Tax evasion is one of the biggest challenges the government faces today. The recent controversy over large multi-nationals using complex tax strategies to avoid paying high U.S. corporate taxes made headlines and began serious discussions on the effectiveness of the current tax laws.
There is a consensus on the need to remove complexity from the tax code. There are loopholes in the tax code that many multi-national corporations exploit to reduce their tax liability in the U.S., shifting profits to low tax countries is a part of that strategy.
Tax evasion by multinational enterprises (MNEs) has also led to the debate on the level of the current corporate tax rate, which is the highest in the world. Many believe that by lowering the rate, tax evasion will naturally decrease.
The House of Representatives Ways and Means Committee is examining the loopholes in the tax code that are exploited by MNEs so that a solution to the problem of tax evasion can be achieved. Lowering tax rates is a significant part of tax reform because MNEs are known to move their profits from high tax jurisdictions to low tax jurisdictions. Apple confirmed this point when it said that the U.S. has an incredibly high corporate tax rate.
Under the current economic conditions, it will be tough to reduce corporate tax rates, but it will be a consideration when looking to reform the current tax code. Even though many MNEs try to evade taxes quoting high tax rates, the public believes that, like them, MNEs must also pay their fair share.