How can countries protect their tax base from aggressive international tax planning?

Protecting a country’s tax base from aggressive international tax planning is a difficult, but important, task. Countries commonly use a combination of both domestic and international tax policies to combat tax avoidance. Domestically, one way to combat aggressive international tax planning is by enacting laws that limit the ability of companies to move profits to countries with lower tax rates. This helps to prevent multinational companies from exploiting differences between countries’ respective tax codes. In New Mexico, the government has enacted legislation to increase reporting requirements for certain assets and activities, including foreign business ventures. The state has also implemented a “combined reporting” system, which requires companies to report their worldwide income, effectively eliminating any loopholes for companies to shift income to foreign countries with lower taxes. At the global level, countries and organizations have implemented measures to tackle international tax avoidance. The G20 Organization has developed the Base Erosion and Profit Shifting (BEPS) project, a collection of measures aimed at preventing multinationals from shifting profits to jurisdictions with lower tax rates. Ultimately, each country must use both domestic and international tax policies in combination to combat aggressive international tax planning. By implementing reporting and disclosure requirements and enacting deterrents such as tax penalties for those found utilizing tax avoidance techniques, countries can more effectively protect their tax base from aggressive international tax planning.

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How can countries protect their tax base from aggressive international tax planning?

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