International taxation: Tax equity concerns

Though competitive forces are beneficial on one hand, the problems of international taxation have led to flight of domestic capital. Some of the problems of international taxation include the effects of international tax differentials on the volume, location and form of foreign investment due to different national and local tax rates applied to capital. Low tax regions act as ‘tax havens’ to multinational corporations. However, many countries secure a certain degree of tax neutrality by providing foreign tax credit (for example, Australia and China’s new tax policy). Moreover, foreign-source income is treated differently compared to domestic source income, leading to inequity. Tax payers’ equity depends upon equal treatment of corporate profits, irrespective of the place of origin, home or abroad. This calls for equal total tax burden on income earned from domestic and foreign sources and tax cooperation between countries.