Part II Economic Regulation, 7 Taxation

Abstract

This chapter assesses how the integrated operations of multinational enterprises (MNEs) offer opportunities for tax avoidance not open to domestic firms, and how national tax authorities control this. The international character of the income-generating activities of MNEs, the national reach of individual tax administrations, increased international competition over attracting inward FDI and the need to obtain sufficient revenue from MNEs, many of which now operate as digital platforms without any physical nexus with the taxing jurisdiction, has led to calls for the reform of the international tax system. The need for greater international coordination of tax policies is clear. For now, however, national tax authorities remain the main regulators, still applying systems of taxation designed to deal with the international economy of the past, based on the arms-length principle and on the legal separation of companies in the MNE group. However, as the reality of national tax base erosion (base erosion and profit shifting, BEPS) becomes increasingly stark, alternative approaches are becoming politically acceptable, and both states and international organizations are beginning to grapple with the development of a new global model of international corporate taxation based on revised nexus and apportionment rules.