Multinationals and Tax Justice

Tax justice is probably one of the most controversial debates in economics over the costs and benefits of the continuous worldwide "arms race" regarding tax policies. In the past few decades the view that has dominated economic policy making is that sustainable economic growth can only come through a welcoming business environment. Specifically, this environment is one generally described by lax tax laws combined with subsidies or other financial incentives that when a multinational considers where to establish its new regional headquarters or new production line, may tilt the scale towards country "x" instead of country "y". While the first wave of countries which initially deregulated their economies and enforced such business friendly laws enjoyed considerable returns from these policy initiatives, it was not long until other economies followed their example. At the beginning there was intense competition with regards to which country provides the most appealing mix of low taxes or exemptions and subsidies to attract physical capital (or FDI). However, more recently governments across the globe are competing mostly in terms of the location where multinationals choose to report profits that are generated throughout their global supply chains. Thus, the prize is now tax revenue rather than physical investment. Multinationals on the other hand are applying "aggressive tax planning" techniques, such as profit shifting between countries, so that they can maximise their profits by making use of the global nexus of tax laws and regulations available to them. This balance has led to the erosion of national tax bases on many occasions and has negatively impacted public spending levels worldwide. These facts have triggered a debate on the pros and cons of such policies and whether this kind of competition still makes sense as an effective economic policy tool. Should governments continue to compete in attracting multinationals regardless of the trajectory of their tax revenues? Does increased employment or growth compensate for the cost such policies? Is this a race to the bottom? How do a firm's characteristics influence the likelihood that it will engage in "aggressive tax planning"? How is a firm's decision over the location of its production and HQ affected by new forms of tax competition? Are policies aimed at tackling "aggressive tax planning" (e.g. the OECD's recent proposal for a global minimum corporate tax rate) likely to do more harm than good? Given the market power of large MNEs, how might tax rules be shaped by firm-policymaker negotiations and lobbying? These are only a few questions requiring detailed, evidence-based answers and insights on what the contributions of citizens and businesses are and should be in an economy and whether a global tax policy coordination is required.