Social Justice in the 21st Century: A Study of MNEs Tax Avoidance and Government Policies

Friday, 3 July 2015: 4:00 PM-5:30 PM
CLM.B.05 (Clement House)
Mahtab Akhavan Farshchi, London South Bank University, London, United Kingdom
Herman Belgraver, The Queen's University Management School, Belfast, Northern Ireland
This paper will examine the changes in government policies across the world in the past few decades with
a view to show the tendencies of the national governments to create favourable environments to attract
foreign direct investment. The general belief has been that the positive spillovers from MNEs justify the
negative impacts such as crowding out and disadvantaging indigenous firms. Following a review of the
policy changes particularly those relating to corporation tax we offer the arguments for and against
inward investment by MNEs. Using the case studies of two countries (United Kingdom and The
Netherlands) we review the governments industrial and taxation policies and examine the way such
policies have impacted on the presence of the MNEs in those markets.
We will then evaluate the presence of the MNEs in terms of timing (short-medium-long term effects),
impact on knowledge creation and innovation in the local markets and productivity. This will be done
against the effectiveness of the local policies in creating the absorptive capacity of the local economies -
policies which create the context for firms to operate within - such as education and industrial policies.
The research will examine the effectiveness of the corporate taxation as a mechanism to overcome market
failure or as a mechanism that promote market failure and would review alternative ways for more
effective distribution of wealth within and between countries. We argue that the national policies cannot
be designed in isolation and a joint effort at an international level is needed if the gap in income and
equality is to be narrowed in a meaningful manner.
The issue of tax avoidance has once again come to prominence in public debate in recent years (IMF,
2014). The change in government policies in the UK, in Europe and a host of other countries across the
world has been leaning towards lowering of corporation tax in order to attract multinationals investment
in their territories. The debate as to how this lowering of tax, or the new consciousness of the MNEs in
their tax planning as a tool for strategic management and competitiveness can shape the future of the local
economies, and whether the perceived benefits of inward FDI is still a reality that surpass the negative
impacts that such investments may have on local economies and the development and growth of local
SMEs are issues that this paper aim to cover. The methodology of this paper is mainly a desk based
review of policies and theories of taxation and inward FDI. The literature on theories of taxation in
general and corporate taxation in particular will focus on the history of corporate tax and its development,
and offers a comparison of the corporation taxation systems in Europe and the US. The paper will then reexamine
the perceived positive and negative externalities of the MNEs FDI on local economies against
actual benefits confirmed by secondary evidence.