Effects of the Differences in Tax Systems

Of late, differences in the assess systems between countries deplete been a subject of arguing and bugger off occupied center stage in most forums. Due to this, we shall now focus on the various cause that have been gene prised by these differences. Notably, the turn out depart focus on japan whose corporeal levy revenueation rate is the second highest in the world. Disparities in the levyation systems between countries give the multinational companies an luck to interfere with their transfer prices.For instance, a business bit in Japan may chose to understate his sales revenue which is originating from an affiliate in a kickoff taxation state of matter while at the selfsame(prenominal) time overstate his purchases from the low tax country (Carroll, 20050). By so doing, the businessman allow for have shifted most of his reported profits to the low tax countries which will further translate into a simplification of the tax liability or will have participated in ta x turning a elbow room.Also, the disparities in the tax systems across countries encourage more or less multinational companies to report disproportional profits to the low tax countries. In filiation with this, reports have shown that over 70% of countries with non U. S profits earned by U. S multinational firms atomic number 18 usually taxed at an effective tax rate of below 10%. Precisely, Japan has an effective tax rate of 2. 5%. In addition the differences in the tax systems between countries give room for depravity (Carroll, 20050).This is in most cases initiated by the tax officials who normally take advantage of the tax payers who are non aware of the procedures to be followed in tax administration. The differences in tax systems have also created an avenue for tax bureaucracy. This normally arise when the disgruntled, low salaried tax officials play a role in protect the tax evaders who in turn avail some percentage of the tax evaded to them. This was the case in J apan back in 1993 when there was the tax evasion scandal involving Kanemaru Shin.At this point, it is worth concluding with an opinion that numerous measures need to be undertaken to eliminate the negative effects of the difference in tax systems. For instance, countries should standardize the procedures which will make the tax systems to be more right-down and will enhance the integrity of the same (Carroll, 20050). Finally, the tax systems should introduce incentive reforms like the salary incentives which will definitely go a long way in eradicating the corrupt behavior of tax officials.