| > Just out of curiosity, why would tax competition be considered bad? In the European union, where funds are easily transferred between subsidiaries in different countries, tax competition by individual member states can have particularly harmful effects on the public economy as a whole. In a typical multinational corp tax avoidance scheme, a coproration has a subsidiary A in e.g. Ireland and has a very small corporate tax rate on profits. Then another country, e.g. Netherlands gives subsidiary B a tax break on some commodity, typically an IP licensing scheme of some kind. Subsidiary A licenses some IP from B, and the licensing fees are conveninently 100% of the profits of A, so they're not making a profit in Ireland and don't have to pay tax there. Subsidiary B gets all their profits from IP licensing that pays hardly any tax in the Netherlands. Add a few subsiriaries and loan arrangements between them (free movement of capital in Europe is one of the fundamental pillars of the EU), and no taxes get paid and all of the profits get funneled into a tax haven such as Bahamas or Caymans. So while you'd think that tax competition would just be a fair competition when talking about individual countries, at EU scale it ends up being a race to the bottom where a few select countries (Ireland, Netherlands, Luxemburg) get a nominal fee from the multinationals but all European states end up losing billions in tax revenue. And then there's also the corruption aspect. These tax deals aren't a gesture of goodwill. |