Battle against global tax evasion

Multinational companies and high-income individuals (HNIs) either evade taxes or save a lot of taxes by moving to low-tax areas and tax havens, which is a cause of concern across the world.

This concern is more visible in developing countries because they need resources to increase infrastructure and human development and to fight environmental challenges. More importantly, it is very important for developing countries to handle the macro economy shaken by the economic challenges created by the pandemic and international hostility. For this, deficit and debt will have to be controlled, which once again requires resources. These challenges have disrupted the global supply chain and increased the cost of production and the price of energy.

According to the report from the EU Tax Observatory of the European Union on global tax evasion, multinational companies and HNIs evade taxes in many ways. For this, multinational companies mostly adopt the method of transfer pricing. In this, it buys management or financial services at a very high price from a related company in a high-tax country. In this way, it transfers its profits to a low-tax country.

In the second method, a company from a high-tax country takes loan at a high interest rate from a related company in a low-tax country and transfers its profits there in the name of paying interest.

The third method is to set up its headquarters in a tax haven and take royalties from a subsidiary company in a high-tax country in exchange for the use of intangible assets such as trademarks, intellectual property rights and logos. Multinational digital companies especially do this because they can easily set up their headquarters in a low-tax country and avoid paying taxes.

Globalization and modern technology have increased complexity and created new ways of tax evasion for HNIs and multinational companies.

After the rule of giving information about financial transactions to multiple parties started in 2017, HNIs are investing in real estate instead of keeping cash abroad. There may be legitimate reasons for owning real estate in other countries, but it can also be a way to launder black money.

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