Saturday, February 2, 2013
This chapter examines the virtual absence in the policy debates relating to reform proposals of consideration of measures that accord importance to the development needs of poorer nations. Most tax reform options under discussion hold little promise because they seek to either tax multinationals too lightly or to ignore the burdens that rich country policies place on poor nations. Proposals to move to an exemption-type system are destined to promote investment in highly developed countries (offering the benefits of attractive infrastructure) with low tax rates (such as Ireland and more recently Canada, Japan, and other nations), foreclosing the ability of developing countries to compete. On the other hand, a U.S. move to worldwide taxation without the possibility of deferring of tax on foreign source income would shut down strategies developing countries have employed to attract investment. One promising scheme to institute worldwide formulary apportionment—by which net income of multinationals is allocated to taxing jurisdictions on the basis of selective factors—which would accord some measure of fiscal autonomy to developing nations has been largely unexplored by legislators. A second proposal, which would require high-income nations to acknowledge the roles their tax systems play in undermining the viability of developing country economies, has not been embraced by policymakers.
As a practical matter, worldwide long-term interests are served only if the potential of developing regions—both human and economic—is allowed to develop at a rate sufficient to sustain the growth of their populations. Part II of this chapter offers a critique of efficiency-based reform proposals, while Parts III and IV explore ways in which the needs of the developing world may be addressed.