Corporate tax laws should adapt to the globalization

Twentieth century corporate tax rules should adapt to the new global economy. If current tax rules continue, Governments will slowly run out of tax revenues.

Current rules dictate that companies have to pay corporate taxes to every country they operate in. If a British company makes profit of 'x' dollars in China, it has to pay a percentage of 'x' as corporate tax to Chinese Govt.

Internet and other forms of communication make this world flat. Companies can route transactions through a country which has least corporate taxes and pay corporate taxes to that country. Many companies are exploiting this flaw by routing some transactions through Ireland, which has least corporate taxes in the whole world. They pay 15% tax rate to Ireland for profits made all over the world.

Bermuda has zero tax on profits made from intellectual property sales. Many global corporations open a Bermuda branch and direct all IP revenues to that branch. Even worse, recently a US pharmaceutical company was accused of paying IP royalties to it's own branch in Bermuda and writing off the expenses in US.

American companies have to pay corporate tax of 35% to US Govt on revenues they make all over the world. They get to write off the taxes they pay to the other countries. For example, if a US company makes profit of $100 million in China where corporate taxes are 20%, they pay 20 million as tax to china and pay remaining 15 million to US. (They get to write off 20% they paid to Chinese Govt). But, as usual, there are loopholes. If a US company has a foreign subsidiary, the company can postpone paying corporate taxes until US subsidiary pays the money to the parent company.

Companies shift "mobile" revenues to countries with least corporate taxes. Governments should adapt tax rules to this new global economy. Otherwise the local companies which play by rules will be forced out of business.