subject: The impact of globalization on taxation [print this page] The impact of globalization on taxation The impact of globalization on taxation
In recent years, growing globalization was thought of as an extraordinary thing with larger markets for both companies and consumers. Globalization allows for consumers to have a wide variety of market places to buy a product from, resulting in them purchasing products at a cheaper price. From a company standpoint, globalization allows for companies to reach consumer markets in many countries besides the one it is located in. However along with the many benefits associated with globalization, there are also many issues that are directly linked to globalization. Some of these issues are globalization's impact on accounting practices, outsourcing a company's production to foreign, transfer pricing and its impact on taxation. The issue I am going to be focusing mainly on is the issue of the impact of globalization on taxation.
In this new, globalized world, tax-hungry governments are having diminished tax collection on goods and services because most of the economic activity takes place outside the countries boarders. From 1970 to the present day, the percent of income from international business rose tremendously from fifteen percent to almost fifty percent. This increase means there is less left over for the United States government to collect taxes on. Also, globalization has allowed for companies to choose which country it will do production and other practices in, which most likely will be countries with low tax rates. Attempting to reduce the risk of this happening, all the industrialized countries have changed their tax structure. In these countries, corporate taxes and top marginal rates of income have fallen greatly, and will most likely continue to do so.
The impact of globalization on taxation also brings about the problem of transfer pricing. Transfer pricing is reducing a companies profits in one country by manipulating the cost of goods, financing, and services they use from affiliates in another country. This is done because it moves a company's profit from a country with high tax rates to a country with low tax rates, increasing that companies profits. This is a concern for many governments because they are losing out on valuable taxes it should be earning on transactions taking place in that country.
Even though globalization is thought of as a good thing to be happening, it also brings many issues along with it. Many of the large international countries are losing taxes because of transactions taking place outside its boarders. Also, companies are manipulating some of their costs of production in order to increase and almost filter its profits to the country with the lowest tax rates.
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