What Is Wrong with (The Rules of) the Game?

Abstract

Public outrage is growing about 'immoral tax evasion by multinationals'. This calls for a thorough and polemical response from the tax advisory profession. This article investigates the following questions: 'can we define the boundaries to "ethical tax planning"; "is the Netherlands a tax haven"; "what are the fundamental reasons multinationals can pay little tax without acting illegally"; and "how can we really improve the rules of the game"?' The growing criticism with respect to tax evasion by multinational companies is understandable. But, if one takes a closer look, this criticism is largely unjustified. The author concludes that we cannot ask more from multinationals than paying tax in accordance with the law and in a balanced relation to the value of the benefits they derive from government services. The rules of the game can be improved with respect to the relation to the benefits from government services. In the author's view, this requires replacing the arm's-length principle for the allocation of profits to countries by a more robust approach. It requires the recognition by governments that there is a clear limit to what they can ask from multinational companies and what not.