An Evolutionary Approach to Comparative Taxation: Theory, Methods and Agenda for Research

Abstract

The aim of the paper is twofold: (i) to lay down theory and methods of comparative tax law, by reviewing how the main approaches generally adopted in comparative legal studies can be used in this new area of research, and (i) to propose perspectives for future comparative tax research on the basis of such theory and methods. As to the theory, the paper adopts as analytical approach to search for a common base of tax concepts by solving certain problems of non-comparability, and presents a model of tax systems which evidences that effective tax rules are created by a dynamic process occurring within each tax system, so that comparative tax analysis should be based on a clear understanding of the structure as well the evolution of tax systems. As to the methods, the paper proposes a functional approach which looks at effective solutions adopted by different tax systems to similar tax problems and discusses on the use of formant approach, common core approach and economic analysis of law in comparative taxation, concluding that an institutional approach should be adopted in which alternative tax solutions are considered in a comparative setting. The paper submits that comparative tax research should be methodologically eclectic and avail itself of all the facets of the functional approach. In this context the legal formants approach shows how effective rules develop at an domestically and diverge/converge at cross-border level, the common core approach reveals the actual patterns of tax convergence, while the institutional approach contributes to the understanding of circulation of tax models on the basis of their comparative efficiency. All these approaches, in turn, contribute to the study of evolution and circulation of tax models among different countries: tax models serve as a paradigm for tax policy discussion, and through the continuous change of statutory law as well of administrative guidelines and case law, circulate among domestic systems. The paper therefore evidences that a functional approach should be adopted in which the functions of tax rules in different systems are revealed and reconstructed in coherent tax models which can be effectively compared showing patterns of divergence or convergence. In terms of perspectives for comparative tax research the paper distinguishes between static versus dynamic comparative taxation. While research in the former field may lead to important insights as to the formation of tax families, research in the latter field opens up a new set of scholarly issues as it focuses on change of regulatory tax patterns, interdependence of tax systems and circulation of tax models. The paper concludes that these issues contribute to set a possible agenda for future comparative tax research and envisages five challenges for comparative taxation: to provide a theoretical basis for comparative evolutionary analysis (CEA); to develop the analysis of tax transplants; to study tax convergence and divergence within a strategic equilibrium framework encompassing the tax policies of different countries; to identify an evolutionary map for EU corporate taxes revealing a common core, and to define a EU common model of tax consolidation of group of companies on which agreement could be reached through reinforced cooperation.