The digitalization of the economy combined with sophisticated tax planning has enabled some multinationals to avoid paying almost any income tax in most market jurisdictions from which they earn substantial profits. Faced with financial and political pressures to act, market states have sought to expand their tax bases so that these multinationals, especially those providing internet advertising and digital intermediation services, pay their ‘fair’ share of tax. The failure to reach an agreed outcome among Organisation for Economic Co-operation and Development and Group of Twenty members has led to an increasing number of states to take unilateral measures. In doing so, states need to navigate their obligations under double taxation agreements and trade agreements. An examination of typical double taxation agreements, the General Agreement on Trade in Services, and recent preferential trade agreements shows that states have limited options to expand their tax bases in compliance with their international obligations. Here, the imposition of an appropriately designed digital services tax has political and legal advantages. The growing volume of cross-border digital services and data flows suggests that greater engagement between the international tax and trade regimes is likely in the future, including in the negotiations of disciplines on electronic commerce.
The base erosion and profit shifting (BEPS) project and the creation of the Inclusive Framework on BEPS are ambitious initiatives that could transform the Organisation for Economic Co-operation and Development (OECD) from a rich-countries club into the standard setter and a consensus facilitator on matters of global tax governance. In some areas, where the interests of many states have aligned, this transformation has already occurred. However, in highly disputed areas, such as the taxation of business profits in the digital economy or other distributive concerns, the OECD can only rely on shared values, which, if not entirely reconciling the conflicting interests of states, could at least encourage collective action. Since fairness underlies many common values, fairness-based narratives are a plausible source of soft power for the OECD and potentially a tool in facilitating tax cooperation. This article argues that this may be one possible explanation for the OECD's reliance on the concept of fairness in its BEPS documentation. Using the OECD's BEPS action 1 narrative as a case study and focusing on the social dimension of fairness, this article finds that this narrative is inconsistent with the states' narratives and is unjustified; it lacks fidelity (story integrity) and is only weakly persuasive, at least where the fairness argument is concerned. These flaws may not affect the OECD's legitimacy as a standard setter and consensus facilitator, but they may undermine the legitimacy of the OECD standards that are founded on fairness arguments, especially if those standards affect the distribution of the benefits and costs of tax cooperation.
Informed by Aristotle's theory of justice and Reuven Avi-Yonah's views about goals of taxation, this article formulates a reciprocity-based framework for a systematic assessment of the normative merits and effectiveness of taxes, and tests this framework using the diverted profits tax (DPT) and the digital services tax (DST) imposed by the United Kingdom on some multinationals. This assessment is helpful in identifying changes in tax design and other conditions that may be necessary to make a particular tax "just" in terms of absolute or relative substantive justice. Drawing on Aristotle's types of justice, taxes can be classified as universal, distributive, or corrective. From a reciprocity perspective, each tax, depending on its type, contributes to the well-being of a community, but in a different way: universal taxes are contributions to the provision of public goods generally; distributive taxes ensure that members of the community who can pay more contribute more to the provision of public goods; and corrective taxes aim to prevent tax free-riding and seek compensation from free-riders for the harms that they cause by not paying taxes and thus jeopardizing the provision of public goods. This article concludes that the UK DPT is a corrective tax, and it is a just tax. In contrast, the UK DST is likely a distributive tax, and it is just only if its economic burden falls on the firms providing widely used digital platforms. Broadening the tax base would transform the UK DST into a universal tax and change its primary goal from wealth distribution to revenue raising. As a universal tax, the UK DST can be viewed as a just tax because the production and distribution of digital services require extensive use of specific public goods, such as the Internet's infrastructure.
Drawing on narrative analysis developed by communications scholars, and applied by scholars of economics and international law and in policy analysis, this article studies action 1 of the Organisation for Economic Co-operation and Development's (OECD's) base erosion and profit shifting (BEPS) project as a policy narrative. The authors outline the role of narrative in international tax policy making and evaluate the probability and the argumentative and material coherence of the OECD's story about the need to ensure the stability of the international tax framework and system. Focusing on the narrative strategy adopted by the OECD to promote its pillar one proposal, the authors assess the likely persuasiveness of the OECD's stability argument—in particular, how it may have influenced the response to the proposal by the members of the Inclusive Framework on BEPS. The authors conclude that the OECD's concern about potentially destabilizing effects of digital services taxes and similar taxes on the international income tax system propagates a global fiscal illusion, and may not sustain long-term support for pillar one by many members of the Inclusive Framework.
Binding taxpayer-initiated international dispute resolution has traditionally played a minor role in the international tax system. Despite being long pursued by corporate interests and increasingly accepted by developed countries, international tax arbitration has remained less developed and less respectful of private interests than investor–State arbitration. The binding multilateral dispute settlement endorsed by over 130 countries as part of the Organisation for Economic Co-operation and Development's Two Pillar Solution to issues raised under Action 1 of the Base Erosion and Profit Shifting (BEPS) project marks a change and is noteworthy at a time when some States are reconsidering their consent to the international adjudication of trade and investment disputes. The design of international dispute settlement in the Two Pillar Solution, and the focus on the protection of multinationals from juridical double taxation, displays little appreciation of the experience with dispute settlement in international trade and investment over the past two decades.
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