Multinational firms can influence national regulations through the threat of relocation, as well as arbitrage tax systems by shifting income flows and intangible assets across jurisdictions. There can also be incentives for countries to use labour standards as a tool of international competition – the so-called “race to the bottom”. This makes it more difficult for countries to enforce their core values and protect their people. It also leads to corporate tax bases being eroded, which makes it harder to finance welfare [16] 3 / 10  BIS central bankers' speeches  states. [16] OECD analysis, for example, estimates global revenue losses from tax avoidance to be in the range of 4% to 10% of corporate income tax revenues. [17] These effects occur when countries are not large enough to exercise regulatory power against mobile capital or cross-border firms. But it is harder for this to happen at the level of the EU, since it represents a market that companies can ill afford to leave. Having regulatory power at the EU level enables EU countries to exercise sovereignty in the areas of taxation, consumer protection and labour standards. First, the EU gives its members the capacity to prevent multinationals from avoiding corporation tax by exploiting loopholes or extracting subsidies. This is a complex area, but some recent progress has been made on this front. New European rules have entered into force this year to eliminate the most common corporate tax avoidance practices.
10 / 10  BIS central bankers' speeches