How do governments combat tax avoidance by multinational corporations?

To combat tax avoidance by multinational corporations, governments employ a number of strategies. One way is to enact laws that require companies to pay taxes on income earned in their own countries. Many nations also have international agreements called “Double Taxation Treaties” with other countries. These treaties help to ensure that the same income is not taxed more than once in different countries. Another accepted practice, which is used in New Mexico, is transfer pricing. This process involves multinational companies setting prices for goods and services traded between subsidiaries within the same company to ensure they are charged the same tax rate as if they were dealing with an unrelated third party. The U.S. government has also recently enacted the Foreign Account Tax Compliance Act (FATCA). This act requires foreign financial institutions to send information about accounts held by U.S. taxpayers to the Internal Revenue Service (IRS). This reduces the ability of multinational corporations to move their profits into tax havens or to keep profits hidden from the IRS. Overall, governments have taken a number of steps to combat tax avoidance by multinational corporations. These steps help to ensure that companies are paying their fair share of taxes.

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How do governments combat tax avoidance by multinational corporations?

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