The Economist's Special Feature On Corporate Tax Avoidance

This special report on corporate tax avoidance by The Economist provides a good analysis of the methods that multinational corporations use to avoid taxes.  Every country in the European Union has its own tax laws.  Consequently, it is difficult for the EU to prevent low tax countries like Ireland, The Netherlands, Switzerland and Luxembourg from providing opportunities for MNC's to take their profits in law tax jurisdictions, even when most of their revenue comes from sales in higher tax countries.  Some states, like, The Netherlands, have a high corporate tax rate, but their tax base provides lots of opportunities for MNC's to lower their effective tax rate.  They take profits in The Netherlands on sources of profit that are taxed at a low rate in The Netherlands.

Although Britain and the US lose tax revenue from many of these tax avoidance schemes, they are not blameless.  They provide opportunities for MNC's to use friendly banks to launder their profits.  State laws in Delaware, and several other states,  also make it easy to set up phony corporations that enable money laundering and tax avoidance.

There have been efforts to prevent the "race to the bottom" in the competition between states to attract MNC's to their jurisdiction.  As one might imagine, the MNC's oppose these efforts, and so do the states that take advantage of their low tax policies.  Public reaction has been the most powerful deterrent so far. Starbucks was exposed for avoiding taxes in Britain.  That led to a public boycott which caused Starbucks to stop using one of its tax avoidance schemes.  The general public in the US knows that corporations use tax avoidance schemes,  but they are not well understood and neither are their implications.