Indeterminacy, Complexity, Technocracy and the Reform of International Corporate Taxation
| Author | Sol Picciotto |
| DOI | 10.1177/0964663915572942 |
| Date | 01 June 2015 |
| Published date | 01 June 2015 |
| Subject Matter | Articles |
Article
Indeterminacy,
Complexity,
Technocracy and the
Reform of International
Corporate Taxation
Sol Picciotto
Lancaster University Law School, UK
Abstract
Recent public concerns and publicity about the extent of tax avoidance by some of the
largest and most respected transnational corporations have prompted numerous
parliamentary inquiries and intergovernmental initiatives. Among the questions raised
during hearings i n the UK House of Lords o n 11 June 2013 were whet her such
avoidance could be more effectively prevented either by a reduction in the complexity
of the rules, or by a more aggressive interpretation of those rules by tax authorities.
These questions raised issues concerning the complexity and interpretation of law,
which received interestingly different responses from the academics to whom they
were posed, and they merit closer examination, which is the aim of this article. The
article begins by discussing some types of complexity, then considers how these are
rooted in the indeterminacy of legal language and finally discusses the sociology and
politics of the interpretive communities concerned. The main part applies this analysis
to the historical development of international tax rules, seen in the context of these
current pressures and initiatives for reform of international corporate taxation.
Keywords
Multinationals, regulation, tax avoidance
Corresponding author:
Sol Picciotto, International Centre for Tax and Development, and Lancaster University Law School, 5 Regency
House, Leamington Spa, CV32 4HD, UK.
Email: s.picciotto@lancs.ac.uk
Social & Legal Studies
2015, Vol. 24(2) 165–184
ªThe Author(s) 2015
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DOI: 10.1177/0964663915572942
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Types of complexity
International tax coordination is governed by tax treaties, expressed in rules which must
be described as plain and simple, at least by the normal standards of legalese. The central
treaty provision governing taxation of a transnational corporate group
2
states:
Where:
(a) an enterprise of a Contracting State participates directly or indirectly in the management,
control or capital of an enterprise of the other Contracting State, or
(b) the same persons participate directly or indirectly in the management, control or capital
of an enterprise of a Contracting State and an enterprise of the other Contracting State,
and in either case conditions are made or imposed between the two enterprises in their com-
mercial or financial relations which differ from those which would be made between inde-
pendent enterprises, then any profits which would, but for those conditions, have accrued to
one of the enterprises, but, by reason of those conditions, have not so accrued, may be
included in the profits of that enterprise and taxed accordingly.
Tax treaty textsare generally incorporateddirectly into domestic law
3
and in effec t cre-
ate a special tax regime for the taxpayers towhom they apply. Since essentially this same
provision has been used in the more than 3000 bilateral tax treaties now in force, it con-
stitutes a clear and simple legal rule that applies globally, although not universally. It is a
remarkable, if under-appreciated, example of a ‘hard’ rule of international law, binding
states as well as having direct effect for individual legal subjects. Of course, they are
impersonal subjects (corporations), and the rule gives them rights, not duties, since it
restricts states’ power to tax. Corporations can, and frequently do, bring cases in national
courts challenging national tax measures that they consider contrary to a treaty. Even as
powerful a state as the United States found itself significantly constrained in carrying
through its majortax reforms of 1986, as they relatedto transnational corporations (TNCs)
(Picciotto, 1992: 325). This creation of legally binding rights for corporations is a sharp
contrast with the various attempts to create‘codes of conduct’ with obligations forTNCs,
which generally take the form of non-binding ‘soft law’ (Picciotto, 2011, Chapter 4).
However, the text of the treaties provides only the skeleton of international tax rules.
Flesh is put on these bones by additional authoritative documents. First, the model trea-
ties are accompanied by commentaries, which are drawn up by the bodies responsible for
drafting the model treaty texts,
4
and are intended to guide their interpretation. Under gen-
erally accepted principles of treaty interpretation in international law, as well as under
most domestic laws, these commentaries can be referred to by courts and others as an
aid to understanding the meanings of the treaty articles. In addition, those same bodies
issue reports and other documents that are also considered authoritative.
The Organization for Economic Cooperation and Development (OECD) model treaty
commentary on Article 9(1) amounts to less than a couple of pages. However, it refers to the
OECD’s Transfer Pricing Guidelines for Multinational Enterprisesand Tax Administrations,
describing them as ‘internationally agreed principles [which provide] guidelines for the appli-
cation of the arm’s length principle of which the Article is the authoritative statement’. Those
guidelines, began as a report on transfer pricing in 1979, were renamed guidelines when
166 Social & Legal Studies 24(2)
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