INTERNATIONAL POLICY ANALYSIS Tax Havens and the Taxation of Transnational Corporations MARKUS HENN June 2013 n Tax avoidance and tax evasion by transnational companies and the role played by tax havens have recently received much media attention, when it transpired that promi­nent companies such as Starbucks and Apple pay virtually no income taxes on their massive international profits. The case of the world’s largest commodity trader, Glen ­core, demonstrates that tax evasion by multinationals also affects developing coun ­tries. Tax issues and the detrimental role played by tax havens are now firmly on the international policy agenda, for example at the G20. n Transnational companies employ a number of techniques to benefit from the cross­country nature of their transactions, as well as from loopholes and contradictions in the tax legislation of countries involved to evade and avoid taxes. The paper dis­cusses the role of tax havens and preferential tax schemes, the abuse of intra-firm transfer pricing, and describes how different treatment of companies in different countries can result in»double non-taxation«. n Various approaches to deal with these challenges exist, but have to be improved and strengthened. This goes for transfer pricing rules, transparency requirements(such as country-by-country reporting, centralised registers providing»beneficial owner­ship« information), and deductibility restrictions; anti-avoidance measures such as blacklists, the elimination of the abuse of double taxation agreements(e. g.»treaty shopping«); or the wider use of withholding taxes, especially in the case of develop­ing countries. Given the tremendous shortcomings of the current transfer pricing system, a system change in the form of»unitary taxation« needs to be further thought through and tested.