Emerging Tax Issues: Implications of Globalization and Technology

Publication | May 2003

In recent years many tax administrators have begun to fear that the twin phenomena of globalization and technological advancement are eroding tax bases. This concern merits serious consideration because taxes are the principal source of revenue that governments use to finance public expenditures that promote economic growth, stability and equitable income distribution. Although a government may borrow to finance expenditures that exceed present revenues, in the long term, public borrowing is repaid through future tax revenue.

Therefore, it is crucial for governments to cope with these new tax revenue challenges effectively. By diminishing the importance of national borders, globalization has created new multinational, tax-jurisdictional gray areas that make it easier for taxpayers to avoid or evade taxes. Concurrently, new technological advances are making it easier for multinational corporations to manipulate national tax structures to corporate advantage. Many developed countries have adopted tax reforms in the past few decades to counter these very problems.

In order for developing countries to rise to these same challenges, it is important to learn from the example of developed nations and to assess the effect of globalization and technology on their own unique tax programs. This brief reviews taxation practices in developed and developing countries and then provides tax authorities of developing countries some guidelines for coping with globalization and technological advancements.

Contents 

  • Introduction
  • Key Issues
  • Taxation Trends in the European Union
  • Transfer Pricing
  • Value-Added Tax
  • Good Governance and Anticorruption
  • Conclusion
  • Selected References