INTERNATIONAL TAX SYSTEM AND MULTINATIONAL COMPANIES

Abstract

Nowadays modern international tax system is faced and challenged with many issues. Mainly, these are the consequences of rapidly growing globalization, and several economic crises in the world in over last two decades. As major players on the international stage, multinational companies play a crucial role in shaping the global tax system, and their conduct is now under closer scrutiny by modern states and international organizations than ever before. The reasons for this lie in the vast resources multinational companies have and their ability to influence global developments. The globalization and digitalization of nearly all social and economic spheres have simplified both business operations and everyday life, a trend that became particularly evident following the outbreak of the global Covid-19 pandemic in 2020. On the other hand, these developments—and the crises that followed—exposed significant weaknesses in the international tax system. Companies no longer need to cross borders to conduct business; they can operate entirely online. While this model greatly benefits companies, it poses substantial challenges for states. Nowadays, modern states are more than ever faced with tax evasion and tax avoidance of the multinational companies. Together, the world’s most powerful market economies—organized within the G8 (and G20)—along with the international economic institution, the Organization for Economic Cooperation and Development (OECD), and the European Union, have undertaken various measures and initiatives, following OECD recommendations, to address the global economic challenges arising from recent and ongoing health, political, economic, and military crises. These crises have contributed to a growing tendency among multinational companies to avoid paying taxes in the countries where they conduct business and to shift their profits to jurisdictions with low or zero tax rates. Projects such as Base Erosion and Profit Shifting (BEPS) focused on different aspects of multinational companies' business and their taxation is the one that has occupied the attention of the international tax audience since 2013, when the Action Plan on BEPS had been published. Many measures have been implemented and have produced positive results; however, each time states expect companies to comply with regular tax obligations, a new crisis emerges, undermining the efforts of states and, primarily, the OECD.

This paper focuses on the developments shaping the modern international tax system and the taxation of multinational companies. The author reviews the most important recent and ongoing measures adopted at the global level, offering conclusions and observations based on their impact on the taxation of multinational companies and on the global economy as a whole.