**5. Conclusions**

is no misallocation of capital under two of these specifications, and there might or might not be capital misallocation under the third. This result contrasts strongly with the basic tax competition model which finds that competition among governments almost always leads to

International tax avoidance is evidently a successful activity. Very little tax is paid on the foreign source income of US firms [8]. This has grave implications for domestic tax policy. "The international mobility of economic activity now dramatically reduces the ability to tax domestic income-producing activity too heavily. Indeed, the importance of this consideration raises the very real question of whether any longer exists such a thing as purely domestic tax policy" ([38] p. 319). It is really another way of saying that greater tax coordination between

In the aftermath of the global financial crisis, and the fiscal problems that followed in many countries, the public and policy makers paid greater attention to the tax avoidance of multinational companies. Similarly, researchers devoted greater efforts to estimating the scale and

Corporate tax is an important source of government revenue in all regions of the world. As shown in **Figure 6**, though there is an annual fluctuation, on average in the OECD governments raise around 10% of their total tax revenue from CIT, which is approximately 3% of GDP [44]. CIT accounts for a larger share of total tax revenues on average in lower-income

Making estimates of the global losses due to base erosion and profit shifting requires complex and rigorous research. Currently, the most comprehensive studies available are from the International Monetary Fund (IMF) researchers Crivelli et al. and Cobham and Janský whose study has been recently published by the United Nations University World Institute

Using panel data for 173 countries over 33 years, Crivelli et al. examine the magnitude and features of international fiscal externalities. In particular, they focus on the spillovers from tax policy decisions in individual jurisdictions onto others. They develop and use an innovative method allowing a distinction between spillover effects through real investment decisions

inefficient allocation of resources.

34 Taxes and Taxation Trends

nature of the associated tax losses.

countries than in high-income countries [6].

countries may be an answer to this international problem.

**4.3. The revenue loss estimates of base erosion and profit shifting (BEPS)**

for Development Economics Research (UNU-WIDER) in Helsinki [6, 9, 45].

**Figure 6.** Taxes on corporate income as percentage of total taxation, OECD average. Source: OECD, 2017.

The survey of the literature in this chapter suggests that tax competition and related problems remain high on the agenda of policy makers as well as researchers. Since governments have the dual mission to attract investment into their jurisdiction and collect enough public revenue to provide public services, the tensions arise. In order to encourage FDI and other forms of investment, the governments offer tax incentives to potential investors. However, that often means engaging in harmful competition with other jurisdictions. Such behavior is inefficient because it is a zero-sum game. When all governments behave this way, none gain and consequently communities are all worse off than they would have been if public managers had made decisions based on marginal costs. The tax competition may reduce tax revenues and lead to inefficient underprovision of public services.

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International Aspects of Corporate Income Taxes and Associated Distortions

http://dx.doi.org/10.5772/intechopen.74213

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The recent empiric evidence supports the central message of basic tax competition theory that competition for capital is actually occurring. It is manifested through the overall reduction in statutory and effective corporate income tax rates as well as sensitivity of FDI to tax burden. However, in addition to distortions in capital allocation arising from genuine productive activities, the differential tax regimes create other distortions, like tax arbitrage and tax avoidance by multinational companies. Governments throughout the world incur significant revenue losses through base erosion and profit shifting. Recent estimates show that accumulated losses for some countries are staggering and reach \$767 billion in US federal income taxes [47].

The magnitude of revenue losses due to tax avoidance by multinational companies and other distortions arising from differential tax regimes call for the re-examination of CIT policies and tax coordination, and/or harmonization at the international level.
