Impact of globalization on the tax system of countries

Abstract

Globalization of the economy and the departure from the principle of taxation at the source, as well as the improper definition of the concept of “resident” create prerequisites for the profits shifting and require the conclusion of agreements on the avoidance of double taxation between countries. To solve artificially created taxation problems, the OECD has developed a plan to avoid erosion of the tax base and profit shifting (BEPS plan), which includes 15 Actions. The purpose of this work is to investigate the causes and methods of profit shifting and to determine adequate measures to prevent abuse. Two methods of profit shifting are studied: thin capitalization and transfer pricing. The right to deduct interest on loans generates four problems – profit shifting, creation of fictitious companies, costs imitation of control of thin capitalization and corrupt redistribution of income. All problems of thin capitalization are solved simply – by canceling the deduction of interest from the taxable base. No deductions – no problems. Deduction interest from profit pre-tax is possible, but at the rates at which banks of the borrower’s country provide loans to their residents. The deduction rate may be limited to 5% maximum. In this case, double taxation agreements are not required. The best alternative to transfer pricing is to determine the results of the enterprise’s activity by the amount created added value, which can be calculated by the amount of taxes paid from the wage fund and profit and VAT. This approach ensures payment of the appropriate amount of taxes, give you permission to accurately determine the consolidated profit of the MNC. The distribution of consolidated profit is proposed to be carried out according to a formula that includes a single criterion. The fair share of the consolidated profit, which corresponds to the contribution of each member of the MNC to the final result, is determined by the ratio of the wage fund to the profit.