How do countries differ in terms of taxation? In regards to taxation, why do some MNEs turn to offshore financial centers? Why are offshore financial centers a concern to the OECD?
Countries differ in terms of taxation. It could depend on the size of the economy of a certain country to devise a taxation system (Schneider & Enste, 2000). For example if the size of a country’s economy is getting larger, the taxes may be applicable to more and income sources and may increase with time. On the other hand in a smaller economy the government finds it hard to provide the basic facilities to its citizens so they may be lenient in taxing them. Sometimes the governments may overlook the applicable taxes and do not collect them at all.
The taxation system has evolved with the expansion of capitalist economies around the world (Wallerstein, 2011). So has the ways to save and cheat on taxes evolved. In the modern world, there are places in the world like the British Virgin Islands, which let big companies save taxes. In other work cheat the taxation systems of their own companies. The way they function is that a company might be registered in an offshore country that has less or no taxes and that same company may be made a shareholder in a company that is existing in a country. The profit share of the offshore company travels to the offshore country that actually is also owned by the owners or shareholders of the company that is existing and operating outside of the offshore country. This is how they cheat the taxation system. This is the main concern of OECD as they find it hard to find out the companies that are cheating the taxation system of a country. They try to work closer with the offshore countries to find ways to bring the companies in the taxation net.