Harmful Tax Competition

Harmful Tax Competition

An Emerging Global Issue You do not have access to this content

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19 May 1998
9789264162945 (PDF) ;9789264160903(print)

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Globalisation has had positive effects on the development of tax systems and has encouraged countries to engage in base broadening and rate reducing tax reforms. However, it has also created an environment in which tax havens thrive and in which governments may be induced to adopt harmful preferential tax regimes to attract mobile activities. Tax competition in the form of harmful tax practices can distort trade and investment patterns, erode national tax bases and shift part of the tax burden onto less mobile tax bases, such as labor and consumption, thus adversely affecting employment and undermining the fairness of tax structures.

The Report emphasises that governments must intensify their cooperative actions to curb harmful tax practices. To achieve this, OECD Member governments have developed "Guidelines on Harmful Preferential Tax Regimes". These Guidelines will discourage the spread of harmful preferential tax regimes and encourage countries with such regimes to eliminate them. To counteract both tax havens and harmful preferential tax regimes, Member governments have also agreed to pursue vigorously the implementation of the other Recommendations in the Report, including entering into a dialogue with non-member countries.

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Table of Contents

Chapter 1. Tax Competition: A Global Phenomenon
Chapter 2. Factors to Identify Tax Havens and Harmful Preferential Tax Regimes
I. Introduction
-II. Tax Havens
-III. Harmful Preferential Tax Regimes in OECD Member and Non-Member Countries
Chapter 3. Counteracting Harmful Tax Competition
I. Introduction
-II. Recommendations Concerning Domestic Legislation and Practices
-III. Recommendations Concerning Tax Treaties
-IV. Recommendations to Intensify International Cooperation in Response to Harmful Tax Competition
-V. Topics for Further Study
--a) Restriction of Deduction for Payments to Tax Haven Entities
--b)Imposition of Withholding Taxes on Certain Payments to Residents of Countries that Engage in Harmful Tax Competition
--c) Residence Rules
--d) Application of Transfer Pricing Rules and Guidelines
--e) Thin Capitalisation
--f) Financial Innovation
--g) Non-Tax Measures
Annex I. Recommendation of the Council on Counteracting Harmful Tax Competition
Annex II. Statements by Luxembourg and Switzerland
Annex III. Relevant OECD Reports and Guidelines

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