International Tax Cooperation Research Articles

Driving a Hard Bargain: A Sneak Preview of the UN Framework Convention Negotiations

Last December, the UN boldly claimed a significant role in setting international tax policy when it voted overwhelmingly to develop a Framework Convention on International Tax Cooperation. Work has now begun on realizing the UN’s vision. In this Talking Points, Bob Michel highlights the procedural and substantive issues under consideration, and reviews the stated positions of a broad cross-section of countries in the developed and developing world as the negotiations ramp up.  

Shaping the UN’s Future Role in International Tax Cooperation: Resolution A/RES/77/244 and the Options Raised in Tax Report 2023 as an Opening for Legally Binding Tax-Norm Setting by the UN

Shaping the UN’s Future Role in International Tax Cooperation: Resolution A/RES/77/244 and the Options Raised in Tax Report 2023 as an Opening for Legally Binding Tax-Norm Setting by the UN

Legal Risks and Regulating Suggestions on Cross-border Tax Avoidance: Using Thin Capitalization As a Starting Point

With the integration of the global economy and the rising volume of international transactions, tax avoidance by MNCs poses a huge challenge to the global economy. Thin capitalization by MNCs creates serious tax base erosion and profit shifting for host countries and is a tax avoidance tool that cannot be ignored. This paper focuses on the present legal risks of thin capitalization and thus proposes recommendations for improving the legal regulation of tax avoidance by MNCs. Firstly, this paper introduces the concept of thin capitalization and analyses the impact of capital weakening by MNCs as a tax avoidance tool on the host country, revealing that thin capitalization by MNCs can have significant adverse effects on the host country.Secondly, the paper then looks at international law and the tax laws of China, the UK and Germany. The analysis concludes that international tax treaties are effective in regulating thin capitalization by MNCs. This paper analyses the advantages of international tax treaties and shows their importance.Finally, this paper makes suggestions for improving international tax cooperation based on the importance of international tax treaties as analyzed in the previous section. This paper proposes that the improvement of the BEPS MLI may start with setting a time limit on treaty reservations, strengthening the tax administration systems of economically underdeveloped countries and regions, and encouraging developing countries to actively participate in international tax cooperation.

Council

This overview highlights the Council’s contribution to the consultation on the UN Resolution on the “Promotion of inclusive and effective international tax cooperation at the United Nations”.

Research on the Trend of Global Fiscal and Tax Policies Under the Pandemic and its Enlightenments for China

In recent years, major uncertain events have occurred frequently all over the world. In particular, the outbreak of COVID-19 in early 2020 has posed a great threat to the health and economic aspects of human society. The pandemic has a wide range of influence, strong infectivity, and long duration, even today, the virus is still spreading and mutating all over the world. Governments of all infected countries have introduced pandemic response plans at the very early beginning to minimize the loss of the pandemic as much as possible. Fiscal and tax policies, as an integral part of those plans, play an irreplaceable role in the counter cyclical regulation of macro-economy and the behavioral impact of microeconomic subjects. The impact of the pandemic on mankind is profound. Even if the pandemic has passed, we are still in a high-risk society. For a long time in the future, this high degree of uncertainty will always accompany mankind. In this paper, the fiscal and tax policies of various countries to deal with the pandemic are divided into fiscal subsidies and preferential tax, combined with the policies implemented by various countries, which made a comparative analysis. As the country that first discovered and reported to the World Health Organization, China has been the most severely and long-term hit in the face of this major crisis. Therefore, based on summarizing the experience of related policies in various countries, this paper analyzes the role of fiscal and tax policies from the three stages of outbreak, stability, and recovery of the epidemic through bibliometric analysis, content analysis of relevant literature, proposed that the Chinese government should make a transition from short-term emergency policy to long-term stimulus policy, adjust the tax structure, increase taxes, promote international tax cooperation and coordination, and improve the emergency fiscal and tax system to deal with the crisis and help China's economy get back on track. Through combing the tax practice experience of various countries, this paper believes that in the post epidemic era, the global economic level of fiscal stimulus will not decline on a large scale. At the same time, this paper provides its own recommendations and solutions that is structural tax cuts will become a trend for countries to deal with the crisis. However, in view of the increasing fiscal pressure, the total tax reduction will not become the mainstream, and put forward corresponding suggestions and solutions on how to better use fiscal and tax policies in China to cope with the challenges brought by the great changes in economic diplomacy and the natural environment.

Taxing Multinationals: Three Lenses on International Tax Cooperation (Comments on UN Resolution 77/244, Promotion of Inclusive and Effective International Tax Governance at the United Nations)

Taxing Multinationals: Three Lenses on International Tax Cooperation (Comments on UN Resolution 77/244, Promotion of Inclusive and Effective International Tax Governance at the United Nations)

Don’t tax you, Don’t tax me, tax the corporations across the sea’: examining the European Financial Transaction Tax as a model for tax multilateralism

In light of the COVID-19 crisis, enthusiasm for a European Financial Transaction Tax (FTT) has been revitalised, driven by similar economic factors as the decade before. As such, this essay offers a timely exposition of the failures of the original FTT proposals by bringing together academic literature on the European FTT with that of FTTs in general within the larger framework of international tax cooperation. By dissecting the reasons for the failure of the European FTT, this essay will make two key arguments. The first is that the significant design flaws of the FTT played the most significant role in its failure. The second key argument is that the experience of the FTT highlights exactly why tax multilateralism is increasingly important in the international tax order and that despite the eventual failure of the proposals, the EU remains the most accessible international forum in which to foster multilateral tax cooperation.

Автоматичний міжнародний обмін податковою інформацією: особливості попередніх умов запровадження в Україні під час воєнного стану

Introduction. The main trend in the international tax cooperation is to create institutional conditions to enhance the transparency of the ?nancial ?ows of multinational enterprises for tax administrations and to provide them with relevant information to assess and examine transfer pricing risks. The OECD provides governments with model legislation in the context of this issue, which brings to the fore the issue of its implementation to make the international exchange of tax information work automatically. Problem Statement. To determine the status of implementation of the OECD recommendations on substantial prerequisites for the automatic exchange of international tax information in Ukraine, in particular the peculiarities of their implementation in the martial law period. Purpose. To analyze approaches in the sphere of international exchange of information for tax purposes and to evaluate the status of implementation of substantial preconditions for the introduction of country by country reporting of the international group of companies. Methods. The comparative analysis of the national tax legislation and OECD recommendations regulating the aspects of creation of substantial preconditions for automatic international exchange of tax information was carried out. Results. The list is highlighted and the essence of essential preconditions for countries to obtain access to the international exchange of tax information is revealed. The level of implementation of the stages of introduction of country by country reporting of the international group of companies in Ukraine has been analyzed with the focus on the creation of the appropriate institutional conditions for the implementation of OECD recommendations. According to the results of the research, it has been proved that further steps of formation of the mentioned prerequisites in the country are regulation of con?dentiality aspects of tax information, which is the subject of international automatic exchange, which should correspond to the international approaches with an emphasis on the changes, caused by the introduction of martial law. Conclusions. Having joined the OECD Enhanced Cooperation Programme and committed to implementing the BEPS Action Plan, Ukraine is incorporated into the global tax regulatory framework. After the stage of drafting and approving legislative norms, creation of essential preconditions for obtaining and access to the international exchange of tax information, the next step is to ensure its confidentiality. In this process, it is important to protect the national interests and national security of Ukraine of income and property and prevention of tax evasion.

Scientific discussion on the essence of state financial regulation of socio-economic inequality in modern conditions

The article is devoted to the analysis of contemporary problems and peculiarities of regulating socio-economic inequality during the crisis and describes the financial crises’ impact mechanism on the state financial regulation evolution of economic inequality.In times of economic crises developed countries make unconditional distributions of money transfers to households to stimulate demand. New liquidity is distributed across the world economy, launching inflationary processes against the backdrop of significant problems with the supply of raw materials and materials due to the consequences of the COVID-19 pandemic. Public interest to the problem of growing socio-economic inequality is increasing along with the rise in the number of dollar millionaires and the financial assets prices. In many ways, this phenomenon is associated with the financial regulation specifics of the economy during times of crises.As a result of the study, the specifics and paradoxes of modern state financial regulation of economic inequality during times of crises have been substantiated, recommendations for state financial regulation of socio-economic inequality during the crisis have been formulated. Regulators should pay particular attention to the top 10 % of the population, for whom there are now many opportunities for tax optimisation and avoidance, with the result that even theoretically effective progressive tax systems do not work properly in practice. Developed countries should promote international tax cooperation to solve this problem, and developing countries should focus on improving their progressive tax systems.

New Approaches to International Tax Cooperation: the Fight against Harmful Tax Competition and the OECD’s Consolidation as a Technical Forum

New Approaches to International Tax Cooperation: the Fight against Harmful Tax Competition and the OECD’s Consolidation as a Technical Forum

Transformation of the legal regulation of tax relations in the digital economy context

The subject. The modern world is constantly changing, which makes it necessary to update the means and methods of legal regulation of public relations. Moreover, these relations themselves are changing, new areas of public relations are emerging, for which it is necessary to create a legal framework. The sphere of financial and legal regulation is no exception. The most important issue, which has been on the agenda of the international community for several years, is the development of the digital economy. The legal realities of digitalization largely determine what place the Russian economy will occupy in the emerging global digital market. It is necessary to develop a comprehensive legal concept that allows ensuring compliance with the fiscal interests of the state in the context of digital transformation. In this regard, the transformation of tax relations and their legal regulation is particularly important.Purpose of the study. The article is devoted to the transformation of the legal regulation of tax relations in the digital economy. In order for Russian financial and legal regulation to contribute to an effective response to the challenges posed by digitalization, it is necessary to develop a comprehensive legal concept that allows ensuring compliance with the fiscal interests of the state in the context of digital transformation. In this regard, the transformation of tax relations and their legal regulation is of particular importance.Methodology. The research was carried out with the application of the formally legal interpretation of legal acts as well as the comparative analysis of Russian and European legal literature. Structural and systemic methods are also the basis of the research. The main results. The necessity to develop legal solutions in the field of taxation of the digital economy is determined by the focus on legal support for the stability of financial and legal regulation and the principle of certainty of taxation. In these circumstances, it is important to implement the control function of financial law. The need to ensure compliance with the fiscal interests of the state, both at present and in the long term, requires the transformation of essential approaches to the legal regulation of the system of taxes and fees, the principles and elements of taxation, tax administration and tax control. In this regard, it is proposed to provide for special rules for calculating and paying income tax on foreign digital companies and, in parallel, to expand tax incentives for Russian companies.Сonclusions. The authors come to the conclusion that the actual scientific task is to develop a methodological position on the directions of reforming the national tax legislation and the international tax doctrine of the Russian Federation in the context of the digital transformation of public relations. According to the results of the study, it is concluded that it is necessary to ensure compliance with the fiscal interests of the state. This requires the transformation of essential approaches to the legal regulation of tax relations, both in the context of determining the appropriate legal forms for regulating the tax base levied in Russia in the context of the emerging digital economy, and for influencing international tax policy in order to use all the advantages provided by international tax cooperation and neutralize the threats caused by international tax competition.

Developing VAT treaties: international tax cooperation in times of global recovery

AbstractThe Covid-19 pandemic highlights the pressing need to address common challenges faced by all countries and, in particular, provide special support to developing countries through international cooperation. Taxation, in particular Value Added Tax (VAT), is a key area for strengthening international cooperation because of its critical role in financing the Covid-19 crisis and supporting global recovery. This paper proposes the adoption of VAT treaties based on two considerations. First, there exist, in the interplay between states’ VAT laws, over-taxation and under-taxation that can be more effectively addressed by treaties than by unilateral state actions. Secondly, unlike income tax treaties, VAT treaties would distribute more benefits from cooperation to developing countries than to developed countries, leading to normatively attractive distributional consequences. The proposed model offers a new approach to taxing cross-border transactions under VAT and could form part of a coordinated response to a sustainable post-pandemic recovery.

Beyond the "Made in America Tax Plan": GILTI and International Tax Cooperation's Next Golden Age

Beyond the "Made in America Tax Plan": GILTI and International Tax Cooperation's Next Golden Age

The better route to global tax coordination: Gradualism or multilateralism?

AbstractWe compare the success probability of multilateral negotiations and sequential negotiations over international tax cooperation. To make this difference relevant, we introduce incomplete information as a friction that can lead to bargaining failure. We find plausible conditions for when multilateral negotiations are more likely to achieve full global tax coordination than a gradual/sequential approach. We also compare different routes of sequential bargaining. We ask whether negotiations should start with countries that are the most unpredictable candidates or the most difficult negotiation should be preserved for the final round. We find that sequencing along this dimension matters. Under plausible conditions, full cooperation is least likely to emerge if the negotiations with the most unpredictable country take place last.

The primary legal role of the United Nations on international Tax Cooperation and Global Tax Governance: Going on a new International Organization on Global Tax Cooperation and Governance under the UN “Family”(*)

This study will prove useful in expanding our understanding of the United Nations as the body with capacity, suitability, and competence to assume the role of governing and carrying out a global design of the Global Tax Governance architecture, as well as s well as to establish the bases, principles and areas of international tax cooperation. Public International Law rules and general “Principles and Purposes” of the Global Legal Order have been extrapolated to international tax law to achieve this conclusion. Furthermore, we propose the creation of an international organization on International Fiscal Cooperation and Global Fiscal Governance within the UN family itself.International tax cooperation is a crucial instrument to enhance domestic public resources and to avoid international tax fraud fighting against the flow of illicit capital, as stated in the Addis Ababa Action Agenda, in accordance with the provisions of the 2030 Agenda of United Nations, Monterrey Consensus and Doha Declaration. Nowadays, after the covid-19 pandemic, it is an unquestionable necessity. 

New Puzzles in International Tax Agreements

The G-7’s “global minimum tax” accord—followed by a new version of the OECD’s “Two Pillar Solution” and its endorsement by the G-20—is accepted by many as evidence for international tax cooperation. But recent policy discussions offer no answer to a basic question: What can countries cooperate to achieve? This Article shows that the answers provided by proponents of the new international tax agreement are alarmingly ad hoc, misleading, and incoherent. Scholarship on corporate taxation has also long failed to identify potentials for international cooperation. The more successful international agreements purport to be, in other words, the more puzzling they become. I first examine three rationales recently identified for collective action. The first alleges a transformation in the services trade that supposedly undermines premises of traditional international tax design. The second emphasizes the international community’s need to appease the United States and prevent the latter from starting trade wars. Both make unusual and untenable factual and normative assumptions. A third rationale seems more familiar—countries should cooperate to end tax competition and multinational companies’ tax avoidance—but is at odds with both economic theory and the actual content of the OECD’s proposal. Theoretically, ending tax competitions—whether for productive capital or for corporate headquarters—cannot create gains for all countries. And in terms of policy content, the OECD proposal can more plausibly be read as limiting, rather than enhancing, governments’ capacities to tax MNCs. Older and more basic puzzles in theories of international taxation—concerning source-country taxation, residence countries’ unilateral relief from double taxation, and bilateral tax treaties—compound these new puzzles. Arguably, these puzzles have led tax scholars to abandon a basic social scientific template for explaining cooperation. Indeed, much of economic scholarship takes international tax institutions as exogenously given. I contrast this state of affairs with economic theories of trade agreements—in particular, with the way the “terms-of-trade” theory rationalizes the GATT/WTO regime. To emulate the success of the “terms-of-trade” theory, I argue, certain assumptions that have long prevailed in discourses about international taxation may need to be jettisoned. Only a more fundamental reconceptualization of the subject matter of international taxation can shed light on the true past and future grounds for international tax cooperation.

THE IMPLEMENTATION OF AUTOMATIC EXCHANGE OF INFORMATION AS A TOOL TO TACKLE OFFSHORE TAX EVASION: AN EXPERIENCE FROM INDONESIA

Cross-border tax evasion has been a central issue in international taxation in recent years. The use of Offshore Financial Centres (OFCs) and low tax jurisdictions to facilitate the wealth of high net worth individuals has led to offshore tax evasion and has eroded the tax bases of countries. Meanwhile, international tax cooperation is emerging with the aim of enhancing tax transparency. One way to reach tax transparency is with the implementation of the exchange of information for tax purposes. The tax authorities have already implemented the exchange of information on request; however, this method is ineffective to fight against offshore tax evasion. The tax authorities must already obtain the evidence of their suspicion over the taxpayers; otherwise, their request may be denied as a ‘fishing expedition’. The demand for offshore financial information is obvious since it will enable tax authorities to oversee the level of offshore tax compliance. This study considers the importance of the Automatic Exchange of Information (AEOI) as a tool to access the resident’s financial information of residents who kept their financial assets in other jurisdictions with a case study in Indonesia. The financial information from other jurisdictions is fundamental for Indonesia because it can be used for analysis and law enforcement of taxpayers, especially those who previously saved money abroad and have not reported or paid the correct amount of tax. This paper recognizes that despite the benefits of the AEOI, the implementation of the AEOI in Indonesia is still facing challenges, although it has been two years since its first implementation. This study will follow a qualitative methodological approach with a detailed literature review and real experience in Indonesia. Finally, this article explores the current stage of implementing the AEOI in Indonesia and the challenges faced by Indonesia with some proposed solutions for the Directorate General of Taxes for the effective implementation of the AEOI in Indonesia.

Multinational production and corporate taxes: A quantitative assessment

I study the welfare implications of corporate taxation in the presence of multinational production (MP) to understand the consequences of international tax competition and cooperation. I build a quantifiable general equilibrium model with trade, MP, and salient features of international corporate tax system. The model delivers structural equations that can be used to estimate the key parameters governing the response of firms' production locations to changes in corporate tax rates. Calibrating the model to data on 28 countries, I find that the U.S. corporate tax reform in 2017 increases the U.S. real income by about 1% but decreases the average real income of other countries by 0.075%. In a non-cooperative tax game, each country has strong incentives to lower its corporate tax rate on domestic firms in order to gain from firm relocation at the expense of other countries, which leads to welfare losses in participation countries. International tax cooperation can increase the real income in each participation country by about 1%.

The Emergence of Transparency and Exchange of Information for Tax Purposes on Request as an International Tax Custom

In this article, the author contends that transparency and exchange of information on request became an international tax custom. The content of this new international tax custom is the exchange of information on request with regard to all tax matters for the administration and enforcement of domestic tax law without regard to a domestic tax interest requirement or bank secrecy for tax purposes with extensive safeguards to protect confidentiality of the information exchanged (the so called EOI Standard). The emergence of the EOI Standard as an international tax custom is a clear sign of change of the existing global tax governance. There is a realization that international organizations and global forums with expertise in tax matters (especially the OECD, UN, and Global Forum on Transparency and Exchange of Information for Tax Purposes) are actually performing a fundamental role. They influence states’ practices and opinio juris with soft law instruments and peer review procedures that ultimately influence the development of hard law in tax matters, a sphere traditionally conceived as being exclusive to states. The consequences of the emergence of new international tax customs are the submission of states to the international obligation to exchange information on request even in the absence of treaty provisions and the applicability of a state responsibility doctrine in the event of non-compliance. Therefore, if states intend to not lose their almost exclusive role in global tax governance, the role of the existing international organizations and other institutional players must be restrained. The disadvantage, however, is the inability to achieve cooperation in certain strategic matters in tackling double non-taxation arising from aggressive tax planning arrangements. Global tax governance, international tax cooperation, transparency and exchange of information on request, international custom, customary international law, tax sovereignty.

Is neoliberalism still spreading? The impact of international cooperation on capital taxation

The downward trend in capital taxes since the 1980s has recently reversed for personal capital income. At the same time, it continued for corporate profits. Why have these tax rates diverged after a long period of parallel decline? We argue that the answer lies in different levels of change in the fights against tax evasion and tax avoidance. The fight against evasion by households progressed significantly since 2009, culminating in the multilateral adoption of automatic exchange of information (AEI). In contrast, international efforts against base erosion and profit shifting (BEPS) failed to curb tax avoidance by corporations. We theorize that international cooperation is an intervening variable, countering the negative impact of tax competition on capital taxation by reducing the risk of capital flight. Under such conditions, domestic political pressures in favor of higher capital taxes can unfold. We confirm our argument in a difference-in-difference analysis and through additional tests with data for up to 35 OECD countries from 2000–2017. Our central estimate suggests that the average tax rate on dividends in 2017 is 4.5 percentage points higher than it would have been absent international tax cooperation.