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With multi-nationals operating across the world, it is relatively easy for these companies to shift activities to countries where the tax rates are significantly lower or nonexistent. In recent years, this has caused significant political and public reactions. Citizens and politicians are looking to ensure that companies pay their fair share of tax. Leaders of the world's largest economies are scheduled to meet to determine whether the ratification of new global tax rules can solve widespread tax evasion problems. However, improving the tax system may prove to be a rather difficult task with large implications for the global business community.
The major issue with the current tax system is that companies can use separate national tax systems to find advantages and loopholes within the systems. The question of whether this is fair or not is a controversial debate. However, a few consequences that result from these activities are fairly certain. First of all, by moving activities to lower tax jurisdictions, international companies deprive certain governments of resources. The United Kingdom lost 3.1 billion euros in 2012 due to tax avoidance. Secondly, larger international companies can shift activities around the globe to lower their bill in ways that smaller rivals cannot. Both these factors have led to political drive in creating a stronger international tax system.
The Organization for Economic Co-operation and Development (OECD), representing 34 advanced economies, has initiated the project on reforming global tax rules. A globally integrated tax system is the goal, but some believe this ambitious effort will be extremely difficult to achieve. Critics have already begun questioning the project. The one major complaint over the project is that the OECD does not include the opinions of lesser developed countries. Therefore, finding a truly global solution for taxes might be hard to achieve without incorporating the voices of lesser developed countries. However, the project will move on as these criticisms are hopefully addressed. With globalization at the forefront of most business activities today, taxation seems to be heading the same direction into a more globally integrated system.
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