The Importance of Lawyers in International Tax Policy Design and Development: An Exploration and Extension of the Legal-Economic Literature

Abstract

The advent of the global digital economy has increased opportunities for aggressive tax planning by multinational enterprises (‘MNEs’). Governments are increasingly faced with the competing objectives of remaining internationally competitive and encouraging foreign investment while also protecting their national tax bases. Two key trends have had a significant impact on the international tax debate. First, over the past three decades, the rise of MNEs and the prominence – and dominance – of inter-company trade as a proportion of global trade has fundamentally shifted the influence of individual governments’ tax policies. Second, even though corporate tax policy has traditionally been a field dominated by economists, there is now a shift towards ‘politicisation’ of the debate. The focus of this article is on the importance of legal practitioners and scholars in assisting with meaningful reform at the intersection of these two trends – and examining alternative theoretical approaches to tax policy. In doing so, this article also bridges two disciplines by combining legal analysis with linear optimisation modelling (to simulate a tax-minimising MNE’s behavioural responses to both existing and proposed tax legislation). Ultimately, it is hoped that this research will present a platform for further discussion on the tax treatment of cross-border intercompany transactions, and facilitate the development of improvements to both the tax law design and drafting.