Reflections on the Fight against Aggressive Tax Planning (When the Law Is Silent)

Abstract

Multinational enterprises make use of aggressive tax planning strategies because they are able to operate in the legal vacuum that exists between nation states. The tax burden is not mitigated by falsifying the facts of tax-relevant events (as in the case of tax evasion) or through simulation of certain transactions (as in the case of sham), but through careful use of existing gaps between tax rates. The present article describes the current situation with normative gaps in global taxation and erosion of national governance due to the loss of sovereignty and the extraterritorial application of national law. It is argued that a legal vacuum represents a substantial cost for nation states. To reduce this cost, the current international proposals are considered. The article aims to clarify whether and to what extent the BEPS Project has contributed to redefining the concept of “legal vacuum” in the international tax system. In particular, the question is whether, in order to prevent aggressive tax planning schemes, OECD member states are required to avoid situations of double non-taxation and cases of no or low taxation associated with practices that artificially segregate taxable income from the generating activities.