Liberalization and Democratization: The Forum and the Hearth in the Era of Cosmopolitan Post-Industrial Capitalism

Rather than the desire for economic liberalization bringing about political democratization, the struggles against autocracy have created an opening for economic liberalization. While undermining partriarchy and hierarchy, anti-authoritarian movements have also paved the way for post-industrial capitalism, with its emphasis on information management, flexible working conditions, and a global outlook

The UK's diverted profits tax:an admission of defeat or a pre-emptive strike?

The author explains the draft legislation for the U.K.’s proposed diverted profits tax and analyzes the relationship of the provisions to the reforms under negotiation through the BEPS process of the G-20 and OECD. Although the official U.K. position is that the proposals are not out of line, they clearly go beyond what has been proposed so far in the BEPS project. Hence, they seem to be either an admission that international agreement will not be reached that would satisfy U.K. concerns or an attempt to put pressure on the negotiators to do so

Networks in International Economic Integration: Fragmented States and the Dilemmas of Neo-Liberalism

Current discussions of globalization afford an opportunity to. reflect on the development of the modern international system and its governance as well as to evaluate prospects and strategies for the fu- ture. However, the term globalization is ambiguous. It conceals di- verse and sometimes conflicting trends and strategies; it appears to project a post-Cold War optimism of increasing global unity and pros- pects for a new world order based on a strengthened framework of international institutions. Nonetheless, tendencies towards fragmen- tation exist, in addition to an increasing awareness of diversity and, perhaps, global disorder. Certainly, efforts are being made to produce blueprints for a re- formed global organizational framework. Perhaps the most compre- hensive effort was last year\u27s Report of the Commission on Global Governance (the Report). It combines wide-ranging and detailed proposals for reform of intergovernmental organizations, including greater involvement of multiple non-governmental organizations (NGOs). The Report calls for a commitment to common neighbourhood values, such as respect for life, liberty, justice and equity, mutual respect, caring, and integrity, and it calls for the articu-lation of a global civic ethic. Underpinning many of the proposals and much of the rhetoric was the concept of the emergence of a global civil society, mainly expressed in the growth of NGOs and their increasing involvement in decision-making by international orga- nizations.1 Yet, while the Report was undoubtedly based on a sound evaluation of many global institutional problems, its proposals com- bined realist minimalism with liberal rhetoric in a way which indicated an awareness of the utopianism, in the present conjuncture, of any attempt at a comprehensive redesign of global governance. If globalization stands for anything, it represents changes in the competitive dynamic of the world market, involving strategic conflicts to reorganize the institutions through which it is structured. Thus, transforming the international system is a key issue; the basic unit of that system is the national state. The existence of a world market is hardly new; neither is the realization that states are interdependent.

Constructing compliance: Another look at game-playing in international taxation.

It is now some 200 years since Adam Smith suggested his four `canons’ of a good tax system: equity, certainty, convenience and economy.1 We are still wrestling with the problems of achieving these ideals. From one point of view it could be said that tax systems have become remarkably effective, at least in OECD countries, where tax revenues amounted on average to some 37% of GDP in 2001. On the other hand, most of those who work with or study tax systems, let alone the general public who are exposed to them, would probably think that Smith’s standards are some way from being met. This paper aims to make a further contribution to some of the recent debates about the improvement of tax systems and the problem of tax compliance. My own interests are in international taxation and tax avoidance, but in discussing the issue of compliance and avoidance in this paper, I will also give some consideration to small business and individual taxpayers. The first part of the paper explores the question of interpretation of rules and the problem of avoidance and game-playing. My starting-point is the issue of lack of clarity or indeterminacy of rules and how they are interpreted, which brings in the question of creativity. Here I discuss in particular the work of Doreen McBarnet, although I take a slightly different approach to the issue of creativity. I explore this in the context of the historical development of international taxation principles. This leads on to the issue of fairness and complexity in tax law, and the relationship between the way tax rules are formulated and taxpayer attitudes, and in turn to the issue of the relationship between detailed rules and broad principles and standards, which has recently been explored by John Braithwaite, following up work by David Weisbach and others, and applied to taxation. My approach gives I think added weight to John Braithwaite’s proposal for the use of broad principles in conjunction with exemplary (but not exhaustive) detailed rules in tax law. However, I suggest that this approach should not be limited to the adoption of a broad anti-avoidance principle (usually referred to, confusingly, as a general antiavoidance rule or GAAR), but should be applied to the tax code more generally. I end by exploring the issue of improving compliance by the general run of individual taxpayers and reducing their propensity to game-playing and avoidance, in relation to those taxpayers’ views about the fairness of the tax code in general, and to the ability of large taxpayers to employ game-playing and avoidance techniques

Is the International Tax System Fit for Purpose, Especially for Developing Countries?

international tax, transnational corporations, unitary taxationTaxes are a basis of national states, but they have been internationally coordinated since the emergence of taxes on income and profits, which were central to the legitimacy of taxation and the increased power of states in the 20th century. This paper traces the historical development of this international system, especially in relation to its interaction with the growth of transnational corporations (TNCs), and analyses attempts to adapt the system to the increasingly dominant role of TNCs in the world economy. It explains and discusses the key principles and concepts (permanent establishment, arm’s length, controlled foreign corporations, transfer pricing), and shows that they have become increasingly inadequate especially following recent renewed economic globalisation. Contributing to current debates on reform of the system, this paper puts forward proposals for an evolutionary shift towards a unitary approach for taxing TNCs.DfID, NORA

Problems of Transfer Pricing and Possibilities for Simplification

The defects in the rules for allocation of the income of transnational corporations (TNCs) are at the heart of the current crisis in international corporate taxation. This paper explains how these rules emerged and developed, becoming increasingly complex, as they have shifted from a general concern to ensure a fair and reasonable allocation of the profits of TNCs, to methods focusing on treating all intra-firm transfers as transactions to be priced by reference to comparables. This approach has been extended to allocations of shared factors of production (capital, intangibles, central services, risk), for which methods based on the transactional approach are particularly unsuitable. These methods are time-consuming and difficult to administer, and also have generally been found to be ineffective, both in theory and practice. They require resource-intensive examination of the specific facts and circumstances of individual taxpayers, needing skilled analysis, and depending on subjective judgement. Hence, a variety of simplified methods have been devised, which are surveyed and analysed in this paper, especially from the point of view of their suitability for developing countries. They include the Brazilian fixed margin method, safe harbour rules attempted notably by India, and sectoral profit attribution rules established by Mexico and the Dominican Republic, as well as other alternatives, such as a shared net margin method, and an alternative minimum tax. Although these are only palliatives pending more far-reaching reform, developing countries in particular should consider such approaches, adapted to their own circumstances, in any toolbox of measures for taxation of TNCs.UKAIDBill and Melinda Gates Foundatio

Taxing Multinational Enterprises as Unitary Firms

This paper explores the issues raised for international tax rules of explicitly treating multinational enterprises (MNEs) as single or unitary firms. It first briefly explains why reform of international corporate taxation is important particularly for developing countries, then outlines the flaws in the current system. It discusses the impetus created for reforms, and the political and institutional dynamics of the tax treaty system. An evaluation is provided of the results of the G20/OECD project on base erosion and profit shifting (BEPS), focusing essentially on the extent to which they moved towards a unitary approach, and the problems created by their continued adherence to the independent entity principle. It then outlines several proposals which, in different ways, would apply a unitary approach to MNEs. The remainder of the paper focuses more particularly on one variant: unitary taxation with formulary apportionment – this was the focus of the ICTD’s research programme, which resulted in the outputs discussed here. It outlines the main findings on optimal design of an international formulary apportionment system, evaluates the evidence about its possible effects on national tax revenue, and considers the possibilities and prospects for adoption of such a system regionally