Accounting

There are many problems of globalization one of them being the interaction between the different systems of taxation with the economies of the world. Economic Co-operation institute and development organization has started various projects which takes into account the partnership of international tax to give a forum aimed at the exchange of information and deliberate on policies of tax among the member states as well as the no-members. A member like the United States is involved in the projects by the organization. This is a very important step by the US because it is the universal superpower that is remaining. Therefore, its role is very crucial.

Globalization in modern world systems is taking a centre stage and a significant role in the economy. The process is becoming rampant and unstoppable. Globalization helps expand our views about the rest of the world through international agreements in trade. Globalization is very important as it encourages free trading. Moreover, it helps in the elimination of things like tariffs creation of free zones of trade with little tariffs or absolutely no tariff. Reduced cost of shipping and controls of capital are also evident in a globalised economy. These help in boosting the economy of the people and their nations at large.  There are many factors that promote globalization process. Among those factors facilitating the process of globalization is the international system of taxation. This is because globalization leads to the elimination of some barriers in economy and finance. As a result of this, tax differentials that exist between countries and states become major concerns. Globalization therefore can be hampered by the differentials of tax. This is because trading and investment across borders can indeed be affected depending on the system of taxation employed.

Therefore, tax competition needs to be reasonable, transparent as well as instituted in a manner that every country gives aid to countries in the process of putting in force their regulations and rules of taxation.  The most important aspect here pertinent to taxation is the idea that the payers of tax are in a position to trade and invest across borders while receiving good benefits in tax. There are two taxation systems which can be instituted here the worldwide system and the territorial system of taxation. A worldwide taxation system is one that has policies that cut across all countries in the entire world. The territorial system policies of taxation are limited to a particular territory such as a country, province or state. The following paper promotes the benefits of a territorial taxation system with moderate anti-abuse rule over the worldwide system of taxation in a globalised economy.

International commerce
There is no actual agreement concerning the correct division of tax base in the global set up. Moreover, there is no a guaranteed principle of exercising fairness that can be applied to bring a justification of a specific pattern of revenue distribution. The present system of division has come to existence accidentally along the process of eliminating a double taxation. The current system of taxation is majorly a result of the several double systems of taxation accords that were acquired over duration of about sixty years ago.  The worldwide system of taxation was designed by the huge capital-exporting nations and in current world systems, the system has been found to execute unequal operations. The worldwide system operates to the injustice of countries that are principally capital importers. The US utilizes both systems of taxation. In 2003, the revenue collected by the US formed 43.3 from corporate and personal income taxes.  The rest of the G-7 nations got 30.5  from the same. Revenue earned in the US from services and goods was only 18.2 of the total revenue from the rest of the taxes. The figures seemed to be very marginal compared to those of other countries in the G-7 who collected 26. The incorporation of the global system of taxation seemed to work to their disadvantage and that is why the US went ahead to oppose it.

Most of the capital-importing nations apparently are the developing countries. The introduction of a territorial system aims at effecting redistribution to the advantage of the developing countries. This was in the effort of creating a balance which is desirable in promoting a kind of vertical equity in all the countries. The worldwide system allocates cross-border revenue taxation taking into consideration the taxpayers origin as well as the income source leading to double taxation. The rules of governance are found in the domestic laws of tax as well as in bilateral treaties of tax.

The modern regime of tax allocation through the worldwide system is not put on a real unanimous agreement of all nations and therefore it cannot be made reasonable through any guaranteed principle of equality. The process however is in favor of the nations and countries that export capital. The capital-exporting countries are the ones that came up with the system and its rules which apparently favor them. Redistribution is therefore necessary through a territorial system to favor the developing countries. This will be very crucial in promoting the equity between nations. This will be achieved only through reasonable tax base allocation. The US council on matters of global business in 2004 was of the view that the worldwide system of taxation was not promoting fairness in the world trade. This forced some of the US companies to extend criminal acts of bribery to evade the foreign tax.

Worldwide revenue sharing in the sense of foreign investment taxation is an issue of exercising equity amongst the nations of the world. However, this issue has very little to do with the private sector. The greater concern is for the nations in particular that are involved. It equity between nations is realized in the equal sharing of the tax revenue amongst the nations. This in other words can be referred to as intra-nation equity. This again could be termed as the distribution of the competence in relation to tax amongst the nations. The territorial system promotes inter-persons equity. This is simply the sharing of the burden of tax by all the tax payers in a particular state or nation. The tax payers are directly involved in the inter-individual equity and the global neutrality but not necessarily by the inter-countrynationstate equity (Niles, 2004). The debate carried on between the US department and the Economic Corporation where the US is a member state highlighted the importance of having territorial system because the worldwide system was making the process of international trading complicated and difficult. The benefits of adopting a pure system of territorial system of taxation were purported in the discussion as a reasonable idea.

The territorial system is very useful as it helps in eliminating the barrier of inequities. The process allows close monitoring of the events involved in the taxation process. Unlike in a worldwide system which has a compromise of culture which may favor the nation depending on the occasion, the territorial system has uniform practice in culture and modes of practice. The United States for instance makes use one of the systems of tax based on the territory. This makes the companies in the United States to be able to defer the imposed tax gain from foreign profits for an indefinite time. In this light therefore, globalization through international commerce should not take the advantage developing countries by incorporating a plan that they cannot come by through the worldwide taxation system.

Anti-abuse rules
The system of taxation should be based upon the unanimous agreement of all parties involved in the international transactions promoting fairs to all, the income importing and the income exporting countries alike through better redistribution of revenue.

Standards and principles of neutrality shall not be fulfilled using a single set of rules of tax because either system credit or exemption, violates not less than one neutrality principles. The process therefore shall incorporate laws from both countries.

Foreign direct investment (FDI)
Foreign direct investment is the participation of a certain nation into another in a long period of time in matters of technology transfer, management practices, joint ventures just to mention just but a few. Foreign direct investment is a source of income to the people participating in the transfer of technology and other valuable practice such as management procedures.  Like in other methods through which globalization take place, the international systems of taxation also play a very significant role in the process of investing directly in a foreign country. Countries may experience what is known as global tax neutrality (stability) towards investment. This is a point where the taxation pattern does not disrupt the choice of the taxpayer in matters concerning home and foreign investment.  This is called for the reasons of global efficiency in the allocation of resources.

The economic growth of a country is greatly influenced by the globalization process through FDI. The competition in foreign direct investment is usually high. This is wholly depended on the taxation system of the destination country compared to the system employed in the mother country of investors. Utilizing a worldwide taxation system, the struggle for FDI is not effectively achieved because of a long process of trying to reach compromise by the members of the global system. This is unlike in a territorial taxation system which could easily give incentives to the country that wants to participate in delivering services to the client. The burden imposed through a global taxation system in FDI is much more compared to that which is negotiated on a territorial basis.

Inter-state equity between the host and home countries in matters of an equal share of both national loss and profit is provided in the territorial taxation system. The income of the tax payer which is gotten from international investment is inclusive as the countrys national revenue since the home nation has a preliminary interest in each and every taxpayer of their incomes and capital. The income tax which is therefore imposed by the host company consequently leads to loss to the home nation. The method used in preventing double system of taxation is the determining factor of whether a nation experiences treasury loss or revenue loss. When the home nation utilizes the method of exemption or method of credit, the tax of the host country diminishes the treasury of the home nation. This consequently leads to national loss to the home country. This home loss is a gain to the host nation because of this poor method of taxation employed.

The worldwide taxations system may prevent FDI and the entire process of globalization because of the complicated structure. The problem here will be that, the investors will shy away from being taxed both in their domestic country and the international country. Where competition in tax imposition is evident as far as FDI is concerned, a territorial system will be the best. This is because it is easy to adjust in the territorial system than in the worldwide system. In the United States, the worldwide system of taxation has made it hard to practice competition in matters of FDI. The global system gives little room for that and therefore it may be also difficult for an investor to go for an offer in the US.

The varied policies require different respective methods of restructuring in business where multinational management is needed. This takes into consideration the policies of taxation to be adopted at a particular time and their respective consequence on the business activities. Therefore, this will be a major setback in matters concerning personal taxes. This is because the nationals from many origins will be entitled to tax impositions in their mother countries. The territorial taxation process with moderate anti abuse rules is flexible in various occasions involving FDI.

When the countrys tax domestically is relatively high compared to other nations, the base of tax will be seen to shift to those countries experiencing fewer burdens in tax. This means that there will be outflows of FDI. However, through territorial taxation system, given countries could be seen to lower the rates of taxes to encourage investment inwardly.  The companies therefore involved in FDI will enjoy huge profits as a result. In making cross border transactions, multinationals face a lot of challenges where a worldwide taxation system is applicable. However, foreign direct investment shall be applicable within international business laws where the investor shall not be seen to benefit at the expense of the country in which they are working for.

Anti-abuse rules
The international tax agreement shall promote fair sharing of revenues of tax made available in the transactional business activities by both foreign and domestic taxpayers

The income of a nation countrystate shall be defined based on economic activities which would determine the entitlement of tax.

National Sovereignty
Many countries will be found to retain a level of sovereignty over the treatment of tax concerning their activities which generate income from abroad by their subjects. The country should develop the principles of supporting the residence tax entitlements of the country. One of the principles expected here is about paying allegiance to the economy. By this, the residents are expected to owe loyalty in exchange for the privileges and rights that they get as residents to that particular country. Moreover, there is the principle of being able to pay the tax sovereignty exercise over the foreign income source is very crucial to attain an equitable treatment of tax of the taxpayers who are residents by ensuring all income regardless of where earned subject to taxation consistent with the principle of accretion.

Another principle is that of benefit which the payment for productivity enabling benefits offered by the residence country to its production factors before the transfer to overseas as well as for the privileges and rights afforded the company corporation by its registration country. The interest of the entire nation is may be very useful in the determination of if capital outflow should be allowed or not. Most importantly, tax entitlement of the residence country is just residual. All the same, as a residual authority of taxing the country of residence has control concerning the absolute burden of tax of the foreign income source of its taxpayers who are residents. A system of exemption will leave the international income solely taxed by the country of source.

The credit system on the other hand will lead to tax payable to the country of residence only when the foreign tax imposition is lower. The source countries therefore are entitled to both revenue from income tax of gains within the borders as well as that from the foreign investment. This is referred to as the bedrock of the main global tax treaties. A nation is allowed share the foreign-owned production factors profits or gains which operate in its land, profits from cooperation together with the countrys inputs. These include natural resources, market proximity or workforce of whatever nature. In Inter-statenationcountry equity, the entitlement of source as well as the entitlement of residence has an equal footing. In the US which uses the global taxation system, the case for tax imposition is already predetermined and cannot go beyond certain levels. This shows how the rights of a particular nation could be infringed by the worldwide taxation system. In the process of taxation, certain rule must be geared towards avoiding harmful practices.  The nations and states making use of the territorial method of taxation shall therefore ensure transparency on matters pertinent to transactions in finance occurring in them.

Revenues of a state making use of the worldwide system of taxation may seem to be low compared to those making use of the territorial system. The harmonization process of the policies of taxation in a worldwide system may be difficult because of lack of the global cooperation. The competition of tax is intensifying and therefore the territorial system is playing a significant role in removing trade barriers and mobility of capital in both the domestic and international economy. The worldwide taxation system is found to endanger the revenues from tax by individual countries. Moreover, the process of harmonizing the taxation system to become a global one compromises the sovereignty of a nation concerning policies of tax.

For instance, the coming together of the Asian countries in south east through ASEAN came out very speedy in trade. The major idea behind the formation of ASEAN was to promote FDI from regions outside and also maintain a very healthy autonomy on matters of social, economic as well as policies of taxation. However, with the adoption of the Free Trade Area of ASEAN, there was a doubt that such patterns of competition in tax and harmonization would be evident in the future.

Worldwide taxation system has come up as a field of competitive play in which nations could lose or win investment and trade. It all depends on chances because of the competitive nature of the scenario created. This is not a new thing but rather a thing of the past. The stock proprietor is indeed a citizen of the world. It is not a must for them to be attached to a particular state or country. The territorial system in a globalizing economy can allow the proprietor to move his or her stock to a place where the taxation procedures are favorable to them. This cannot be achieved in a worldwide system and therefore interferes with national sovereignty.

The worldwide system of taxation will always tend to remove stock away from a specific country and in the end dry up the revenue sources of the nation and the entire society. This is because profits, rent for the land and labor wages will be driven away. This is all because of a poor taxation system which does not favor the globalization process. The taxation system therefore should be in support of the national sovereignty.  With globalization and technology advancement, one of the several manifestations is competition in tax.

Because of this increased competition to attract a capital mobility base, the rates of taxation rates would need to be reduced. The competition in tax can really be found in places where taxes can be reduced through shifting the capital from high jurisdictions of tax to low ones. A lot of resources are spent on techniques of tax-planning. It gives them hard time in minimizing the liabilities of tax. This is unlike in a territorial system which does not incorporate such long procedures of taxation.
Anti-abuse rules

All tax treaty rules shall be developed by countries of status, the income importing and income exporting alike.

As it pertains to treaty rules, business income as well as income gotten from real estate with an overwhelming tax entitlement on the source nation shall require that there be exclusive imposition of tax of such an income from the source statenationcountry.

All conflicts in inter-nationstatecountry tax shall be resolved by worldwide corporation as opposed to competition of tax where the inter-state equity would be the share of the source of country in international gain arising from within it.

Conclusion
The process of economic integration and general globalization has been for years now very crucial both in the development of individuals and the entire nation. Economic integration encourages free trade and the liberty to invest in any country of choice. This has led to raised standards of living through increased methods of getting income. Globalization offers an opportunity where there are no enough areas to invest in a particular countrys economy. Through globalization, countries have been able to trade internationally and promote the living standards of its people.

The globalization process also has been helpful to individuals who have the resources to invest in places outside their own country. It does not just come easy. The process of globalization has been influenced by several factors. Among these is the system of taxation applicable in the transactions of business that exist amongst countries in the process of economic integration. The process of globalization as portrayed here has been influenced by two types of taxation system. The paper has highlighted the benefits of having a territorial taxation system with anti abuse rules over that with a worldwide taxation system.

The need for equity must be taken with a lot of seriousness therefore. Inter-nationstate equity when allocating a base internationally in relation to entitlements of tax of each nation as well as re-distributing the income of the country with respect to justice in distribution must be dealt with seriously in the reforms concerning international tax because it offers a crucial and may be a major framework of policy than the neutralities principle to direct further reforms and also that the inequities in the worldwide system are very hard to justify leave alone achieve in the process of globalization. Equity of inter - nation offers a reasonable goal in reforms which help in reducing such like inequities.