The Tax Avoidance Tale: Where and Why does the Money go?

Abstrakt

Tax avoidance, as a legal arrangement of one’s financial affairs to minimize tax liability, often involves the use of tax havens, or secrecy jurisdictions, to shelter or boost profits. It is estimated that 50 per cent of world trade takes place through tax haven states (ChristianAid, 2008). This paper is an attempt to unravel the tax avoidance phenomenon with an emphasis on the actors involved – the States and the Multinational Corporations. Liberalization of trade, development of technology and increasing mobility of capital are several factors that have increased the cross-border economic activity as well as incorporated many remote corners of the world into the global production processes. How is it so then that the countries, participating in the global value creation, are not reaping the fruits in the form of wealth accrual from these activities? This paper makes an important distinction between the global value and wealth chains and why they do not take the same path in the production process. The argument is that the multinational companies navigate the different jurisdictions and place their revenue generating activities according to the favourability of the accounting policies and taxation regulations in place. The mismatch thus occurs between where the value is created and where the wealth accumulates. Additionally, the decentralization and evolution of the multinational firm is touched upon paying particular attention to intrafirm transactions, currently making up 60 per cent of all world trade (ibid). On the other side, the taxation systems have remained largely nationally oriented, alluding to the inability of the current international business taxation architecture to appropriately address the challenges of the knowledge economy.