Tax Avoidance by Multinational Companies: Methods, Policies, and Ethics

Taxes vary significantly across nations. Multinationals consequently try to show less taxable income in high-tax jurisdictions and vice versa. The article gives examples of several techniques used to avoid taxes: (i) deferral of double-tax liability, (ii) manipulating invoices in inter-affiliate trade transactions or supply chains, (iii) shifting IP to affiliates or shell companies in low-tax nations or tax-havens which then charge royalties to other international affiliates, (iv) intra-corporate loans, (v) allocation of central overheads to foreign affiliates, and (vi) relocating the entire company to another country. Ethics are discussed from the perspectives of shareholder interests and local governments.