How Complexity Is Used to Hide Ineffectiveness: Reforms That Protect Tax Avoidance

“But tax evasion, and, more broadly, tax avoidance, is not inevitable; it is the result of policy choices—or the failure to make policy choices that act to stop it.” -Joseph Stiglitz

This is the third in a series explaining the serious problem of permitted corporate tax avoidance with examples of how it is done and how Trump has ensured its continuation in the future. It all starts here.

The corporate lobby uses complexity to fool the media into believing a solution has been found when that solution merely masks the problem. There is probably no better example of this tactic than in the area of tax avoidance. It will take your patience to unravel the tangled web of deception protecting tax avoidance.

The solution to stop allowing corporations to pretend their sales are made in a tax haven instead of where they are made is quite simple. Have corporations reveal the sales they’ve made in every country. Then each country can tax sales made in their country, at its normal corporate rate.

Australia did just that in 2024. There have been attempts in America to do it but they get minimal support: Whitehouse, 2021; Sanders, 2024. Why can it be done in Australia and not in the US? There are strict campaign limits on political donations in Australia. So, their politicians can sometimes act contrary to the interests of the large corporations. That is difficult for most American politicians who are so dependent upon corporate donations on which there are no limits.

Most significantly, the Australian tax legislation makes the corporate tax information public. Investigative reporters can help to ensure it is accurate (Australian Taxation Office, Jan 27, 2025).

Trump’s ‘America Last’ Tax Reform

In 2013, the Organization for Economic Cooperation and Development (OECD) announced that it would start negotiations among nations to draft a convention to eliminate tax avoidance using tax havens.

There is no need for a tax convention because every country, just as Australia did, can pass a law that any corporation delivering product to a customer living in that country must pay tax on the income earned from the sale. Trump in his first term understood this and was quick to implement such a tax but in such a way as to benefit his high-tech donors.

In his famous Tax Cuts and Jobs Act (TCJA) of January 1, 2018, there was a highly complex provision that corporate profits from intellectual property (Global Intangible Low-Taxed Income (GILTI) earned in any foreign country would only be taxed at about 10% and not the regular corporate rate, now reduced to 21% by the Act. Corporations were still free to shift profits into tax havens like the Caymans where they would pay zero or 1% and still pay only 10% on their tax on Intellectual property income. And that is exactly what happened.

Four years after the TCJA had been in effect, tax professor Kimberly Clausing testified before the Senate Committee on the Budget. She opened her testimony with a strong condemnation of the TCJA provisions regarding tax avoidance as they encouraged not discouraged tax avoidance:

“Current US tax law provides perverse incentives to earn income offshore; indeed, I have often referred to the system as ‘America- last “‘ tax policy”.

She backed up her condemnation with evidence showing that four years after the TCJA, it did not reduce profit shifting to tax havens. Prior to the TCJA, US corporations shifted 61% profits to tax havens; after it was 56%. The information in graph format is shown below (Senate Budget Committee, Ap 18, 2023):

The OECD finalized its tax convention on tax avoidance containing a provision for a 15% global minimum tax in Oct 2021 (to take effect January 2024). Then Treasury Secretary Janet Yellen endorsed it in glowing terms:

“That global minimum tax would end the race-to-the-bottom in corporate taxation, and ensure fairness for the middle class and working people in the U.S. and around the world” (Treasury News, June 5 2021).

Upon assuming power in his second term, Trump quickly issued an executive order saying that the US withdrew from the OECD tax convention and would not be a part of any other tax convention. Only his TCJA— which Professor Clausing showed, did nothing to reduce tax avoidance— would remain.

Trump phrased his executive order widely so the US would also not cooperate with any future UN tax convention that helped the developing world. As I will explain below, the developing nations, led by Nigeria, objected to the OECD proposal as being biased towards developed nations. They asked the United Nations to develop a tax convention that would be fair to those nations.

A Tax Haven Reform That Rewards Tax Havens

It’s worth making the effort to look at the OECD reform promoted by the Biden administration. For, if as in when the Democrats come into power, the elite of that party will undoubtedly once again promote this equally completely ineffective solution.

An explanation of the 15% minimum tax will show its absurdity—it actually helps tax havens:

• A tax haven that once may have charged a low rate like 1% is now required to charge 15%.

• The tax haven gets this increased revenue not the country where the goods were actually sold.

• The 15% rate is still below most countries' tax rate. For example, Zambia’s is 30%, the US is 21%. There’s still a huge tax saving to profit shift into tax havens.

• This rate sets a low benchmark to pressure countries to reduce their own corporate tax rate to this rate.

There is a completely easy workaround to defeat the increased tax. As would be expected, Switzerland, the pioneer of tax havens, is already implementing it. It has advised corporations that if they continue to profit shift into Switzerland, Switzerland will charge 15%, but will give them relief to reduce the tax such as by research and development grants and other means (Tax Justice Network, Ap 6, 2023). All of the politicians, regulators, and economists from 130 countries that participated in devising the tax convention, didn’t think to provide a clause to prevent this obvious type of subversion.

Continuing the Colonial Exploitation of Developing Nations

As Julia McCarthy of the Brookings Institute observed in an article titled, The New Global Tax Deal Is Bad For Development , “…G-7 countries were projected to receive 60 percent of the estimated $150 billion in new tax revenue generated, despite being home to only 10 percent of the world's population.”

The African nations have understood this. Because international corporations are not paying their fair share of taxes within the developing world countries, they are forced to borrow from the IMF or other sources and are burdened with unmanageable debt and its ever-mounting interest.

Tijjani Muhammad-Bande, the Nigerian representative to the UN, commented,

“African people are tired of numbers about assistance, assistance for development. They do not request more assistance. They request every partner running a business, the physical or digital, individuals and companies making profit, should pay the right price, the fair and just percentage in terms of tax. Then we could keep our promise to transform our world, to ensure the world we want, the future we want is a reality.”

In an attempt to break the hold from the club of the rich nations over the OECD— as the developing world sees the OECD— Nigeria introduced a resolution at the UN to have the UN take charge of making the tax rules. Whether the countries in the UN can break the power of the corporate controlled OECD countries remains to be seen. Trump has already struck a blow against it.