1.1.1 Economic globalisation

During the few last decades, national economic markets have become increasingly a part of an international market. This has been stimulated by the emergence of the European Union (EU) and other regional economic free trade unions.1 Pressure to open up domestic markets has also been exerted by international organisations such as the World Trade Organisation (WTO), the World Bank and the International Monetary Fund (IMF).2 In general, politicians in most countries support the concept of free trade on an international scale and free competition between companies from any part of the world.

Indeed, today, local shops in India, Ghana, Argentina and the Netherlands evidence the fact that we live in a truly international market place: all of them stock foreign products or products produced from foreign ingredients. Not only is Nutricia baby milk powder widely available, also rice and mobile telephones move around the world, as does waste. Financial markets are also heavily interwoven, e.g. Chinese sovereign funds back the American deficit, the EURONEXT and NYSE stock exchanges have merged, and Dutch banks finance the diamond industry in Africa and are involved in Greek state bonds. The financial crisis which started in 2008 is only one of the features of international financial entanglement.

The internationalisation of markets has been supported by technical developments in transport and communication. As air transport became faster and cheaper, it has become feasible to order fruit and flowers in Africa and sell them as 'fresh' products in Europe. The rapid emergence of the online world has facilitated companies in placing orders abroad. Hence, cargo volumes travelling by air, sea, road or railways have increased exponentially. Within the same framework, outsourcing has become a trend.

International competition between private actors has also increased because of privatisation, which has proved to be a persistent phenomenon. Electricity generation and distribution in Europe, airports in Africa, State companies in China and Russia, telecom in Indonesia, prisons in the United States and corporate private security forces everywhere, all have been sold off to private parties. Companies from everywhere have stepped into areas of activities that used to be locally managed.3

Globalisation incites the drive for companies to merge with foreign companies, e.g. to get an easy introduction into a new market, or to bring the products closer to the buyers. In the last century, European banks, insurance companies and food companies acquired large retail chains in the United States (US).4 Oil and gas and mining companies such as Exxon, Rio Tinto and Chinese State companies absorbed local companies in many of the world's countries in order to get closer to their resources. Google set foot in China. Mergers and acquisitions of an international dimension also included the takeovers by the Indian companies TATA and Mittal of the European steel companies Arcelor and Corus. Investments also come from all parts of the world: Middle-Eastern sovereign wealth funds hold stakes in the German car industry and some European banks.5 On an international scale we see that mammoth conglomerates have come into existence. International merger waves alternate with periods in which forces dominate to break up companies and to sell off non-core business parts. Economists have identified five merger waves during the last century, of which the last one took place between 1995-2000. Each subsequent one appeared to lead to bigger corporate conglomerates.6

The resulting extensive international corporate networks and supply chains necessitate international tax planning. Tax specialists advise companies on how to structure their conglomerates in order to reduce their overall tax burden. This often leads to the incorporation of new corporate entities in tax free zones or low tax regions via which money flows circulate around the world. For outsiders, transnational corporate structures have become very impossible to understand.7 As companies operating internationally tend to become bigger and bigger, and to operate virtually in any country of the world, they are commonly referred to as ' multinational companies' (MNCs).

Statistics evidence that many MNCs can be ranked alongside States in the top 100 largest economies.8 These MNCs encompass large international networks with very strong economic bargaining power,9 and are consequentially capable of influencing local economies and even politics. MNCs use their economic power to sway local legislative powers (through lobbyists) and the administration, e.g. for obtaining an operational licence or agreeing on a favourable tax regime.