Global Tax Management Essay Example | Topics and Well Written Essays - 2500 words

Global Tax Management - Essay Example To absorb a reduction in the corporate tax rate, the US government will have to extend the corporate tax base and remove or scale down the corporate tax expenditures: accelerated depreciation, domestic manufacturing production deduction, and the research and development tax credit, that reduce capital costs, increase new investments, and encourage job creation. This will result in an increase on the cost of new investments and reduced wages and productivity. Therefore, America should not increase the corporate tax rate and should retain the territorial system, but also combine it with worldwide territory to ensure the government does not lose revenue. The biggest factor that determines Foreign Direct Investment in the country is GDP, a study of 46 countries established that there is a direct correlation between corporate tax rates and foreign direct investment. Countries with low corporate taxes attract more foreign investments compared to countries with higher rates. To increase profits, Multinational Enterprises (MNEs) invest in countries with favorable economic conditions and tax rates. Empirical evidence for Organization for Economic Co-operation and Development (OECD) countries shows the negative FDI inflows and increased taxation. There is increased lobbying for the Internal Revenue Code to be revised, for simplification of corporate and personal taxes. Globally there has been a shift towards the flat tax regime, where citizens and business are charged at a harmonized tax rate, with everybody paying an equal amount. Advocates of the flat system argue that there are many benefits that accrue from using this system, the system itself is very simple, with easy to comprehend tax codes, both the taxation authority and the taxpayer benefit. Governments primarily adopt the system, as an enticement to attract companies and the general citizenry to paying taxes. Because everyone will be paying