Theories of Development: Contentions, Arguments, Alternatives, 2nd edition Richard Peet & Elaine Hartwick London & New York, The Guildford Press, 2009. 324 pp. (incl. bibliographical references and...

Theories of Development: Contentions, Arguments, Alternatives

In this article I present the normative case for global tax governance. I argue that, contrary to an influential part of the literature, national tax policy choices cause significant externalities for other nation states. Focusing in business taxation, I show that tax competition undermines the integrity and distributive principles of domestic tax systems, and aggravates the inequality between developed and developing countries. Further, I demonstrate that the effects of international tax competition are unjust irrespective of whether a globalist or less demanding internationalist perspective on justice is adopted. The minimum requirement of justice is to devise global rules which ensure that national tax systems remain capable to implement distributive justice as they see fit. Finally, I present and discuss a concrete proposal for the global governance of business tax competition, namely, unitary taxation with formula apportionment.

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Tax Competition and Inequality - The Case for Global Tax Governance

Norsk oversettelse av OECDs «Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations»

Experts from the North have long tried to teach countries in the South how to tax. For decades, they assumed the main challenges were domestic and there was a right answer to be found somewhere in the developed world that could be replicated everywhere else. Only more recently have they dedicated more attention to the international realm, yet their solutions remain tied to technical rules designed by a few specialists, as exemplified by the OECD Secretariat’s “Unified Approach” for the taxation of the digital economy. From a critical and historical socio-legal perspective, this Article argues that such technocratic approaches are set to fail less-developed nations for as long as we continue to overlook the background causes of weak taxation at both the national and international levels. These involve difficulties in applying complex rule sets, but also the very way in which global tax policy is developed, who influences the process, and the resulting distributive consequences.

A Different Unified Approach to Global Tax Policy: Addressing the Challenges of Underdevelopment

Commercial banks such as UBS and HSBC embroiled in scandals that in some cases exposed lawmakers themselves as tax evaders, multinationals such as Google and Apple using the Double Irish and other tax avoidance strategies, governments granting fiscal sweetheart deals behind closed doors as in Luxembourg - the stream of news items documenting the crisis of global tax governance is not about to dry up. Much work has been done in individual disciplines on the phenomenon of tax competition that lies at the heart of this crisis. Yet, the combination of issues of democratic legitimacy, social justice, economic efficiency, and national sovereignty that tax competition raises clearly requires an interdisciplinary analysis. This book offers a rare example of this kind of work, bringing together experts from political science, philosophy, law, and economics whose contributions combine empirical analysis with normative and institutional proposals. It makes an important contribution to reforming international taxation.

Global Tax Governance. What's Wrong with it and How to Fix it.

Only the abstract, table of contents and introduction are available here.

As the OECD and the G20 strengthen their central role in the international tax policy arena, scholars and commentators increasingly question their legitimacy to impose standards and norms worldwide. Calls for greater participation of developing countries led the OECD to introduce the Inclusive Framework. Despite questions about whether such initiative improved normative legitimacy or constituted mere rhetoric to circumvent calls for greater inclusiveness, it illustrates the attention given by policy leaders to the potential legitimacy deficits in the international tax regime.

This article analyses the present international tax regime from the perspective of normative legitimacy and argues that despite the importance of improving participation of less powerful countries in international tax policy decisions, increased participation alone may not suffice in making these decisions responsive to interests and needs of developing countries. Structural shortcomings in the institutional design of the international tax regime may require a more in-depth discussion on what normative principles should guide overall reform of the international tax system in a way that produces a fairer allocation of rights and duties among different stakeholders.

Institutional and Structural Legitimacy Deficits in the International Tax Regime

Criticisms over the current international tax regime often reflect two sets of accounts in how justice is perceived and discussed in the political philosophy literature. One account centres around distributive justice, which relates to how burdens and benefits should be distributed throughout society. The other account focuses primarily on political justice and examines the conditions for the democratically legitimate exercise of political power, on the grounds that justice is to be pursued by altering the processes and institutions that produce tax rules and systems. The two accounts are related since democratic legitimacy should comprise, to some extent, the set of conditions for any institution to pursue a just distribution of burdens and benefits. However, each account builds on distinct normative foundations and entails different requirements.

Relatively modest attention is given to the relationship between these accounts in the political philosophy literature, and this gap carries over to scholarship on international tax policy, resulting in what may be described as the Legitimacy-Justice Fallacy, that is, the tendency of policy prescriptions to seek either to solve legitimacy problems by addressing distributive justice concerns or, conversely, to solve distributive justice problems by addressing legitimacy concerns. International institutions such as the OECD and the EU seem to have historically resorted to this fallacy, first, by imposing allegedly just standards on non-member countries without legitimate decision-making procedures and, more recently, following criticism of that approach, by arguing that an inclusive institutional structure should be seen as delivering just outcomes.

This paper examines the impact of this fallacy on international tax discourse and argues that global tax reform discussions should give greater consideration to distributive justice concerns. It ultimately argues that contemporary rhetoric around justice in the international tax community demonstrates an outsize focus on political legitimacy to the exclusion of a genuine concern for distributive justice, to the ultimate detriment of the pursuit of international tax justice.

Two Accounts of International Tax Justice

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.

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Inter-nation equity revisited

Tax scholars have long suggested that tax competition should be mitigated because it reduces the collective revenues of countries, impairs their ability to redistribute wealth, and produces more regressive tax systems. Likewise, international organizations such as the OECD and the European Union increasingly move towards designing a global framework aimed at reducing tax avoidance and mitigating tax competition.

However, there is no comprehensive discussion on the costs that would arise from institutional reform designed to tackle tax competition. To the extent that any change in the international tax order will benefit some countries but also harm others, an ethical analysis of tax competition should include an examination of how to distribute the losses resulting from overall institutional reform. As international policy decisions tend to reproduce the present imbalance of the global power, the lack of an explicit discussion on how to share the costs arising from an institutional change might result in countries with less negotiating power bearing most of these costs.

This Article introduces the costs side of curbing tax competition and offers four normative principles that can help illuminate how the burdens of reforming the current international tax regime should be shared among countries.

Ivan Ozai

Papers

A Different Unified Approach to Global Tax Policy: Addressing the Challenges of Underdevelopment

Institutional and Structural Legitimacy Deficits in the International Tax Regime

Two Accounts of International Tax Justice

Inter-nation equity revisited

Tax Competition and the Ethics of Burden Sharing