Global Tax Governance: What’s Wrong, and How to Fix It by Peter Dietsch and Thomas Rixen


0659c9f061864c9-261x361.jpg Author Peter Dietsch and Thomas Rixen
Isbn 9781785521263
File size 3MB
Year 2016
Pages 382
Language English
File format PDF
Category economics



 

© Peter Dietsch and Thomas Rixen 2016 Cover © Estate Werner Hartmann Installation ‘New York’ by Werner Hartmann (1945–1993) First published by the ECPR Press in 2016 The ECPR Press is the publishing imprint of the European Consortium for Political Research (ECPR), a scholarly association, which supports and encourages the training, research and cross-national co-operation of political scientists in institutions throughout Europe and beyond. ECPR Press Harbour House Hythe Quay Colchester CO2 8JF United Kingdom All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Typeset by Lapiz Digital Services Printed and bound by Lightning Source British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN: 978-1-785521-26-3 PDF ISBN: 978-1-785521-64-5 EPUB ISBN: 978-1-785521-65-2 KINDLE ISBN: 978-1-785521-66-9 www.ecpr.eu/ecprpress ECPR Press Editors: Peter Kennealy (European University Institute) Ian O’Flynn (Newcastle University) Alexandra Segerberg (Stockholm University) Laura Sudulich (University of Kent) If you are interested in taxation, you may also wish to explore the following title from ECPR Press The Politics of Income Taxation: A Comparative Analysis Steffen Ganghof Marginal income tax rates in advanced industrial countries have fallen dramatically since the mid-1980s, but levels and progressivity of income taxation continue to differ strongly across countries. This study offers a new perspective on both observations. It blends theoretical inquiry with focused quantitative analysis and in-depth investigation of seven countries: Germany, Australia and New Zealand as well as Denmark, Finland, Norway and Sweden. The Politics of Income Taxation highlights the equity-efficiency tradeoffs that structure the politics of income taxation, and analyses how income taxes are embedded in broader tax systems. It explains the limited but enduring importance of political parties and democratic institutions. Finally, the study paints a nuanced picture of the role of globalisation and thus sheds light on the pros and cons of tax co-ordination at European and international levels. ISBN: 9780954796686 Please visit www.ecpr.eu/ecprpress for up-to-date information about new and forthcoming publications. Table of Contents List of Figures and Tables vii List of Abbreviations ix Contributors xiii Acknowledgements xvii Chapter One – Global Tax Governance: What It is and Why It Matters Peter Dietsch and Thomas Rixen PART ONE – THE PROBLEM: INTERNATIONAL TAX COMPETITION 1 25 Chapter Two – The Nature and Practice of Tax Competition Kimberly A. Clausing 27 Chapter Three – Winners and Losers of Tax Competition Philipp Genschel and Laura Seelkopf 55 Chapter Four – Tax Competition: An Internalised Policy Goal Lyne Latulippe 77 PART TWO – SHORTCOMINGS OF THE CURRENT REGULATORY FRAMEWORK AND INITIATIVES 101 Chapter Five – A Strange Revolution: Mock Compliance and the Failure of the OECD’s International Tax Transparency Regime Richard Woodward 103 Chapter Six – Redistributive Tax Co-operation: Automatic Exchange of Information, US Power and the Absence of Joint Gains Lukas Hakelberg 123 Chapter Seven – Does FATCA Teach Broader Lessons about International Tax Multilateralism? Itai Grinberg 157 Chapter Eight – The G20, BEPS and the Future of International Tax Governance Richard Eccleston and Helen Smith 175 vi Global Tax Governance PART THREE – NORMATIVE PRINCIPLES FOR GLOBAL TAX GOVERNANCE Chapter Nine – Tax Competition: A Problem of Global or Domestic Justice? Miriam Ronzoni Chapter Ten – International Taxation and the Erosion of Sovereignty Laurens van Apeldoorn 199 201 215 Chapter Eleven – Whose Tax Base? The Ethics of Global Tax Governance 231 Peter Dietsch PART FOUR – FROM THEORY TO PRACTICE: JUST INSTITUTIONS FOR INTERNATIONAL TAX GOVERNANCE 253 Chapter Twelve – Towards an International Yardstick for Identifying Tax Havens and Facilitating Reform Markus Meinzer 255 Chapter Thirteen – A Proposal for Unitary Taxation and Formulary Apportionment (UT+FA) to Tax Multinational Enterprises Reuven S. Avi-Yonah 289 Chapter Fourteen – International Financial Transaction Taxation, Public Goods and Justice Gabriel Wollner 307 Chapter Fifteen – Institutional Reform of Global Tax Governance: A Proposal Thomas Rixen 325 Index 351 List of Figures and Tables Figures Figure 2.1: Statutory corporate tax rates for central governments, average, OECD countries 30 Figure 2.2: Average effective tax rates for foreign affiliates of US multinational firms (across 50 countries) 32 Figure 2.3: Top income countries for affiliates of US multinational firms, 2011 (shares of total foreign profits of affiliates abroad) 34 Figure 2.4: Top employment countries for affiliates of US multinationals, 2011 (shares of total foreign employment of affiliates abroad) 35 Figure 3.1: Corporate tax rates and country size across the world, 2010 58 Figure 3.2: Corporate tax rate and country size by regime type, 2010 61 Figure 3.3: Size matters: corporate tax rate, corporate tax revenue, social-security expenditure and net lending/borrowing in the OECD over time, weighted and unweighted averages 63 Figure 3.4: Growth and income across tax havens, OECD countries and rest of world 67 Figure 6.1: Banks’ deposit liabilities towards non-resident non-banks: United States and Switzerland (US$ millions) 139 Figure 6.2: Banks’ deposit liabilities towards non-resident non-banks: Austria, Germany and Luxembourg (US$ millions) 141 Figure 6.3: Asset-holdings of non-resident households and commercial clients with Swiss banks (CHF billions) 142 Figure 6.4: Banks’ deposit liabilities towards non-resident eurozone households and non-profit organisations acting on behalf of households (€ millions) 143 Figure 12.1: Jurisdictions’ incidence on national tax-haven listings 261 viii Global Tax Governance Figure 12.2: Incidence of tax haven listings: on how many tax lists (out of eight maximum) are each of the eighty-four jurisdictions named? 265 Figure 12.3: Shortcomings of national and international (tax) blacklist approaches 266 Figure 13.1: Where were the profits in 2005? (profits as % of worldwide total) 292 Figure 13.2: Where were the jobs in 2005? (employment as % of worldwide total) 293 Figure 15.1: Stages of co-operation 333 Tables Table 2.1: Regressions explaining activity levels, 1983–2011 36 Table 2.2: Fixed effects regressions explaining activity levels, 1983–2011 37 Table 2.3: Regressions explaining gross fixed capital formation/GDP 39 Table 2.4: Regressions explaining ln of capital/labour ratio (K/L) 40 Table 3.1: Fiscal and policy characteristics of LDCs, OECD20 and tax havens, 2010 60 Table 6.1: Portfolio investment of top-5 secrecy jurisdictions in US and in main FPI destinations inside EU (% of total) 127 Table 6.2: Adoptions of AEI among top-25 secrecy jurisdictions 136 Table 12.1: Overview of counter-measures against listed jurisdictions (‘LJ’) 263 Table 12.2: Overview of KFSIs and potential counter-measures 274 Appendix: Table 12.3 Key financial secrecy indicators (KSFIs): qualitative index components of Financial Secrecy Index 283 List of Abbreviations AEI Automatic Exchange of Information AIE Automatic Information-Exchange ALS Arm’s Length Standard APAs Advance Pricing Agreements AuM Assets under Management BCG Boston Consulting Group BEA Bureau of Economic Analysis BEPS Base-Erosion and Profit-Shifting BIAC Business and Industry Advisory Committee BIS Bank for International Settlements CCCTB Common Consolidated Corporate Tax Base CFC Controlled Foreign Corporation CIT Corporate Income Tax CPM Comparable Profit Method CUP Comparable Uncontrolled Price DoJ (US) Department of Justice DSP Dispute Settlement Panel DTA Double-Tax Avoidance ECOFIN Economic and Financial Affairs Council ECPR European Consortium for Political Research EFD Eidgnössisches Finanzdepartment ETI Extraterritorial Income Exclusion Act EU European Union FA Formulary Apportionment FAT Financial Activities Tax FATF Financial Action Task Force FC Financial Crisis FFIs Foreign Financial Institutions FIA Futures Industry Association FATCA Foreign Account Tax Compliance Act FDI Foreign Direct Investment FPI Foreign Portfolio Investment x Global Tax Governance FSB Financial Standards Board FSC Foreign-Sales Corporation FSF Financial Stability Forum FSI Financial Secrecy Index GAO Government Accountability Office GFC Global Financial Crisis GNI Gross National Income GSW Global Scale Weight HTC Harmful Tax Competition IAIS International Association of Insurance Supervisors ICC International Criminal Court ICJ Court of Justice IFRS International Financial Reporting Standard IFTT International Financial Transaction Tax IGA Intergovernmental Agreement IGO Intergovernmental Organization IMF International Monetary Fund IOSCO International Organization of Securities Commissions IPE International Political Economy IPOs Initial Public Offerings IRC Internal Revenue Code IRS (US) Internal Revenue Service ITO International Tax Organization KPMG Klynveld, Peat, Marwick und Goerdeler KSFIs Key Financial Secrecy Indicators KYC Know-Your-Customer LDCs Least Developed Countries LGT Liechtenstein Global Trust LJ Listed Jurisdictions LSC Legal-entity-Specific Counter-measures MFN Most-Favoured-Nation MNCs Multinational Corporations MNEs Multinational Enterprises NRAs Non-Resident Aliens OECD Organisation for Economic Co-operation and Development OFCs Offshore Financial Centers List of Abbreviations PTAs Preferential Trade Agreements PTRs Preferential Tax Regimes QI Qualified Intermediary SDA Schweizer Depeschen Agentur SSHRC Social Sciences and Humanities Research Council of Canada TIEA Tax Information-Exchange Agreement TJN Tax Justice Network TNMM Transactional Net Margin Method UBS United Bank of Switzerland UK United Kingdom UNCTAD United Nations Conference on Trade and Development UNFPA United Nations Population Fund US United States UT+FA Unitary Tax and Formulary Apportionment WTO World Trade Organization WZB Wissenschaftszentrum Berlin xi Contributors LAURENS VAN APELDOORN is Assistant Professor in Philosophy at Leiden University, the Netherlands. His research interests include early modern political thought and contemporary political theory, and his work has been published in History of European Ideas and Hobbes Studies. REUVEN S. AVI-YONAH is the Irwin I. Cohn Professor of Law and director of the International Tax LLM Program. He specialises in corporate and international taxation and has served as a consultant to the U.S. Department of the Treasury and the OECD on tax competition. He has published more than 150 books and articles, including the forthcoming Advanced Introduction to International Tax (Elgar, 2015) and Global Perspectives on Income Taxation Law (Oxford University Press, 2011). KIMBERLY CLAUSING is the Thormund Miller and Walter Mintz Professor of Economics at Reed College. Her research studies the taxation of multinational firms, examining how government decisions and firm behaviour interplay in the world economy. She has received two Fulbright Research awards, and her research has also been supported by grants from the National Science Foundation, the Smith Richardson Foundation, the International Centre for Tax and Development, and the U.S. Bureau of Economic Analysis. PETER DIETSCH is Associate Professor at the Université de Montréal. His research interests lie at the intersection of political philosophy and economics, with a particular focus on questions of income distribution as well as on the normative dimensions of economic policies. He is the author of Catching Capital – The Ethics of Tax Competition (Oxford University Press, 2015). RICHARD ECCLESTON is Professor of Political Science and founding Director of the Institute for the Study of Social Change at the University of Tasmania. He works on various aspects of comparative politics and economic policy. His specific expertise is in the politics of public finance and taxation reform. His most recent books are The Dynamics of Global Economic Governance (2014) and The Future of Federalism: Multi-level governance in an age of austerity (forthcoming). PHILIPP GENSCHEL holds a Joint Chair in European Public Policy at the Robert Schuman Center for Advanced Studies and the Political and Social Sciences Department of the European University Institute in Florence. He has published widely on issues of international taxation, global governance and European integration. His latest books include (co-edited with Markus Jachtenfuchs) Beyond the Regulatory Polity? The European Integration of Core State Powers (Oxford University Press, 2014) and (co-edited with Ken Abbott, Duncan Snidal and Bernhard Zangl) International Organizations as Orchestrators (Cambridge University Press, 2015). xiv Global Tax Governance ITAI GRINBERG is a professor of tax law at the Georgetown University Law Center. His research focuses on tax reform, international tax, and tax and development. Prior to joining the Georgetown faculty, he served in the Office of International Tax Counsel at the United States Department of the Treasury, and as Counsel to the President’s Advisory Panel on Federal Tax Reform of 2005. LUKAS HAKELBERG is a doctoral candidate in political science at the European University Institute in Florence, Italy. His research interest lies in international political economy, where he currently focuses on international co-operation against tax evasion and avoidance. His published work has appeared in Journal of European Public Policy and Global Environmental Politics. LYNE LATULIPPE is a professor in the department of taxation at the Faculté d’administration of the Université de Sherbrooke. Her main research interests are the design and implementation of domestic and international taxation policy and international tax governance. She is an associate researcher for the Research Chair in Taxation and Public Finance and is responsible for studies on international taxation issues, tax evasion and avoidance and tax fairness. MARKUS MEINZER is a senior analyst for the Tax Justice Network (TJN). He is working predominantly on the Financial Secrecy Index and Automatic Information-Exchange. He is author of the German language book Steueroase Deutschland. He studied development economics and political science at the Free University of Berlin and at the University of Sussex (UK). THOMAS RIXEN is Professor of political science at the University of Bamberg. His research interests are in international and comparative political economy. He is the author of The Political Economy of International Tax Governance (Palgrave Macmillan, 2008) and has, among others, published in European Journal of International Relations, Review of International Political Economy and Journal of Common Market Studies. MIRIAM RONZONI is Senior Lecturer in Political Theory at the University of Manchester. She works on various issues of international justice, with special focus on labour, taxation, non-domination, and supranational institutional design. Her work has been published, among others, in Journal of Political Philosophy, Political Studies, Politics, Philosophy and Economics, Review of International Studies. LAURA SEELKOPF is a postdoctoral research fellow at the Research Center on Inequality and Social Policy at the University of Bremen. Her substantive research focus is on comparative tax and social policy, both inside and outside the OECD. Her work has been published in New Political Economy, Politics & Society, and The Oxford Handbook of Transformations of the State. Contributors xv HELEN SMITH is a researcher at the University of Tasmania. She holds a 1st Class Honours degree in International Relations for a thesis analysing the influences of geo-strategic factors on US energy policy. She has co-authored various chapters and articles in the areas of taxation and fiscal federalism. GABRIEL WOLLNER is assistant professor in philosophy at Humboldt University Berlin and leads the research group ‘Global challenges in economic and environmental ethics’ at the Integrative Research Institute for the Transformation of Human Environment Systems (IRITHESys). His work has been published in Journal of Social Philosophy, Journal of Political Philosophy and Canadian Journal of Philosophy. RICHARD WOODWARD is a senior lecturer at Coventry Business School, UK and a Non-Resident Fellow at the Trends Institute, United Arab Emirates. His research interests include global governance, international organisations, offshore financial centres and small states. His books include The Organisation for Economic Co-operation and Development (Routledge, 2009) and (with Michael Davies) International Organisations: A companion (Edward Elgar, 2014). Acknowledgements In a world of capital mobility, the fiscal policies of states have become more and more intertwined. Understanding the mechanisms and dynamics of this process as well as their consequences is crucial to developing a model of global tax governance that is fit for the 21st century. Effective global tax governance and the fiscal sovereignty it assigns to states is a necessary condition for maintaining the model of the fiscal state as we know it, and thus for promoting the socio-economic goals it stands for: the provision of public goods, social justice, democracy, and economic efficiency. A comprehensive analysis both of the shortcomings of global tax governance today and of potential solutions cannot be conducted from within a single discipline. Hence our idea to bring together a group of political scientists, international tax lawyers, political philosophers, and economists to discuss these issues. We were happy to be given the opportunity to convene a workshop at the ECPR Joint Sessions held at the University of Mainz in March 2013. We thank the ECPR and the local organizers in Mainz for making this possible, and the Wissenschaftszentrum Berlin (WZB) for the stimulating research environment in which the idea first germinated. We would also like to acknowledge financial support for this workshop by the Social Sciences and Humanities Research Council of Canada (SSHRC), the Humboldt Foundation, as well as the Direction des Relations Internationales of the Université de Montréal. Most of all we would like to thank all participants at this event, including those who did not end up contributing to the present volume: Gillian Brock, Kim Brooks, Allison Christians, and Peter Schwarz. After the workshop, several rounds of mutual feedback have ensured that this is not a mere collection of papers, but a coherent body of work evolving around the main questions global tax governance faces today. We were amazed at the commitment of everyone involved in this project and the willingness to keep deadlines, even when their two editors were not always the perfect role models in that respect. We feel that our collaborative approach has allowed us to produce a result that is more than just the sum of its parts. We thank all the contributors for making this interdisciplinary dialogue such a fruitful and inspiring experience. We also benefited from the comments of anonymous reviewers on both the initial proposal as well as on the draft manuscript. We are grateful for the support of ECPR Press throughout the publication process. Peter Triantafillou and Alexandra Segerberg supported the project as editors of the Press. Deborah Savage did a great job as copy-editor and Simon Ward guided us through the final stages of production. Finally, we would like to thank François Letourneux for his research assistance in the process of putting the manuscript together. xviii Global Tax Governance Last but not least, we would like to thank Cynthia, Lena, Nora, Imke, Jesse and Till for grudgingly accepting us spending more than a few late night sessions on our notebooks. Then again, our collaboration has made it possible to bring our two families together on several occasions, which has always been fun – and had nothing to do with taxation. Peter Dietsch and Thomas Rixen Montréal and Bamberg/Berlin November 2015 Chapter One Global Tax Governance: What It is and Why It Matters Peter Dietsch and Thomas Rixen Until quite recently, a book with the title Global Tax Governance would have been unthinkable. Most social scientists interested in the then already widely used concept of global governance would have thought either that there is no such thing as global governance in the area of taxation or that it is too rudimentary to warrant any attention. This has changed. Today, global tax governance is very high on the international and various national political agendas. There are two main reasons for this. First, in the wake of the 2008 financial crisis, many states have seen their public debt rise to high levels and, hence, can no longer afford to forgo tax revenues currently lost to international tax evasion and avoidance. Second, political initiatives are fuelled by recent tax scandals (such as Starbucks, Apple, Offshore Leaks and LuxLeaks) that have raised public awareness and guaranteed media attention. While these events have triggered a rare public debate on international tax issues, the academic discussion, though still relatively young, goes back a little further. Apart from isolated contributions (Picciotto 1992; Palan 1998), issues of international taxation had hardly been dealt with in political science and international political economy until around ten years ago, when a small number of scholars began to address the issue (Sharman 2006; Rixen 2008; Webb 2004). Since then, a sizeable literature has developed. A similar situation pertains for normative political philosophy. While fiscal policy is regarded as an important tool by contemporary theories of justice (for example, Rawls 1999; Dworkin 2002), and while some work on the normative foundations of taxation has emerged in recent years (Murphy and Nagel 2002; Halliday 2013), normative work focused on the international dimensions of fiscal policy has been almost completely absent (but see Cappelen 2001). In recent years, however, a few contributions have emerged (Brock 2008; Dietsch and Rixen 2014; Dietsch 2015; Gaisbauer, et al. 2015). This book aims to take stock of the academic debate on global tax governance. We are convinced that the recent interest in global tax governance is well justified. Since taxation is the most direct interface between the market and the state, it is the perfect policy area in which to observe the relation between, and relative power of, the two spheres. Moreover, taxation represents one of the core functions of the modern nation-state. Therefore, it should be key to an understanding of how economic globalisation affects state sovereignty and the choice and development of international institutions, as well as the effectiveness 2 Global Tax Governance and legitimacy of both national and international institutions; these are, of course, the major themes of the literature on global governance. Politically, the governments and international institutions involved in designing global tax governance claim that they are on track to tackle the problems created by tax competition. Soon after the financial crisis hit, the G20 and OECD revived their ‘black’ and ‘grey’ lists of uncooperative tax havens and forced them to sign bilateral tax information-exchange agreements (TIEAs). Recently, the OECD has even forged an agreement that foresees multilateral automatic informationexchange (AEI) as the new global norm. In addition, the G20 and the OECD are taking steps to control the practices of base-erosion and profit-shifting (BEPS) of multinational corporations.1 All that being said, most experts, while admitting that these initiatives represent real progress, are less optimistic about their effectiveness. The contributions to this volume are directly relevant to this political debate. They explain why current attempts to strengthen global tax governance are insufficient; and they propose alternatives. More specifically, this involves (1) identifying the problems that globalisation creates in the area of taxation, through tax competition in particular; (2) explaining the institutions, structures, and processes of global tax governance as well as analysing their shortcomings; (3) developing the normative foundations for an appropriate regulatory response and building on these foundations; (4) deriving proposals for the reform of institutions and policies. This is an ambitious agenda that could not be addressed appropriately within any single discipline. It requires a thorough understanding of the economics of tax competition at the interface between markets and states; a grasp of the complex and technical legal issues involved; awareness of the geopolitical and social forces at work that might either foster or obstruct reform; and, finally, a normative framework that allows one to weigh such competing values as fiscal autonomy, distributive justice, and economic efficiency. This is why this volume brings together political scientists, lawyers, economists, and political philosophers. Each contribution has a well-defined role in producing a comprehensive assessment of the challenges facing global tax governance today. Unique in this interdisciplinary focus, the book combines theoretical and conceptual work with empirical analysis. One of the key motivations in putting together this collection is the conviction that any approach to global tax governance that is grounded in a single discipline is bound to omit important considerations, and thus will most likely fail to provide sound analysis and 1. Under the current rules of international taxation, multinational enterprises have various possibilities for shifting their profits (the tax base) to subsidiaries in low-tax countries and making sure that actuarial losses are attributed to high-tax countries. This way, the enterprise arbitrages across different tax systems in order to save taxes. The different techniques of achieving this and what could be done to avoid this, will be explained in subsequent chapters (see e.g. Clausing 2016, Chapter Two; Eccleston and Smith 2016, Chapter Eight; Dietsch 2016, Chapter Eleven; Avi-Yonah 2016, Chapter Thirteen; and Rixen 2016, Chapter Fifteen).

Author Peter Dietsch and Thomas Rixen Isbn 9781785521263 File size 3MB Year 2016 Pages 382 Language English File format PDF Category Economics Book Description: FacebookTwitterGoogle+TumblrDiggMySpaceShare Commercial banks such as UBS and HSBC embroiled in scandals that in some cases exposed lawmakers themselves as tax evaders, multinationals such as Google and Apple using the Double Irish and other tax avoidance strategies, governments granting fiscal sweetheart deals behind closed doors as in Luxembourg – the stream of news items documenting the crisis of global tax governance is not about to dry up.Much work has been done in individual disciplines on the phenomenon of tax competition that lies at the heart of this crisis. Yet, the combination of issues of democratic legitimacy, social justice, economic efficiency, and national sovereignty that tax competition raises clearly requires an interdisciplinary analysis. This book offers a rare example of this kind of work, bringing together experts from political science, philosophy, law, and economics whose contributions combine empirical analysis with normative and institutional proposals. It makes an important contribution to reforming international taxation.     Download (3MB) International Financial Institutions and Their Challenges Irish Economic Development: High-performing Eu State Or Serial Under-achiever? Unions, Central Banks, and EMU Big Picture Economics: How to Navigate the New Global Economy Capital and Collusion : The Political Logic of Global Economic Development Load more posts

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