Existing tax havens, to which many companies from different countries transfer their fictitious or real offices to avoid tax system functioning in a given country is now a seriously global problem. Internationally operating large companies that achieve high profits thus avoid paying taxes and then governments to balance the budgets of countries raise taxes for the population, which usually earns little. In this way, in many countries, the middle class since the 1960s was significantly deprived while 1 percent. The most-earning citizens in developed and developing countries have the majority of goods that modern economies are equipped with. The liberalization and deregulation in economic and financial systems since the 1970s, instead of generating a diversification in income, has increased this diversity. Even the last global financial crisis of 2008, generated mainly by violations of investment banking procedures, significantly contributed to the diversification of income between the middle class and the highest earners class. Unfortunately, instead of improving the functioning of investment banking, it was possible to continue the development of these entities according to the standards from before the global financial crisis.
In view of the above, the current question is: Is the escape of large companies to tax havens a problem for public finances of the state?
Please, answer, comments. I invite you to the discussion.
Generally speaking, tax escape is regarded as an illegal action whereby a person or entity deliberately avoids paying a true tax liability. In the eyes of law , Those who evade paying their taxes are committing a crime. Unfortunately, tax evasion is a serious malady involving nefarious dealings and appalling double standards which mitigate the public trust and jeopardize an already fragile economic system and place an unfair burden on the shoulders of general population. Therefore, the internationally operating large companies which are involved in tax escape should be stopped by all means . Cases of bribery, the use of lobby groups, and other unfair connections escaping the payment of taxes must be identified and their perpetrators should brought to justice.
Yes it is the severe problem to the society and government too. Government is the authority having the right to undertake socio-economic sustainable programmes. If companies are escaped from tax then it disturbed the government function.
in general, yes, there will be effect if the outflow is significant enough. Money available for loanable funds in domestic market wil be lesser. This pushes interest rate up.
The first time, I heard of multi-national companies, has been when I was a postgraduate student in the early 1980s. I thought of these companies as trying to escape from paying taxes at home, as being disloyal to their countries, and as being greedy for increasing their revenues selfishly by employing cheap labor.
It is difficult , for governments, to apply restrictions on industrial plants by placing them under the choice of either having plants at home or abroad. The concept of "free trade" is not always right all the time.
Dear Dariusz Prokopowicz , In Indonesia, the tax amnesty program has been carried out, because a lot of "fresh money" has been hoarded abroad, which must be used to pay taxes to Indonesia. This is very detrimental to the country's finances. If fresh money is used for investment abroad. then Indonesia loses revenue or income from the tax sector.
There is a difference between tax avoidance and tax evasion. Both result in non taxation but while tax evasion is an illegal activity tax avoidance can be achieved by use the 'loopholes' of the legislation. Large companies shift there profits to tax havens althought they ensure tax law compliance. This kind of non taxation is as harmful for the society/public finance as tax evasion because the tax is not payed where the value was created. The OECD BEPS Actions offer practical legal provisions for States which are meant to prevent this kind of tax avoidance.
Of course this is a serious problem for the states facing tax evasion to tax heavens. This practice means less tax revenue for the country and then less investment in crucial sectors such as health or education.
Yes, I also think that this is a serious problem. Large multinationals operating thanks to the registration of their fictitious tax haven seats achieve above-average profits, while the budgets of many countries are characterized by high budget deficits and state finances are burdened with high public debts, which reduce the possibilities of financing public goods offering citizens and realizing social functions in present social market economies. If large corporations thanks to the registration of their fictitious headquarters in tax havens achieve above-average profits while in the budgets of many countries are characterized by high budget deficits, this means that on the one hand these corporations ceased to be part of the social market economy model, on the other hand, state institutions do not they operate fully efficiently. It is necessary to develop international cooperation, legal and instrumental strengthening of international institutions, eg in the European Union, aiming at effective and efficient reduction of such imperfections of current market structures being an existing segment of contemporary social market economies.
Dear Mirna Leko-Šimić,
Thank you for your response. Best wishes, All the best, Stay healthy!
Dariusz Prokopowicz
Yes it is. In some developed and most developing countries, it is a big challenge. It is a form of tax fraud and tax evasion mechanism that affect tax revenue collection of a country. This has negative impact on budget implementation for provision of goods and services, and infrastructural development. It is an illegal practices which should not be encourage.
Dear Adekoya A. Augustine, Yes, I fully agree with you that these practices are inappropriate and negative for public finances. These are unethical business practices. These are also practices classified as a shadow economy and testify to the imperfections of tax systems. If the scale of this type of shadow economy in the economy grows, the level of tax revenues to the state budget deteriorates. The state of the state finance system is deteriorating, there is less money for the implementation of investment projects implemented by the state. In such a situation, it is necessary to tighten the tax system.
Best regards,
Dariusz Prokopowicz
Thank you sir for your response. Absolutely well stated. Its impact on the country finance is enormous. Tighten the tax system is the answer and rendering appropriate punishment to individual and firm participant in order to deter future occurrence.
Dear Adekoya A. Augustine, Yes, I fully support this solution.
Thank you for your response. Greetings, All the best, Stay healthy!
Dariusz Prokopowicz