INTER-NATION EQUITY REVISITED

Ivan Ozai

doi:10.52214/cjtl.v12i1.7412

Abstract

States are on the verge of a new form of global competition. Some have taken unilateral measures to tax multinational profits that they would typically not be able to tax, at least not according to conventional international tax concepts and rules. Others have threatened to retaliate with economic countermeasures to protect their tax base and corporate residents. The recent attempt of the OECD to build consensus for a global tax compact has so far proven unsuccessful due to broad disagreement about how taxing rights should be equitably distributed between countries. As policymakers and tax scholars increasingly call into question long-standing theories of international taxation, the concept of inter-nation equity plays a pivotal role as a guiding principle in determining how to divide the international tax base among states. Inter-nation equity is one of the most ubiquitous concepts appearing in international tax policy discussions and yet one of the most understudied in tax scholarship. This Article introduces a comprehensive normative analysis of inter-nation equity by discussing how the concept should reconcile the two primary goals of international allocation of taxing rights: on the one hand, the concern of states to preserve their tax sovereignty and, on the other hand, the need to promote some degree of redistribution to address the challenges of global poverty and inequality. This Article further explains how a similar notion of inter-nation equity has developed in other areas of international law and discusses some practical implications for tax policy design.

Highlights

In 1963, economist Peggy Musgrave developed the concept of inter-nation equity as a metric to determine how rights to tax should be distributed among states.[1]
The recent attempt of the OECD to build consensus for a global tax compact has so far proven unsuccessful due to broad disagreement about how taxing rights should be equitably distributed between countries
A decade later, Peggy Musgrave teamed up with her husband Richard Musgrave to revise her 1963 work and made a compelling argument for allocating the international tax base in a way that acknowledges the entitlement of countries to tax income arising in their territories while making allowance for some degree of international redistribution.[3]

Summary

INTRODUCTION

In 1963, economist Peggy Musgrave (née Brewer, formerly Richman) developed the concept of inter-nation equity as a metric to determine how rights to tax should be distributed among states.[1]. Some have argued that the Musgraves’ formulation of inter-nation equity is too narrow to lead to any practical guidance or recommendations.[4] A more charitable view of their scholarship, suggests that the Musgraves provided an important starting point for a broader discussion about international distributive justice.[5] This Article explores the rationale behind the original conception of inter-nation equity and demonstrates that it is more than a mere rhetorical device. Building on contemporary developments in global justice, this Article evaluates how the concept of inter-nation equity can reconcile two major goals of international allocation of taxing rights: the concern of states to preserve their tax sovereignty and tax entitlement and the need to promote some degree of redistribution to take up the challenges of addressing global poverty and inequality This analysis puts forth a two-pronged principle for how to allocate taxing rights among jurisdictions.

Significance in the Literature

Competing Conceptions of an Uncontested Concept

The Musgraves’ Original Formulation

CONCLUSION