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The Global Tax Devil Is in the Details

Under existing tax rules, multinational firms can escape paying their fair share of taxes by booking their income in low-tax jurisdictions, or by moving some parts of their business to these jurisdictions. Will proposed reforms deliver on their promise to boost government revenues, especially in developing countries?

NEW YORK – It appears that the international community is moving toward what many are calling a historic agreement to set a global minimum tax rate on multinational corporations (MNCs). It’s about time – but it may not be enough.

Under the existing rules, firms can escape paying their fair share of taxes by booking their income in low-tax jurisdictions. In some cases, if the law doesn’t permit them to pretend that enough of their income originates in some tax haven, they have moved some parts of their business to these jurisdictions.

Apple became the poster child of tax avoidance by booking profits made on its European operations to Ireland, and then using another loophole to avoid most of Ireland’s notorious 12.5% tax rate. But Apple was hardly alone in turning the ingenuity behind products we love toward avoidance of taxes on the profits earned from selling them to us. They rightly claimed that they were paying every dollar due; they were simply taking full advantage of what the system offered them.

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