If for example, an MNC gets revenue from a client who is a citizen of a particular country, does that mean the MNC have to pay tax on that share of income to that particular country? Or can an MNC pick and choose which country they have operations in to pay taxes to?
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It is extremely complicated and prone to abuse. The top-level company pays taxes where its headquarters is located, so of course thr multinational locates the headquarters in a low-tax country.
Subsidiaries in other countries are supposed to act as separate companies, paying local taxes on their profits. So for example a parts factory in country A sells its parts to an assembly factory in country B and pay taxes on its profits. But by selling those parts at a super high or super low price, the multinational can make sure its profits are zero in whichever country has the highest tax rate.
And if that’s not enough, they can have their subsidiaries in low-tax countries sell empty fake “services” to subsidiaries in high-tax countries to make sure they don’t make any profit on the balance sheet.
This article summarizes some of the shenanigans.
https://www.piie.com/research/piie-charts/some-ways-multinational-companies-reduce-their-tax-bills
There’s a movement to set a global minimum tax rate, but since countries that refuse to go along can earn a fortune as tax havens, making it work is a problem.
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