Tax Havens and “Legal Tax Avoidance”: How Can Fairer Taxation Be Achieved?

The tax planning of international companies to reduce their tax burdens to around zero by cleverly combining regulations and the taxation policy of certain countries has come under public criticism. Johanna Hey, University of Cologne, notes that combating so-called aggressive tax planning and achieving fair taxation represents both the equitable participation of everyone in public financing, as well as the prevention of erosion of the tax base; in other words, it guarantees national tax revenues. Questions of the fairness of international distribution and its implementation in concrete rules are difficult to answer, for this not only involves the avoidance of low and non-taxation, but also the correct distribution of revenues between states. The legal instruments for fighting tax havens are also very limited. To solve the problem would require an international consensus, which would involve precisely those states, who currently facilitate tax minimisation. According to Ulrich Schreiber and Fabian Pönnighaus, University of Mannheim, the usual answers to the question of the fairness of international taxation is that the level of taxation should not depend on where the taxable income is earned, and that the taxation basis should be distributed among those countries in which taxable persons are economically active. They see a starting point for an internationally coordinated change to the existing rules in the strengthening of the taxation rules of those countries in which multinational companies are economically active, and a second starting point as the toughening up of taxation rules in the country where a group’s parent company is based for its worldwide profits. Felix Bierbrauer, University of Cologne, discusses the extent to which incentives to avoid and evade taxes could be made part of an optimal taxation policy – should the former prove too costly to prevent – i.e. a policy that seeks to strike a balance between efficiency and fairness.