Approaches of Tackling MNEs Tax Avoidance From Legal Perspective

Abstract

MNEs’ tax avoidance has caused a serious loss of governments’ fiscal revenue. Governments and international organizations have taken several approaches to tackle this problem. However, there is no one-size-fits-all solution to this problem at present. What's more, the effectiveness of current measures needs to be examined, and more effective approaches to tackle and end tax avoidance should be proposed, so first, this article summarizes the approaches which were exploited widely by governments recently and collects relative data. And then, employing a database carries out a comparative analysis of the merits and demerits of each approach. What’s more, this research shows more possible effective new methods to tackle MNES’ tax avoidance. Based on the results of the comparative analysis, although it seems that the most effective method for governments to end MNE’s tax avoidance is reducing the corporate income tax rate in their jurisdiction, this approach may reduce their overall corporate tax revenue, which causes most government reluctant to do so. Apart from that, implementing restrictive regulations on the income identification of parent companies is also helpful to prevent subsidiaries from avoiding high taxes by leaving their income overseas. What’s more, setting a uniform global corporate income tax rate or a global minimum corporate tax rate seems the most reasonable method. This method could cut the motivation of MNEs to avoid tax to some extent. The article lists several approaches employed by different countries and explores the function of each method to figure out their effectiveness. Furthermore, some possible new methods are proposed in this article.