However, both tax avoidance using legal loopholes and illegal tax dodging (through criminal acts) impose heavy costs on governments.A recent paper by the International Monetary Fund ( IMF ) on 'Tackling Tax Havens' says that tax havens collectively cost governments an estimated $500-600 billion a year in lost corporate tax revenue, through legal and not-so-legal means. That is why the recent two-pillar tax pact championed by the Organisation for Economic Cooperation and Development ( OECD ) and endorsed by 136 countries is so important. Under this, small countries would be able to tax digital giants and any country would have a corporate tax rate of at least 15%. This would damage tax havens and end base erosion and profit shifting.For US MNCs alone, corporate profit shifting to tax havens has risen from 5-10% of the gross profits in the 1990s to 20-30% now. The practice of MNCs manipulating transactions between affiliates to shift profits to tax havens must end.

Source: Economic Times October 23, 2021 06:04 UTC