PORGMUN 2022

ADDRESSING EFFECTIVE TAX COLLECTION IN A GLOBALIZED

ECONOMY

Forum: LEGAL

Written by Veronika Křečková January 2022

INTRODUCTION

Taxes are charges imposed by a country’s government and are mandatory to pay.
Governments deduct a certain percentage of money from individuals and legal entities like
companies (money which gets deducted can come from different monetary exchanges, for example
from one’s income, property, etc.). The collected taxes are subsequently used by the government for
the development and improvement of a specific area or the whole country, for example in healthcare
or security.
Due to the differing tax percentage rates of countries, many entities have moved their
headquarters from a state with a higher tax rate to a state with a lower tax rate. This allows an
association to escape paying higher taxes and it can therefore keep much more money to itself.
Places with very low tax rates, referred to as the tax havens, like the Cayman Islands or
Switzerland, offer this for companies.
This is practiced among large associations and leads to their origin country being deprived
of a large amount of money that was initially meant to be collected for its development. Since such
practices are becoming increasingly more common, this issue has become a crucial problem
requiring solutions.

DEFINITION OF KEY TERMS

Legal entity
Someone or something recognized as capable to participate in the legal system the
same way a human being can (i.e., capable to take part in contracts, attend court, own
property etc.)

Taxpayer
An entity that is obliged to pay taxes of a specific area/state.

Monetary exchange
Any exchange of money between two entities such as an earned income, a sale
transaction etc.
Tax haven
A country or a certain area of it where taxes are imposed at a low rate.

OECD
The OECD stands for the Organization for Economic Cooperation and Development.

MNE
An MNE is a Multinational Enterprise.

BEPS
The BEPS stands for Base Erosion and Profit Shifting.

CURRENT OVERVIEW AND HISTORY OF THE TOPIC

Early History of Recognizing Tax Havens

In 1994, James Hines published the Hines-Rice paper – this was one of the first
documents addressing tax havens. Hines’s work became the most cited document published
on tax havens, and Hines became the most recognized author publishing about tax havens
even until this day.

In 1998, OECD formed a definition for areas with low or no taxes. However, it does
not include its members, thus only Trinidad and Tobago became recognized as a potential
threat for collecting taxes. The OECD also published their ‘Harmful Tax Competition: An
Emerging Global Issue’, in which they discuss the potential harm such areas of low tax rates
can cause to other countries – the importance of these events lies in the recognition tax
havens began getting. They started becoming perceived as a threat to the economies of
countries with a higher tax rate.

Dhammika Dharmapala published a document in December 2008 titled ‘What

problems and opportunities are created by tax havens?’. Via this document, both the positive
and negative aspects of these areas became recognized, showing that tax havens are not
necessarily only a threat to our society and also yield much benefit.

Recent Actions of Involved Organizations and their Contributions

In October 2009, the Financial Secrecy Index was introduced so that countries that are
members of the OECD, yet have a significantly lower tax rate, also become recognized as tax
havens.
Currently (2021), the Organization for Economic Cooperation and Development is
putting faith into the BEPS plan, which consists of 15 different areas that must be solved in
order to successfully tackle tax issues. The OECD is furthermore working on transferring
over one hundred billion dollars from well-profitable companies back into the origin
countries due to tax avoidance, subsequently using this money for a country’s development
instead of an association’s profit.

MAJOR PARTIES AND THEIR VIEWS

OECD
The OECD sees the topic of tax avoidance as a crucially important problem to solve
and is also helping with it. The organization has agreed to reallocate around 125 billion
dollars from the world’s 100 most profiting companies into countries (this will take place
from 2023 on). The OECD claims that this should ensure that the most successful
Multinational Enterprises do not deprive their countries of such large amounts of finances by
using tax havens.

BEPS
OECD and G20 are both supporting the BEPS package, which is formed to provide
15 actions that will help different governments of different countries to combat tax
avoidance. These actions involve, for example, prevention of tax treaty abuse,
country-by-country reporting and others.

European Union
The EU, being one of the most heavily affected areas by ineffective tax collection, has
decided to implement OECD and G20’s plan. “The OECD/G20 Inclusive Framework
agreement on corporate taxation reform offers a unique opportunity to reduce inequality in
our economies and societies. With this proposal, the EU will implement the global 15%
minimum tax rate for the largest companies.” (More detailed information here:
https://ec.europa.eu/commission/presscorner/detail/en/IP_21_7028).

Ireland
Ireland is ranked as the third most profiting tax haven in Europe, mainly due to its
International Financial Services Centre located in Dublin – “a financial center that has
served as a deregulated haven to both individuals and businesses. Foreign investment into the
International Financial Services Centre weighed in at $2.7 trillion in 2014”. Yet, in contrast
to the profit Ireland is making by being a haven, the country has agreed to join the OECD
agreement in 2021.

Estonia
Estonia, like Ireland, has also signed the OECD’s plan on a new “tax framework to
address the tax challenges of digitalisation” in the year 2021.

TIMELINE OF KEY EVENTS

● 1994 - James Hines publishes the Hines-Rice paper

● 1998 - OECD establishes a concrete definition for tax havens, yet recognizes only
countries which aren’t a part of OECD (Trinidad and Tobago); OECD publishes
"Harmful Tax Competition: An Emerging Global Issue" (their threat is officially
recognized)
● December 2008 - Dhammika Dharmapala publishes a document titled “What
problems and opportunities are created by tax havens?”
● October 2009 - Tax Justice Network introduces the Financial Secrecy Index
● 2015 - The launch of the BEPS project – the organizations begin combating the first
necessary area, Tax challenges arising from digitalization
 ● 2021 - OECD implements a new regulation for MNEs: reallocating circa 125 billion
dollars from the 100 most profiting companies in the world into countries (will take
place in 2023)

QUESTION A RESOLUTION SHOULD ANSWER

In what measures should the different ways of taxing legal entities be adjusted in order to
lower committed tax avoidances?

How should we deal with the lack of money in countries caused by rich legal entities
avoiding taxes in their home country?
What should be done regarding tax havens?

Should each country or a smaller region settle its own problems regarding tax avoidances and
havens or should the UN establish a worldwide regulation?

APPENDIX

A video explaining both taxes and tax havens:

https://www.youtube.com/watch?v=JRlndgfIpb4

UN handbook addressing this dispute:

https://www.un.org/development/desa/financing/sites/www.un.org.development.desa.financin
g/files/2021-10/Dispute%20Avoidance%20and%20Resolution%20English.pdf

Websites that could help you with the understanding of the topic:
https://en.wikipedia.org/wiki/Tax_haven
https://www.historyandpolicy.org/policy-papers/papers/history-of-tax-havens

An article suggesting different ways countries could put an end to tax avoidance:
https://d1tn3vj7xz9fdh.cloudfront.net/s3fs-public/bn-stopping-the-scandals-government-reco
mmendations-081117-en.pdf
https://www.oecd.org/tax/beps/beps-actions/
The European Commission’s “Questions and Answers on a Fair and Efficient Tax System in
the EU for the Digital Single Market”:
https://ec.europa.eu/commission/presscorner/detail/sv/MEMO_18_2141
BIBLIOGRAPHY
Wikipedia. “Tax Haven – Wikipedia”. wikipedia.com, 2022,
https://en.wikipedia.org/wiki/Tax_haven.

TLDR news. “Tax Havens Explained”. youtube.com, 2018,

https://www.youtube.com/watch?v=JRlndgfIpb4

United Nations. “Handbook on the Avoidance and Resolution of Tax Disputes”. un.org,
2021,https://www.un.org/development/desa/financing/sites/www.un.org.development.desa.fin
ancing/files/2021-10/Dispute%20Avoidance%20and%20Resolution%20English.pdf.

OXFAM. “Stopping the scandals | five ways governments can end tax avoidance”. oxfam.org,
2017,https://d1tn3vj7xz9fdh.cloudfront.net/s3fs-public/bn-stopping-the-scandals-government-
recommendations-081117-en.pdf

Palan Robert. “History of tax havens”. historyandpolicy.org, 2009,

https://www.historyandpolicy.org/policy-papers/papers/history-of-tax-havens

OECD. “International community strikes a ground-breaking tax deal for the digital age”.
Oecd.org, 2021,
https://www.oecd.org/tax/international-community-strikes-a-ground-breaking-tax-deal-for-th
e-digital-age.htm

European Commission. “Fair Taxation: Commission proposes swift transposition of the

international agreement on minimum taxation of multinationals”. ec.europa.eu, 2021,
https://ec.europa.eu/commission/presscorner/detail/en/IP_21_7028

Parietti Melissa. “The top 10 European tax havens”. Investopedia.com, 30 April 2021,
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