International Tax Regime Research Articles

Article: A Time to Institutionalize the International Tax Regime

The paper proposes replacing the existing and outdated decentralized international tax system with a centralized tax authority that would include four branches: a hierarchic judiciary branch that would replace/subject thousands of domestic tax tribunals, a legislative branch that would replace the existing inclusive Organization for Economic Cooperation and Development (OECD) forum that would be more balanced and as such be able to continue developing the international tax policy in the coming challenges that the Twenty-first century will bring, an executive branch that would be responsible for issuing multilateral letter ruling and guidance of how to implement the international principles and norms, assist poor countries whose costs in implementing beneficial practices are high and offer sanctions for countries that secretly deviate from the general principles and foster harmful tax principles. Furthermore, we propose to establish an audit branch that would supervise the compliance of the different countries. The Article therefore blesses the recent multilateral cooperation of approximately 140 countries and suggests the time has come to institutionalize the international tax order and centralize it to better face the coming challenges that the technological breakthroughs would bring.

The Power of Boilerplate: Bilateralism, Plurilateralism, and the International Tax System

How do states exercise power in complex, decentralized governance regimes? This article sheds light on this question by analyzing one of the pillars of the post-war economic order: the international tax regime. The taxation of multinational enterprises is governed by a system composed of thousands of Bilateral Tax Treaties signed between pairs of national governments. We argue that despite the bilateral nature of these treaties, their legal content is largely controlled by a small group of economically powerful governments. By drafting and promoting “boilerplate” legal language, and by leveraging network effects, OECD countries were able to build a coherent, encompassing, quasi-multilateral regime to govern the taxation of multinationals in most of the world. We test and find support for our arguments about the role of network effects and the power of boilerplate using inferential network analysis and an automated text analysis of a corpus of 3200 treaty texts.

Breaking the Double Tax Paradigm

The success story of economic globalization is often linked to an increased freedom of capital movement, facilitated by the existence of more than 3,000 bilateral tax treaties, the primary purpose of which is to prevent double taxation. Even the most outspoken critics of the international tax regime subscribe to the notion that double taxation is detrimental to global growth, development and welfare. Yet, they argue that, all things considered, tax treaties might not be worth signing. Based on an extensive review of the available tax policy and economics literature, this article shows that there is not enough of a normative or empirical basis for thinking that double taxation will necessarily restrict capital flows, provided that the combined effective tax burden is kept at a reasonable level. At the same time, treaties seem to provide investors with a legal certainty that is key to cross-border business activity. This article posits that there should be more emphasis on the legal certainty aspect of tax treaties and less on their limited capacity to prevent double taxation. In fact, relaxing the double tax paradigm could help to significantly improve tax treaties, with a view to preserving their role in fostering international commerce and investment. In this respect, the authors propose a simplified tax treaty model that, by allowing an agreed overlap between home-state and host-state taxes, would diminish overall implementation costs while increasing legal certainty and reducing the risk of lengthy tax disputes, thus benefiting both taxpayers and tax administrations. The article further demonstrates that this approach is superior to the current Pillar One proposal and other popular systemic reform suggestions in the literature, specifically the destination-based cashflow tax (DBCFT) and global formulary apportionment.

A link without a right, or ubi nexus, ibi jus (?): international human rights instruments & international tax policy

ABSTRACT In recent years, human rights scholarship has progressively turned its gaze to the topic of taxation. As a growing body of literature has shown, both the tasks of raising and spending tax revenue may impinge on the realisation of socio-economic rights, a relationship here termed tax and human rights nexus. Notably, however, sovereigns' fiscal powers are, to a large extent, curtailed by the international tax regime. Whereas appeals for a normative alignment between international tax law and human rights are mounting, a closer look at what exactly international human rights frameworks allow with respect to taxation is still largely missing. This article seeks to fill this gap by systematically analysing regional human rights court's jurisprudence on taxation where it intersects socio-economic rights. In doing so, it aims at illuminating the opportunities and challenges for human rights judicial review of international fiscal policies.

International justice and the international tax regime: an analysis of the Global Tax Agreement

Resumo O quadro geral de desregulamentação econômica, de mobilidade dos fatores de produção e de digitalização da economia acelerou os processos de competição fiscal prejudicial e de planejamento tributário agressivo, aumentando os problemas relacionados à determinação dos direitos fiscais e à partilha de lucros entre os Estados, e colocando em causa as regras do regime tributário internacional. Desde a crise de 2008, o referido regime passou por importantes reformas, com destaque para o Acordo Tributário Global, em 2021. Tendo como referência teórica o debate normativo em torno de questões de justiça no regime tributário internacional, principalmente o cosmopolitismo e o internacionalismo, este artigo analisa esse processo de reforma.

Principles Justifying the Reallocation of Taxing Rights to Market Jurisdictions: Do We Need Them?

This article argues that the taxing right of market jurisdictions under Pillar One is justified by commonly invoked and widely accepted principles in international taxation. This is not just a desirable outcome of the international coordination on the allocation of taxing rights but a moral demand that the inter-state allocation of taxing rights must comply with. A principle-based allocation of taxing rights is a precondition for the legitimacy and thus the equity of the international tax regime. Principles, such as ability to pay, the benefits principle and economic allegiance, provide a normative justification for asserting tax jurisdiction. Despite the criticism regarding their vagueness, indeterminateness, and overlaps between their meaning, the benefits principle and economic allegiance have a definite function in the international tax regime insofar as they designate the countries that have a legitimate claim to tax international income. Pillar One, international tax coordination, equity in international taxation, internation equity, legitimacy, principles, justification of taxation, justification of tax jurisdiction, benefits principle, economic allegiance.

Stanley Surrey, the Code and the Regime

Stanley Surrey (1910–1984) was arguably the most important tax scholar of his generation. Surrey was a rare combination of an academic (Berkeley and Harvard law schools, 1947-1961 and 1969-1981) and a government official (Tax Legislative Counsel, 1942-1947; Assistant Secretary for Tax Policy, 1961-1969). Today he is mostly remembered for inventing the concept of tax expenditures and the tax expenditure budget. This paper will argue that while Surrey was influential in shaping domestic tax policy for a generation and had an impact after his death on the Tax Reform Act of 1986, his longest lasting contributions were in shaping the international tax regime, since the concept of the single tax principle that shapes contemporary international tax reform efforts can be traced directly to his writing and activities both in academia and in the government.

Globe: The Potential Costs Of Cooperation

This article argues that the fact that the 2021 global tax deal (focusing on Pillar 2) is cooperative is not in itself proof of the deal being beneficial (and certainly not equally beneficial) for all parties. Developing countries particularly may benefit less and possibly even lose from the agreement. The article focuses on two features of cooperation that may tilt the playing field in favour of developed countries: agenda influence and structural incentives to cooperate. Since the OECD had control over both the agenda and the ways in which the game was structured, it is not surprising that the deal served the interests of its members. Moreover, the mechanism of Pillar 2 encourages participation and discourages future defection. In the current stage of the international tax regime, this is considered a virtue. However, it might also harbour future risks such as lock-in and cartelistic effects that might benefit the leaders of this initiative (the OECD in this case) at the expense of others. Moreover, the current regime grants significant power to those with their hands on the steering wheel. Such power could be used to disadvantage others. In the absence of mechanisms that would curtail the monopolistic power of the former, other countries risk paying excessive prices to belong in this regime. GLoBE, Pillar II, International Tax, Cooperation, OECD, Developing Countries, Agenda Influence, Incentives to cooperate, Lock-in, Cartels

The Historical Origins and Current Prospects of the Multilateral Tax Convention

This article has three aims. First, it surveys the pre-BEPS efforts to create a multilateral tax convention (MTC) from the 19th century onward, and explains why these efforts have failed, leading to an international tax regime dominated by unilateralism and bilateralism. Second, it contrasts the success of multilateralism in investment and trade law. Third, it examines the BEPS era efforts to create an MTC and suggests that, while there has been more convergence of the tax laws of countries, a fundamental divergence of interests persists that will likely doom any such efforts to failure. The article concludes that, at this time, tax law still remains unsuitable to multilateralism, in contrast to investment and trade law, mainly due to the monetary impact.

The settlement of tax disputes by the International Court of Justice

AbstractThis article analyses the ICJ, one of the most eminent actors of the international legal regime, as an actor of the international tax regime. So far, the ICJ’s role in tax dispute resolution has been a blind spot in the literature.The descriptive part of this article first discusses the case law of the PCIJ and ICJ that considers – albeit incidentally – questions of taxation. These tax-related cases are categorized as (i) ‘wrongful taxation’ constituting the subject matter of the dispute; (ii) taxation as evidence for a ‘genuine link’ between the state and a national; or (iii) taxation as an ‘effectivité’ to prove the de facto exercise of state authority over a given territory.The second half of the descriptive analysis assesses the Court’s jurisdiction over tax disputes. Tax treaties usually lack compromissory clauses. Yet, there are a number of jurisdictional bases that vest the Court with the competence to sit over hypothetical tax treaty disputes, although certain reservations may render the Court’s jurisdiction residual to other means of tax dispute settlement. Further, Article 344 TFEU possibly precludes EU member states from initiating ICJ proceedings concerning tax treaty disputes with other EU states.The second, normative part of this article contemplates the Court as a future ‘World Tax Court’. It briefly addresses (i) possible effects of the ICJ’s hypothetical involvement in tax disputes; (ii) whether the ICJ might have a future role in tax dispute settlement in light of recent developments; and (iii) whether it is even desirable to involve the Court in tax disputes.

Tax In History: The 1923 Report and the International Tax Revolution

The centennial of the four economists’ Report on Double Taxation (1923) (League of Nations, Economic and Financial Commission, Report on Double Taxation Submitted to the Financial Committee by Professors Bruins, Einaudi, Seligman and Sir Josiah Stamp, E.F.S.73. F.19 (League of Nations 1923) (the Report).) provides a good opportunity to reflect on the extent the international tax regime (ITR) that was founded on the Report has changed in the past decade. While on the surface the changes brought about by the Base Erosion and Profit Shifting (BEPS) project seem radical enough to consider them an ‘international tax revolution’, this article will argue that the principles developed in the Report are still influential a hundred years later. League of Nations 1923 report, double taxation, BEPS, Pillar One, Pillar Two, Edwin Seligman

The Use of Financial Accounting Information in the OECD BEPS 2.0 Project: A Discussion of the Rules and Concerns

This paper discusses the Organisation for Economic Co-operation and Development’s Two-Pillar proposal for changing the global international corporate tax regime. We focus on the use of financial accounting income as part of these tax rules. We provide a relatively high-level explanation of the rules, and we discuss some inconsistencies and complexities. We also discuss potential problems and unintended consequences for companies, financial statement users, tax authorities, financial statement auditors, and financial accounting standard setters as a result of using financial accounting income in the tax base.

International Taxation, Globalization, and the Economic Digital Divide

ABSTRACT The past decade has witnessed the creation of a new international tax regime. The original international tax regime was created a century ago by the League of Nations. Until the 1980s, it functioned reasonably well and prevented most instances of double taxation and double non-taxation by allocating cross-border income between home and host jurisdictions based on a compromise reached in 1923. However, since the advent of globalization in the 1980s and digitalization in the 1990s, the original international tax regime ceased to function as intended. The main problems were the increased mobility of capital related to increased intangibility and digitalization, together with a relaxation of capital controls and increased tax competition. These developments posed a problem for countries that wished to leave their borders open to reap the benefits of globalization and to engage in tax competition to attract investment. The outcome was a significant fall in tax revenues that threatened the social safety net of the modern welfare state. The trilemma of open borders, tax competition, and satisfying voters’ demand for social insurance culminated in the financial crisis of 2008–09, where many countries were forced to implement austerity measures at the same time that parliamentary hearings, leaks, and media reports revealed that rich individuals and large corporations were paying very little tax on cross-border income. The results over the past decade have been the creation of a new international tax regime designed to curb both tax evasion by the rich and tax competition among countries seeking to attract business activity within their borders by granting various preferential tax provisions to multinational enterprises. The key question going forward is how the new international tax regime will deal with international (in)equity, i.e. the economic digital divide. In what follows, I will first discuss the decline of the original international tax regime from 1980 to 2009, then the creation of the new international tax regime from 2010 on, and finally the implications of the new international tax regime for the economic digital divide.

Serenity Now!

The Article demonstrates that the most important initiatives to promote inclusivity within the international tax regime (Country-by-Country Reporting, the Multilateral Instrument, and the Inclusive Framework), based on publicly available data and a variety of indicators, have, at best, done little to increase meaningful participation of non-OECD countries in the regime, and have been disingenuous at worst. This indirect methodology was dictated by the opacity of the analyzed efforts and the difficulties of evaluating inclusivity, but the picture it paints is unmistakable. Using Hirschman’s exit and voice theory, the article concludes by explaining why the OECD asked non-member states to join these efforts and why they have nominally joined. Based on this study, it is concluded that the issues that prompted the establishment of inclusive fora within the international tax regime will not “go away” with such nominal inclusion, and that only meaningful inclusivity has the potential to stabilize the international tax regime.

US―China Green Trade Conflict and Implications for Low-Carbon Energy Transition: The Solar Energy Trade Dispute

Purpose - The purpose of this paper is to analyze the causes of Sino-U.S. solar PV trade disputes by adopting research, comparative research, and case study. It also proposes relevant resolutions over Sino-U.S. solar trade conflicts and the implications for low-carbon energy transition.
 Design/Methodology/Approach - Based on green trade protectionism and comparative advantage theory, this paper combines Chinese solar products export flows to the U.S. with cases of solar trade disputes from 2011 to 2022 to analyze the causes of Sino-U.S. solar trade conflict. Thus, from the perspective of international trade law, WTO reform on the relevant renewable energy agreements, international carbon border tax regime, and a bilateral clean agreement or EGA negotiations, it purposes the resolution of Sino-U.S. solar trade conflict.
 Findings - This paper studies factors leading to the Sino-U.S. solar trade conflict, which is mainly a bilateral trade imbalance, the game of interest groups within the US, non-standard support policies for Chinese solar energy industry, and geopolitical and national green energy security. There is no doubt that trade disputes had had a larger negative impact on Sino-U.S. solar trade flows from 2011 to 2019. Meanwhile, the solar PV trade policies of the US affected the global supply chain of solar PV products, thus hindering the progress of low-carbon energy transition.
 Research Implications - In the management of this paper, this study has important practical significance for the healthy and sustainable development of solar PV trade and achieving low-carbon energy transition for both countries. It can also provide references to solar energy trade disputes among other countries in a broader sense, and propose relevant recommendations for South Korea’s solar energy.

The Global Minimum Tax: Some Known Unknowns

In order to address the fundamental challenges for the international tax regime brought about by the digitalization of the economy and new forms of potentially harmful tax competition, the G20 summit of October 2021 called for a commitment to the implementation of the Global Minimum Tax Proposal developed by the OECD within the framework of the Two-Pillar solution, aiming at 2023 as an implementation deadline. The breadth and technical complexity of the OECD Model Rules and the OECD Guidelines, as well as the Directive Proposal released by the EU Commission in December 2021, offer several inputs for further reflection, also considering the evolving international policy and political framework. The main purpose of this contribution is to highlight the most pivotal “known unknowns” of the proposed set of measures so as to stimulate further debate on the topic.

The Case for Residency-Based Taxation of Financial Transactions in Developing Countries

The globalization process does not permit a country that wishes to be involved in this process to take an independent stand in choosing its tax system, especially with respect to financial transactions. Choosing tax rules that are unacceptable in the world’s leading countries could adversely affect an economy’s competitiveness in the world’s capital markets. The growth in international capital movements is a contributory factor in this respect.In 1923, a committee comprised of four economists submitted a report to the League of Nations that set forth the basic principles underlying international tax principles, most of which still prevail today. Upon the issuance of the League of Nations Report in 1923, two generally recognized regimes for international tax have emerged – residency (or global) and source (or territorial). In a residency-based tax regime, residents are taxed on their worldwide income. In a territorial regime, by contrast, residents are not taxed on foreign source income, and foreign taxpayers are taxed on income generated in the source country. Over the years, there has been a significant degree of convergence among countries; as of today, most tax jurisdictions, whether developed or developing, use both source and residence taxation to some extent. According to Professor Reuven Avi Yonah, most countries follow an “international tax regime” in both their internal laws and tax treaties.

Designing a U.S. Exemption System for Foreign Income When the Treasury is Empty

The U.S. government faces a well-documented long-term revenue shortage that is unlikely to be cured by government expenditure reductions. Thus, it is curious that there is currently considerable pressure for the United States to adopt some type of territorial or exemption system under which most foreign-source active business income earned by U.S. resident corporations would become substantially free of U.S. income tax.Although we are not fans of territoriality, we recognize that a significant reform of the U.S. international tax system is necessary. In other articles, we have expressed our clear preference for strengthening the U.S. worldwide taxation system by repealing the deferral privilege and instituting a per-country foreign tax credit limitation. However, if such a reform is not politically feasible, we believe that a properly designed exemption or territorial system could be an improvement over the current U.S. international tax regime, which is badly flawed for multiple reasons. In any event, there is a significant likelihood that Congress will sooner or later be considering legislation to create a U.S territorial or exemption system. Accordingly, it is important for academics and policymakers to thoughtfully discuss the structure of such a system. We hope that this article will contribute to that conversation. Our fundamental point is that because of the U.S. fiscal situation, it is particularly important that a U.S. territorial system not forgo more revenue than is necessary to achieve the system’s appropriate ends.

The Brave (and Uncertain) New World of International Taxation under the 2020s Compromise

When significant changes are made to the way the world allocates the right to tax cross-border income, there is an obvious need to assess whether the new regime is an appropriate response to the challenges posed by the perceived problems in the old regime. This article has two objectives: first, to show that the proposed changes to the international tax regime relating to the taxation of business profits are so significant that they are regarded as absolutely fundamental. Secondly, and far more controversially, to assert that the changes are brave and appropriate irrespective of the final assessment of these changes (which could be in a decade from now). This article asserts that the 2020s Compromise is a positive step forward for four reasons. First, and most importantly, it was necessary to overcome the deficiencies of the previous regime, particularly for large MNEs with a significant digital business footprint. Three other factors suggest that history might regard some of these changes as brave. These are: more effective source taxation with a partial move to taxation at destination, the rise of multilateral instruments and processes, and the increase in tax cooperation between countries or the reduction of tax competition. However, the absence of an articulated theoretical basis for taxation means both uncertainty and instability in the international tax framework for some time.

The Strategies of the International Chamber of Commerce to Eliminate Double Taxation

ABSTRACT This article focuses on the role of the International Chamber of Commerce (ICC) in developing the regime on the elimination of double taxation in the twentieth century. The objective of the article is to determine the ICC’s strategies and its structural advantages in developing the regime and contextualize these strategies in a broader socio-legal and historical context. The article adopts the interactional theory of Jutta Brunée and Stephan Toope to emphasize the actor-oriented outlook upon the development of the regime on double taxation. It relies on the micro-and macro-histories teased out from archival sources, biographies of prominent decision-makers, and deliberations of committee members in the League of Nations and the United Nations. The article concludes that the ICC is a strategic player within the community of practice in the international tax regime, which utilized its structural advantages and employed different strategies to facilitate the elimination of double taxation.