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Power and Borders

Transnational corporations and economic sovereignty

  • 3 things to know
  • Component 02

Overview

Recall questions on transnational corporations and their economic power, transfer pricing and tax havens, the Irish tax ruling, the race to the bottom and the threat of relocation, export processing zones, the benefits of foreign investment, oil in the Niger Delta, how governments reassert control, taxing digital firms, and a global minimum corporation tax.

What you need to know

Answer each one before you reveal it.

Your recallNot started
Key term

Define a transnational corporation.

Key term

How does the threat of relocation give a transnational corporation power over a host government?

Key term

What is a tax haven?

Questions from this subtopic

Each one with the model answer underneath.

  1. 1

    Define a transnational corporation.

    Model answer

    A transnational corporation is a firm that owns or controls production, services or operations in more than one country, usually with headquarters in one state and subsidiaries in others.

  2. 2

    Why are the largest transnational corporations said to rival states in economic power?

    Model answer

    The annual revenue of the largest corporations exceeds the total economic output of many countries, so they bring greater financial resources to a negotiation than the government sitting opposite them.

  3. 3

    What is transfer pricing?

    Model answer

    Transfer pricing is the practice of a corporation charging its own subsidiaries artificially high or low prices for goods and services so that profit is recorded in low-tax countries.

  4. 4

    How does transfer pricing erode a state's sovereignty?

    Model answer

    It moves taxable profit out of the country where the value was created, so the government loses revenue it has little practical means of collecting and its capacity to fund and control its own policies is weakened.

  5. 5

    What is a tax haven?

    Model answer

    A tax haven is a jurisdiction with very low or zero corporate taxation and strong financial secrecy, used to reduce tax liabilities that would otherwise be paid elsewhere.

  6. 6

    Why was Ireland ordered in 2016 to recover about 13 billion euros from a major technology company?

    Model answer

    The European Commission ruled that Ireland's tax arrangements had allowed Apple to pay an extremely low effective rate of corporation tax and therefore amounted to illegal state aid.

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