Test
The last two decades have been a period of great ferment in international taxation. Economic globalisation and the digitalisation of the economy have resulted in substantial changes in business models and structures. These have in turn led to concerns about whether the existing international tax system, designed for a world of physical, largely bilateral trade and investment, is fit for purpose in a world of global supply chains and virtual goods and services. These concerns started to come to a head with the financial crisis of 2008. At the same time, the rise of emerging and developing countries in the tax arena has called into question the consensus that developed in the early to mid-20th century.
This has led to two major developments in the international tax system. The first was the implementation of the Foreign Account Tax Compliance regime (FATCA) and the Common Reporting Standard (CRS). The second is the Base Erosion and Profit Shifting (BEPS) project initiated by the G20 in 2012 and led by the OECD. The BEPS project has suffered from two major failings. The proposed solutions are innovative procedurally and have increased tax multilateralism via the Inclusive Framework and the Multilateral Instrument. Substantively and conceptually, however, they largely revisit proposals and discussions that have been around for decades. The G20 and the OECD were largely driven by revenue concerns and the need to be seen to be doing something, and quickly. Both are unconducive to fundamental review and reform. Furthermore, the OECD countries were not and are not interested in challenging an international tax regime that largely benefits them, to the detriment of many developing countries.
This concentration on revenue and performative politics and the unwillingness to address fundamental questions have meant that the policy and academic discourse has been almost exclusively on corporate taxation. With the important exception of account information reporting (FATCA and CRS), the treatment of individuals has been left out of the discussion.
This is unfortunate, because the international tax system is as out of date for individuals, in particular for expatriate and migrant individuals, as it is for corporations. The existing system was designed for a world of physical provision of services, limited cross-border investment by individuals and limited voluntary migration. All of this has changed with advances in communications and transportation. Estimates by the World Bank, the United Nations and others vary, but currently there are about 275 million expatriates and migrants. Although not more than 3.5% of the world’s population, this number has risen sharply in the last few decades. In addition, this ‘new mobility’ is often marked by multiple or serial migrations. Expatriates and migrants can be caught by overlapping jurisdiction, multiple reporting requirements and dual tax residency.
At the same time, FATCA and CRS raise issues of data privacy and security, while proposals for net wealth taxes, if implemented in any serious way, will need to deal with the same issues of double taxation and privacy that arise in the income taxation of individuals.
These regimes for the taxation of individuals need to be considered in terms of both fairness to individuals and fairness as between states, particularly where the competition is between developed and developing ones. The literature on fairness in taxation at the domestic level is inappropriate for evaluating international tax policy, and the developing literature on the appropriate the cross-border taxation of entities does not sufficiently address the rights of states or of natural persons in the taxation of individuals, which raises fundamental issues of human rights, justice and privacy that do not apply to entities. The paper will examine the normative basis of the existing regimes for taxing individuals in the cross-border context and consider the implications of notions of fairness for our understanding of the international taxation of individuals.
The Economic Allegiance of Capital Gains
How to ensure that multinational companies are paying their “fair share” of taxes in the countries in which they create value has been the subject of lively debate within the international tax community in recent years. These debates have led to significant and exciting reforms, namely the OECD/G20 Inclusive Framework. While these reforms represent an important step towards creating a more coherent and equitable international tax system, the current conversations have overlooked an essential fact. Value created by a company’s business activities manifests itself in two ways—as business income and as an increase in the overall market value of the company, which then translates into capital gains income when investors sell their shares. Thus far, the conversation has focused exclusively on how to divide taxing authority over company income, missing half the story. A truly comprehensive reform that ensures fairness and equity in international taxation must address the question of how taxing authority over income stemming from the growth in company value should be allocated amongst countries.
This paper fills this gap and assesses how taxing authority over this capital gains income should be divided amongst countries under the normative principles that have guided international tax law for the past 100 years. It concludes that the current international sourcing rules, which allocated taxing authority over capital gains income from the sale of company shares to the investor’s residence country, are at odds with the benefits principle and the related concept of economic allegiance. Not allowing the countries in which companies conduct business (the “source countries”) to tax capital gains income produces an inequitable result whereby a country and its citizens provide benefits and resources that facilitate a company’s business activities without being able to tax income derived from the value created by those business activities.
Digitalization and informational capitalism have revolutionized the global economy in ways that the original designers of the international tax system could never have foreseen when they established international sourcing rules in the 1920s compromise. While granting taxing authority over capital gains income exclusively to the residence country has always been inappropriate and inequitable, this paper argues that certain features of the digital economy have magnified the incoherence and inequities that the current international sourcing rules cause. The first feature is the phenomenon of company growth without income. The drafters of the 1920s compromise worked under the assumption that growth in the value of a company would be accompanied by business income. As a result, even though the source country could not tax capital gains income, it would receive some tax revenue by taxing the company’s business income, thereby providing compensation for the benefits provided. In the digital economy, this is not always the case. Because establishing a robust network of users and customers is essential for many digital business models, particularly platform businesses, digital companies often achieve enormous market capitalizations before ever turning a profit. Digital companies are, therefore, able to create large amounts of value through business activities in a country without ever being taxed there. This broad phenomenon was inconceivable to economists and policymakers in the 1920s.
Additionally, the paper argues that several of the essential drivers of company value in the digital economy have a particularly close economic allegiance to the source country, furthering the unfairness of the source country being unable to tax capital gains income stemming from that growth in company value. These drivers of company value are network effects, data collection, and the free labor of users and customers who create content and data for these companies. The paper analyzes these drivers of value under the same criteria that the 1923 Four Economists’ report used to assess the economic allegiance of agricultural, mining, and industrial activities and finds a strong economic allegiance to the source country. Furthermore, when digital companies are building networks, collecting data, and taking advantage of the free labor of users and customers, they are not only relying on benefits and resources provided by governments to facilitate their business activities and grow their market value. They are also relying on benefits and resources provided by the citizens of the country themselves, in a dynamic that many scholars have highlighted as exploitative and harmful. This reliance makes the violation of the benefits principle caused by not allowing source countries to tax capital gains more acute. Granting taxing authority to the source country is not only needed to directly compensate the government for benefits provided but is also needed to indirectly compensate citizens for the benefits and resources they provide. Allowing the source country to tax capital gains income both realigns taxation of capital gains with the normative goals of the benefits principle and economic allegiance and alleviates some of the exploitative and inegalitarian outcomes we see in the digital economy.
This paper is primarily a proof of concept. But it also presents a policy suggestion to implement this reallocation of taxing authority to source countries—an annual mark-to-market tax at the company level on increases in market value, apportioned amongst source countries based on a set formula. The goal of this policy discussion is to begin a broader conversation about possible global reforms to create an international tax system that is more in line with its underlying normative goals.
Why “Global” Fails:
Inclusive Institutions & International Tax Policy Making
In recent years we got to witness an increasing “globalisation” of tax policy, with leading policy institutions arguing that intensified internationalisation of tax policy issues is key to prosperity and stability of the global community. At the same time, we see more and more lower-income jurisdictions refusing to cooperate or adapt “global” tax policies, and implementing unilateral solutions instead. Many of them have claimed that international tax policy fora fail to properly include them in decision-making processes and represent their financial interests.
Globalization and digitalization of the past decades led to increased interconnectedness of sovereign nations, however, jurisdictions are still very different in terms of size and structure of their economies among other factors. Therefore, their tax policy choices also differ significantly. Recent research showed that the existing global tax policy institutions are systematically biased towards protecting financial interests of large, industrialized, capital-exporting countries, while they fail to properly represent “developing” countries interests. However, the demand for fair international tax policies, as well as for recognition of historical injustices related to international taxation, is clearly present, and truly inclusive institutions are key to achieving these goals.
The institutional architecture of global tax policy making has become very complex, with many national, regional and international actors pursuing various goals. While several platforms have an ambition to lead the international tax debate, the leading position of the OECD remains strong, and a shift of tax policy making to another platform in the nearest future seems unlikely from political perspective. Recently, the OECD experienced an important – yet very rapid – organizational change when the Inclusive Framework was created. The organisational structure, processes and practices will need time to adjust and to deliver desirable outcomes, while at the moment lower-income jurisdictions are still experiencing multiple issues when voicing their opinions and trying to affect content of tax policies drafted by the OECD.
The paper explores the influence that limited access of “developing” states and territories to international tax policy making had on the system of international taxation and inequalities between the Global North and the Global South. In addition, it discusses how institutional architecture of tax policy making can be altered to address the issue and distribute taxing rights in accordance with value creation rather than economic power. Argumentation is based on analysis of relevant OECD organisational documentation, publicly available macroeconomic data, in-depth interviews with tax policy professionals and experience of other institutions.
However, the OECD is not the first international forum experiencing inclusivity issues but aiming at representing its participants on an equal footing. Many international organizations faced similar challenges, and while it is difficult to judge how “perfect” their models of inclusion are, their experience is not to be wasted. I also explore experience of other international organizations by investigating what did they do to improve representation and inclusion of lower-income jurisdictions, and what lessons can be learnt from their experience. In particular, I attempt answering the following three research questions:
Q 1: What did other international organizations do to improve their inclusivity / representation of “developing” countries?
Q 2: Are there some parts of their experience that can be borrowed by the OECD to better represent interests of lower-income jurisdictions and produce more balanced policies?
Q 3: What amendments / additions to these practices might be needed given the international tax context?
This part of analysis examines experience of international institutions such as the World Bank, the International Monetary Fund, the Basel Committee on Banking Supervision as well as the Financial Action Task Force.
In the last forty years or so, the tax system in the US has reinforced extreme economic inequality. The three progressive taxes that have been created to compensate for such inequalities are the individual income tax, the corporate income tax, and the estate tax. However, they all have weakened in recent years. As a consequence, the government has almost no tools left to redistribute wealth from the top to the bottom. The absence of a strong progressive taxation system takes place in a background situation in which the US is more unequal than ever.
Here I will defend a justification of a wealth tax. The justification I propose is different from traditional justifications, and it avoids some of the problems they have. Specifically, my justification is sensitive to the fact that a wealth tax (and, indeed, many other taxes) might burden agents who should not be burdened with this tax (or, who should not be burdened as much as other agents).
In the existing literature, a wealth tax has mainly been defended on the ground that it is incompatible with the core liberal value of equality. I will call this defense outcome-based. This defense has two different versions.
First, the fact that just a few people concentrate so much wealth, while the vast majority have little or nothing, undermines equality. The government should therefore implement a wealth tax. The wealth tax will simply compensate for the fact that there are very rich and very poor people. A society that prides itself of being egalitarian simply can’t accept the big wealth gaps that we see in current societies.
Second, those who have too much money can use it to unfairly tailor rules of society in their favor. For wealthier people it is easier, tempting and feasible to shape the rules of the game in their favor, and the new rules that they create will, in turn, presumably increase their wealth even further. Whenever this happens, the core value of equality is also undermined, but in a different way. The problem here is that the already existing economic inequality creates the possibility of unequal access to political participation. This is morally unacceptable, as members of a political society should have equal access to the decision process that affects them. The purpose of the wealth tax would be, precisely, to prevent this kind of interference from happpening. By becoming less wealthy, their influence will weaken.
The outcome-based approach is a powerful strategy to justify a wealth tax (or any tax), but it has serious limitations. The main shortcoming of the justification of the wealth based on outcomes is that it ignores or neglects the question of how taxed wealth was created in the first place and, as a consequence, it ends up burdening agents who do not deserve to be burdened. Consider the case of someone who inherited a huge amount of money, versus someone who has obtained the wealth by profitting from structural market injustices. In the former case, the heir has to pay the estate tax (if the tax exists) and the regular wealth tax. In the latter case, the taxpayer will have to pay the wealth tax only, at the same rate as in the former case. The direct application of the outcome approach is obvious: the burden of paying the tax will be unfairly distributed among taxpayers. Because of these limitations, the outcome approach will have to be complemented with what I call a procedural approach. The outcome approach, combined with the procedural approach, is a better strategy to justify a reasonable and fair wealth tax.
The main intuition that underlies the procedural approach is that wealth that results from unjust transactions is undeserved, and therefore those who benefit from these kinds of transactions should not be taxed the same way as those who obtained their wealth through just transactions. Unjust transactions can be, for example, transactions that result from exploitation, domination, or unjust structural market conditions. Defending the procedural version of the tax requires the following steps: first, defining “unfair” transactions. Second, explaining how the procedural approach strengthens the outcome-based approach. Third, discussing its feasibility in public policy.
Significant/minimal digital/human involvement/intervention/presence – the never/ending tax/story
Fairness is one of the most challenging words in the tax world. At the same time, it is one of the most indeterminate due to its diverse perceptions. It is difficult to estimate what is fair both from objective and subjective perspective. Fairness is symbiosis of many social factors, of the development of society, of the interaction between the different states at international level. It changes over the years to be in line with the practical needs.
In recent years, we have witnessed many international initiatives by the Organisation of Economic Development and Co-operation (OECD), the United Nations (UN) and the European Council (EC), whose main goal is to combat profit shifting and to find the balance. This is particularly noticeable through the prism of the digital economy. Not only is it no longer a novelty in our daily lives, but it can even be defined as an integral part. Despite the many proposals, it is difficult to reach a final decision on the taxation of the digital economy. OECD addressed this issue in its Action Plan 1 of the Base Erosion and Profit Shifting (BEPS) project. This is also reflected in the EC’s proposal for “significant digital presence”. Pillar 1 can also be included as relevant. UN has proposed an entirely new art. 12B on income from automated digital services. Digital services taxes have already been introduced in the legislation of several states. Nowadays, however, their nature may be construed as disputable and even controversial. From VAT perspective, EC has made a number of proposals for new place of supply rules services relating to virtual activities. All these initiatives are welcoming ideas on this issue.
For the purposes of this paper, attention will be paid to specific aspect that is particularly important (or not) for the digital economy – the human presence. In this regard, it is necessary to consider what is its function through the prism of direct and indirect taxes.
At EU level, the proposal for significant digital presence, known as the “digital PE”, may be mentioned. Also, Art. 12B, para 4 UN-MC is intriguing. It contains the expression “minimal human involvement”. From VAT perspective, Art. 7, para 1 VAT Implementing Regulation the “minimal human intervention” is used.
In this regard, it is interesting to consider the role of the expressions used, as well as their similarities and differences. Therefore, the author will try to answer the following questions. First, what is the “minimum” and where is the “maximum” of the human presence (if any) and the determination of their threshold (if any)? Second, is it always necessary to talk about humans in the digital economy? Third, is there a difference between human “involvement” and “intervention” or are they synonyms? Last but not least, it is intriguing to consider whether a criterion that is universally valid for both direct and indirect taxes can be used. This is especially important for some key concepts such as the permanent establishment and the fixed establishment. At this stage, in both cases, their digital manifestation is unlikely for various different reasons. However, this topic will be subject of further analysis in the future.
Finally, conclusions will be drawn about the real impact of humans and their intervention. If they are not “applicable” at all for the purposes of the digital economy, then do we need their further tax analysis? Conversely, if they have a definite role, then where is the line between the physical and the digital aspects?
The author has chosen this issue because it is vital for the digital economy both from direct and indirect taxes perspective and from theoretical and practical point of view. His analysis will provide guidance on what awaits us in the future on this issue, as well as whether common approaches for the interpretation of the above mentioned terms can be found. It would also answer the more philosophical question of how much humans will influence the proper tax treatment. This is becoming an increasingly significant topic due to the increasing use of robots and space.
A prominent theme in the discourse of international taxation is that taxing rights should follow wealth production. In considering the validity of this proposition, the paper will rely on the familiar dichotomy in moral philosophy between the right and the good. In the context of international taxation, the right involves a host country’s deontological claim to receive a portion of the income produced within its borders. The good involves the claim that host countries need revenue from multinational enterprises (MNEs) to fund public goods. Although the literature often conflates these two claims, they are distinct and require separate analysis.
Within the realm of the right, we must make a further distinction between two different types of right-based claims. On the one hand, a host country may assert that MNEs who choose to operate in its territory take upon themselves an implicit contractual obligation to pay tax as delineated in the host country’s laws. When the host country imposes an income tax, MNEs are in effect contractually obligated to pay the host country a percentage of the income generated by their economic activity in the host country. Alternatively, the host country may assert a neo-Lockean claim to a commensurate share of the wealth that its social capital – in the broadest possible sense of the term – helped to create.
Regarding the contractual claim, I argue that the terms of the contract are in almost all cases delineated by the host country’s tax legislation. In effect the host country offers a standard-form contract to foreign entities, which then signify their assent by investing or otherwise operating in the host country’s territory. Consequently, if the terms of the agreement are difficult to enforce, the most obvious response would be to adopt terms that are more easily enforceable. I posit that the reason host countries do not do so is because a stricter tax regime would make it difficult to compete for international investments against countries whose tax systems are easier to manipulate. In other words, the so-called “loopholes” are actually part and parcel of the implicit contractual arrangement between the host country and the MNE.
The neo-Lockean argument is that creation of wealth within a country’s borders is effectively a joint project involving the exploitation of the MNE’s resources along with the social capital – in the broadest sense of the term – of the host country. Under neo-Lockean theory, the host country is entitled to a share of the income commensurate with its contribution to the production of that wealth, and income tax is the means by which it asserts that right. Profit shifting by MNEs understates the wealth actually created within the host country’s territory and prevents the host country from claiming its fair share of that income. I contend that this argument too does not succeed. First, from the mere fact that an MNE derives wealth from its operations in the territory of a certain country, it does not necessarily follow that the host country’s social capital contributes in any meaningful way to the production of that wealth. Second, even when there is reliance upon the social capital of the host country, the MNE will in most cases pay for its exploitation of the host country’s social capital via factor prices (particularly salaries and rent). Third, to the extent that the positive contribution of its social capital is not reflected in factor prices, the host country should be able effectively to impose tax on foreign entities. Its desire for more MNE tax revenue than it is capable of collecting in a competitive atmosphere constitutes at least prima facia evidence that it wants more than its actual contribution to the creation of wealth.
Moving from the right to the good, it is often asserted that budgetary exigencies of host countries require that they collect taxes from MNEs and that without such revenue their ability to supply essential public good would be seriously curtailed. However, this utilitarian claim does nothing to support the proposition that taxing rights should follow the production of wealth. In allocating taxing rights under the umbrella of the good, it is needs and the capacity to meet those needs that should dictate taxing power. To which of any number countries the international tax regime should grant the power to tax a particular MNE’s income in the name of the good would be a function of the extent to which granting the taxing power to any particular country would promote total human happiness. The location of wealth production is irrelevant from this perspective.
The paper concludes by considering why the principle that taxing rights should follow value creation has gained such prominence in the discourse on international taxation. I speculate that what actually motivates countries is a parochial concept of the good in which the welfare of their constituents takes precedence over the welfare of others. However, as it is difficult to seek international cooperation to implement such a principle, they instead attempt to justify their position in terms of an objective principle, even if that principle ultimately lacks a normative justification.
Uniform International Tax Collection and Distribution for Global Development, a Utopian BEPS Alternative Abstract
Fairness in International Taxation Symposium
University of Surrey
Henry Ordower
Saint Louis University School of Law
Under the guise of compelling multinational enterprises (MNEs) to pay their fair share of income taxes, the OECD and other multinational agencies introduced proposals to prevent MNEs from eroding the income tax base of developed economies by continuing to shift income artificially to low or zero tax jurisdictions. Some of the proposals garnered substantial multinational support, most recently adopted by 136 (7) OECD countries, including recent support from the U.S. presidential administration for a global minimum tax. This Article reviews many of those international proposals.
The proposals tend to concentrate the incremental tax revenue from the prevention of base erosion into the treasuries of the developed economies although the minimum tax proposal known as GloBE encourages low tax countries to adopt the minimum rate. The likelihood that zero tax countries will transition successfully to imposing the minimum tax seems uncertain.
Developed economies lack a compelling moral claim to incremental revenue so this Article argues that collecting a fair tax from MNEs and other taxpayers should be a goal that is independent of claims on that revenue. This Article maintains that to prevent tax base erosion, the income tax base and administration must be uniform across national borders and the Article recommends applying uniform rules administered by an international taxing agency. The Article explores the convergence of tax rules under such an international taxing agency.
The Article illustrates the problem of uniform tax collection and distribution with a regional example of school funding in St. Louis County, Missouri, USA. Through that mechanism, the Article presents the unnecessary and unfair manner in which some districts capture a disproportional share of revenue and deploy it to provide higher quality education in their communities, leaving other communities far behind.
Distribution of tax revenue by the international agency should follow contextualized need. In addressing the conundrum of absolute poverty in the undeveloped and developing world vis á vis relative poverty in the developed world, the Article proposes that the taxing agency should distribute all incremental revenue from the uniform tax where the need is greatest to ameliorate absolute poverty and improve living standards without regard to income source. The location of income production, destination of the produced goods and services generating the income, and residence of the income producers should not determine the tax revenue distribution. Rather, the use of contextualized need for distribution determination will enable developed economies to receive sufficient revenue to maintain their existing infrastructures and governmental services. Developed economies should forego new revenue, for which they have not budgeted, in favor of improving worldwide living conditions for all. The proposals for uniform, worldwide taxation and revenue sharing based on contextualized need are admittedly aspirational and utopian but designed to encourage debate on sharing of resources in our increasingly globalized world.
REEVALUATING THE ALLOCATION OF TAX COLLECTION OF IMMIGRANTS BETWEEN HOME COUNTRY AND HOST COUNTRY
TAMIR SHANAN AND DORON NAROTZKI
ABSTRACT
In 1972, when Professor Jagdish Bhagwati published his seminal proposal “The Brain Drain and Income Taxation, a Proposal,” his fundamental idea was to tax skilled workers who had emigrated from developing countries to developed countries and return at least some of the income to developed countries for their economic loss. Professor Bhagwati underlying rationale for this tax was the need to compensate developing countries for the losses those countries experienced by individuals who were born, raised, and often times professionally trained there but eventually left to developed countries in order to find a more lucrative employment opportunities (higher salaries, better working conditions, etc.) and improve their standard of living (more stable lives in the developed countries and better educational opportunities for the migrant’s children).
This basic idea of the so-called “brain drain tax” is that skilled migrants typically earn economic rents, that rely on skills and know-how which they received in their home-country (especially when the training and education relies on state funding) and that due to their relocation benefit the host-country which did not invest any of its own resources in order to receive skilled professionals. Furthermore, such relocation of skilled professional from developing countries to developed countries also results in shortages of skilled professional in the developing countries and as a result put those in another disadvantage.
Professor Bhagwati proposal was aimed mainly at promoting global fairness between developing countries and developed countries and focused on the phenomena of skilled migrants leaving developing countries and moving to developed countries. However, our research wishes to further develop this idea, and explore the jurisdiction to tax individuals and more specifically the fundamental principle of “residency” under the existing international norms. Accordingly, our research would explore migration economic and tax implications in general, regarding skilled and unskilled migrants and regarding migration from one country to another (not necessarily from developing countries to developed countries), and eventually suggest a model that will assist countries with ways to tax those individuals in a more fair manner that will lean on social justice and social contracts and ties between the individual and her domiciliary community, and not solely between countries or on technical standards as it is currently.
One of the challenges in implementing such a tax is the fact that under the current international tax regime the taxing jurisdiction follows residence and that many countries define residency for tax purposes based on one version or another of a physical presence test (presence of more than 183 days in one country during the calendar year), or based on the place where the migrant’s habitual abode was in the relevant calendar year. As such, under existing rules, and more often than not, immigrants are considered residents of the host-country rather than of their home-country. One possible solution to this challenge is in strengthening the domiciliary concept which interprets the notion of “home” in the country where the individual resides permanently without any intention of moving. For instance, under this concept, an immigrant who studied a graduate degree in a host-country who decides to work for several years after graduating, does not cease to have his permanent home in his home-country merely because he is temporarily residing elsewhere. Another possible solution to this challenge can be achieved in an alternative personal jurisdiction regime – adoption of a citizenship-based taxation.
The need to compensate home countries, whose citizens relocate and move to another country, from the loss of untaxed unrealized gains was addressed by many countries that adopted exit taxes. These exit taxes attempt to capture unrealized untaxed appreciated gains of assets based on their appreciation during the period the individuals owned the property just before she or he abandoned her or his tax residency or just before she or he renounced her or his citizenship. However, these exit taxes unfortunately do not capture the human capital appreciation since at the time of migration emigrants generally do not benefit from the increase of wages, and in any event many of the economic benefits that derive from the know-how, intellectual property they acquired/developed prior to the relocation can easily be deferred, and also because the “appreciation” period (unlike the holding period of a movable property) is less explicit and as such pose greater collection challenges for the home countries.
Our research will explore the different proposals raised by legal and tax scholars over the years regarding brain drain tax and propose a model that would try to capture unrealized and untaxed economic “rent” that derives from know-how and skills that may be attributed to their home-countries. We would also compare between the U.K. domiciliary-based regime and the U.S. citizenship-based regime and propose a model that can be relatively easily adopted, administered and monitored by the home-countries and that will enhance global fairness between countries.
Abstract: This article presents an analysis of the regulation of transfer prices, specifically inquiring about the purpose of establishing this obligation with tax havens. In this regard, it is argued that the application of this regime with tax havens has the purpose of disciplining and punishing States that resist entering neoliberal economic globalization. To explain this thesis, an analysis is carried out from the analytical Marxism of Gerald Cohen on the international institutions that advocate full competition and unify tax regulations, such is the case of the OECD.
Keywords: Transfer pricing, multinationals, analytical Marxism, tax havens, globalization.
Proposal
Economic globalization is a long-standing process, but one that in our recent history is marked by the expansion of neoliberalism and the legal and economic adaptation of States to a unified global order around freedom of capital and free competition. This translates into constitutional reforms and the enactment of organic laws that adjust the institutional system of each State based on recommendations from international institutions. The key to this process is to “unify” the treatment of private capital with respect to its free movement and guarantees, while adapting State action to the control of other types of economies that distort the neoliberal model.
In this general context, this article aims to address this problem in relation to the transfer pricing regime, which is applied in international tax auditing and is intended to prevent the erosion of the tax bases of the States involved in operations between economic linked and tax havens. At least that is how it is presented to us from the OECD and the tax authority, but as it is problematized in this writing, this purpose is partially true. Because it is argued that the application of this regime with tax havens has the purpose of disciplining and punishing States that resist entering neoliberal economic globalization. This thesis is reached by answering the following research question:
What is the political/economic purpose of establishing the transfer pricing obligation with tax havens without having an economic link from the critical perspective of Gerald Cohen?
This concern is the center of the academic dissertation presented in this proposal, which is developed in three sections, the first on the arm’s length principle where the global economic order is characterized, the OECD regulation in this regard is named, and some glosses are made on the transnational economic power of companies from the critical opinion of Gerald Cohen; In the second section, the transfer pricing obligation is addressed, explaining its usefulness and application, how it works in practice in the Colombian legal system, and the paradigm of “erosion of taxable bases” in tax havens is problematized. Finally, in the third section, a comparison is made of the purpose of transfer prices between economic link and tax havens, with the aim of finding their role in economic globalization and sustainable development.