The Limited Prospects for International Tax Cooperation
| Date | 01 November 2017 |
| DOI | http://doi.org/10.1111/1758-5899.12475 |
| Published date | 01 November 2017 |
| Author | Robert Kudrle |
The Limited Prospects for International Tax
Cooperation
Robert Kudrle
University of Minnesota
Abstract
The recent pace of international agreement aimed to reduce tax evasion and avoidance was completely unpredicted prior to
the financial crisis. The two targets are often considered to be merely different dimensions of the same problem. This paper
argues that the two problems actually involve very different logics, and this holds the key to the prospects for success. The
assault on tax evasion confronts a problem that is commonly recognized and admits to amelioration through the increased
information sharing that is rapidly, although unevenly, advancing. Attempts to reduce corporate tax avoidance, however, con-
front ambiguity at every turn. National corporate tax systems differ markedly from each other in rules as well as rates, and
agreement necessarily takes place in an ever more competitive international business environment in which national rate and
rule setting will remain largely independent. Moreover, increased attention to the international taxation of business seems to
have increased rather than dampened unilateral initiatives to advance national gain.
Policy Implications
•The US should require the collection of information on beneficial ownership of companies.
•The US should move swiftly to reduce the corporate income rate substantially while reexamining practices that others
states deem abusive.
•Unilateral international business tax reforms by all states should weigh the impacts on others and involve consultation
with them.
•The OECD should continue to dampen tax conflicts by applying its expertise on compromise and peer review beyond the
G20.
International cooperation on tax issues falls into two broad his-
torical periods with essentially opposite concerns. From the
time of the First World War and for decades after the Sec-
ond, cooperation aimed at reducing the double taxation of
income that could result from overlapping revenue claims.
Starting in earnest in the 1990s, the focus shifted to tax eva-
sion and avoidance: ‘double non-taxation’. That second
phase continues, and activity has burgeoned in the years
since the financial crisis. Both evasion and avoidance are
under attack with a visibility and apparent political determi-
nation that was almost completely unpredicted prior to the
crisis. Most analyses of the recent period treat evasion and
avoidance together. This is a mistake because they involve
very differ logics. The attack on evasion could ultimately
result in a stable equilibrium outcome of greatly reduced
tax cheating while the current assault on corporate tax
avoidance may have accelerated unilateral initiatives and
increased tax competition.
Most attention to international tax issues in political
science and law devotes principal attention to revenue col-
lection and its distribution across jurisdictions. In sharp con-
trast, an economic approach often focuses on wealth
maximization by a unitary rational actor in which revenue
gains or losses are only a component. While the single actor
assumption clearly oversimplifies, this paper argues that the
economic approach can illuminate the larger picture and is
necessary to explore the prospects for policy development.
Specifically, any forecast of cooperation on taxation requires
an investigation of a state’s national interest construed sim-
ply as wealth enhancement, even if that interest is substan-
tially distorted by special interests, as it invariably is. This
paper will employ that approach, paying particular attention
to the largest single actor in global tax matters, the United
States. Not only does the US still account for nearly a quar-
ter of the world’s product, over ten per cent of total trade,
and more than a fifth of incoming and outgoing direct
investment stocks, but its federal system and recently vola-
tile politics make it the most problematic factor in global
tax policy.
The paper will first outline the central argument. This is
followed by a brief history of policy development over the
twentieth century. The differing paths of recent international
initiatives on evasion and avoidance are then explored.
The main argument here can be summarized simply:
international cooperation on personal taxes will likely con-
tinue to increase, but corporate tax cooperation will remain
quite limited. This prediction rests on several major differ-
ences. First, the incidence of the personal income tax in a
Global Policy (2017) 8:4 doi: 10.1111/1758-5899.12475 ©2017 University of Durham and John Wiley & Sons, Ltd.
Global Policy Volume 8 . Issue 4 . November 2017 455
Research Article
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