to replace the OECD as the global coordinating tax authority. However, concerns have been raised about the possibility of delays, redundancies, or the reopening of negotiations that could result from the UN’s involvement.
The role of the “big four” accounting firms, including KPMG, Deloitte, Ernst & Young, and Price Waterhouse Coopers, is significant in facilitating multinational enterprises in navigating complex international tax strategies. Research suggests a correlation between their involvement and the use of tax havens. These firms are known to assist multinational corporations in implementing sophisticated tax avoidance strategies.
The complexity of international tax avoidance has evolved significantly over time, particularly concerning intangible assets like brands and intellectual property. Determining the fair market value of these assets is challenging. Transactions involving intangibles within a multinational corporation often lack readily available market values, making it difficult to establish fair pricing.
Efforts to address international corporate tax avoidance are ongoing and involve various stakeholders, including governments, international organisations, and advocacy groups. Achieving international consensus on equitable and effective corporate tax rules remains a complex and contentious process. Collaborative efforts among countries are crucial to finding common ground and addressing the challenge of tax evasion for the benefit of all nations involved.