Band 8 model answer

The question of where multinational corporations should pay tax has become a defining issue of international economic policy. I strongly agree that such companies should be taxed in every country where they conduct meaningful operations, rather than exclusively in their nominal country of registration.

The core justification is one of fairness. Multinationals profit from the infrastructure, educated workforce, legal systems, and consumer markets of every country in which they operate. It is therefore ethically inconsistent for them to channel profits through low-tax jurisdictions while drawing extensively on public goods funded by ordinary taxpayers in higher-tax states. When a technology firm earns billions in revenues from European consumers but reports negligible taxable income there, the public services those consumers depend on are effectively subsidised by smaller, less mobile businesses and individuals.

From an economic standpoint, profit-shifting distorts competition. Domestic companies that cannot exploit international tax structures face a structural disadvantage relative to their multinational counterparts, undermining the level playing field that market efficiency requires. The OECD's work on base erosion and profit shifting acknowledges this problem explicitly, and the organisation's proposals for a global minimum corporate tax rate represent a meaningful step towards reform.

Opponents argue that imposing taxes in multiple jurisdictions creates administrative complexity and may deter foreign direct investment. These are real practical concerns, but they can be addressed through coherent international agreements rather than used as grounds for abandoning the principle of equitable taxation altogether.

In sum, the status quo, which allows corporations to exploit mismatches between national tax systems, is neither fair nor economically rational. Robust multilateral frameworks requiring tax contributions commensurate with economic activity in each country are both justified and achievable.