The effects of international tax competition on tax systems and the efforts towards overcoming these effects

Through globalization, production factors have grown in an unprecedented rate, as a result of this, countries' tax bases have been more liquid. Using of tax policies by countries to attract foreign investment has caused to came about the ideology of tax competition. Focus of this study is to identify the negative attributes of international tax competition between countries and to propose solution to eliminate harmful tax competition practices. To achieve this objective firstly; capital taxation has been studied with respect to source and resident principles, secondly the tax heavens and preferential tax regimes practices that ultimately lead to harmful tax competition. Thirdly the tax scheme "race to the bottom", i.e. foundation of tax competition has been put to the test through studying the end result of variation in the taxation percentages. Finally the study is focused on preventive measures that would eliminate the unjust tax competition by pointing out the harmful effect of the taxation. Through this study it can be concluded that these unfair tax competitions have caused considerable drop in tax revenues such as personal income tax and corporate income tax rates. Furthermore revenue deficit that is caused by the lack of tax capital is now being made up by taxing immobile labor and consumption. Study also points out that the tax heavens that are utilized by multinational corporations have given rise to revenue loses through tax avoidance and dodging. In short, it can be concluded that internatioanl tax competition practices in its extreme form do harm world economy and must be eradicated by the help of the international establishments. VIII