BEYOND THE NUMBERS
Growing Tax Avoidance by Multinationals Undermines Competition, OECD Warns
A lack of response would further undermine competition, as some businesses, such as those which operate cross-border and have access to sophisticated tax expertise, may profit from [tax planning] opportunities and therefore have unintended competitive advantages compared with enterprises that operate mostly at the domestic level.As our recent report explains, the U.S. tax code has precisely this unfavorable tilt: it creates incentives for U.S. multinationals to lower their U.S. tax bills by shifting profits offshore, using the sorts of tax avoidance activities techniques that the OECD report highlights. This not only creates a bias against domestic profits and investment, but drains tax revenues at a time when policymakers are trying to reduce budget deficits. The OECD report recommends that countries improve coordination of international tax rules and enforcement efforts and tighten up their own tax regimes. A good first step for U.S. policymakers would be to adopt the international tax proposals in the President’s fiscal year 2013 budget, which would reduce incentives for corporations to shift profits and investments overseas — and also reduce deficits by strengthening corporate tax revenues. By contrast, adopting a territorial tax system risks worsening the bias towards overseas profits and investment by setting a very low or zero U.S. tax rate on overseas profits. See our report for details.