The multinational corporation of the future may have offices in several countries, including Britain, with a main e-mail address on a host computer in Malaysia, transacting electronically with every continent. Goods may be held all over the world.
Which country's tax regime will apply? How can governments prevent transactions being nominally conducted from the country with the lowest, or zero-rated, corporation tax?
Individuals, too, will work transnationally. A flexible labour market has been recognised as a reality by governments. Workers operate a portfolio of jobs. Trade unions say this undermines job security. It also creates an opportunity for higher-paid workers to avoid tax altogether. Workers of the future will work even more at the computer terminal, they may work in different countries from their employers. Whether on staff or self-employed, the prospects for tax avoidance are increased. Individuals may find themselves working for different employers each day, with each employer based, for tax reasons at least, in a different country. In each of those countries the employee may be below the taxable income threshold, and so be able to avoid tax in each. Taxation authorities may find it impossible to check real earnings of self-employed people, with clients based in many countries. Tax evasion is most commonly detected not from employers' records, but by observing the spending patterns of illicit high earners. What has been spent must, presumably, have been earned. The ability of the Inland Revenue to detect untaxed income will be undermined when most products can be purchased internationally, online, away from the prying eyes of tax inspectors. Another problem for governments is how to control transactions that eschew hard currency. Local exchange and trading schemes have been established in Australia, Canada and Britain, and similar schemes exist in the US, but one of the factors holding them back has been that they typically operate from out-of-date, hard copy directories. Using electronic information could help the exchange of redundant equipment and help people to trade services. But a system of barter would be difficult to police. While it may theoretically lead to a tax liability, participants may choose not to declare barter income, in all likelihood without penalty. Furthermore, how could a tax authority determine the real value of a simple exchange of redundant equipment? Barter between corporations is now an important factor in US commerce, mostly featuring stocks and services with little book value. …