Globalization is widely seen as contributing to clear increases in economic growth. Yet many governments view this development as a poisoned chalice. Politicians and bureaucrats fear that eliminating exchange controls and removing barriers to capital flows will lead to extensive revenue losses from tax avoidance and evasion.
One response to these fears has been the establishment of an agency within the Organization of Economic Cooperation and Development to provide guidelines for combating international tax avoidance and evasion. The main thrust of the agency's efforts is to enhance cooperation between governments to share fiscal information in order to boost compliance on cross-border income flows.
Meanwhile, finance ministers from the European Union are threatening to impose penalties on countries that facilitate money laundering and tax evasion. They would place restrictions on financial transactions to stop companies and individuals from those countries opening bank accounts in the EU. For instance, the EU may pass a law to invoke a reporting system to support withholding taxes on cross-border interest income.
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