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Abstract:
This article analyzes the institutional design of international double tax avoidance. The basic argument is that double tax avoidance exhibits the strategic structure of a coordination game with a distributive conflict. The distribution of tax revenues depends on the asymmetry of investment flows between treaty partners. Since investment flows are defined dyadically, bilateral bargaining can best accommodate countries' concern for the distribution of tax revenues and other economic benefits connected to the tax base. Moreover, because there are no serious externality problems with bilateral agreement, this solution is also viable. At the same time, there is a need for a multilateral organization to disseminate information and shared practices in the form of a model convention that provides a focal point for bilateral negotiations. The strategic structure of a coordination game can also explain why the institutions of double tax avoidance do not have to be equipped with third-party enforcement capabilities. Instead, the Mutual Agreement Procedure (MAP) is interpreted as a device to deal with the fact that double tax agreements (DTAs) are incomplete contracts.

Abstract:
Trade relations are governed by the multilateral GATT, whereas the avoidance of international double taxation rests on a network of around 2000 bilateral treaties. Given the two regimes' similar economic rationales this difference between bilateralism in international double tax avoidance and multilateralism in the trade regime poses an empirical puzzle. In this paper we develop an answer to this puzzle. Differentiating between different stages of international cooperation, we first describe the institutional form in the bargaining and agreement stages of cooperation. This description shows that the regimes are quite similar in the bargaining stage, both exhibiting a mix of bilateral and multilateral bargaining. However, while agreement is multilateral in the trade regime it is bilateral in taxation. Based on stylized institutional histories of both cases we develop simple game theoretic models incorporating domestic level considerations. Building on these models we then go on to explain the institutional choice between bilateral and multilateral cooperation. We show that state concerns for the distribution of benefits can be best achieved under bilateral bargaining in both regimes. However, in order to lower transaction costs there are also elements of multilateral bargaining. Agreement is multilateral in trade in order to overcome a free-rider problem that results from an interaction of concerns for distribution and enforcement. Since such a problem of free-riding does not exist in taxation, there is no need for binding multilateral agreement.

Institutional Design, International Taxation, International Trade, Bilateralism, Multilateralism

Abstract:
International tax competition has undermined governments’ ability to make effective political decisions on tax policies. If they want to regain their de facto sovereignty, i.e. be able to realize their substantive goals of efficiency and equity, governments will in the future have to share some of their de jure sovereignty, i.e. the legal right to design their tax systems, with other governments, in order to regulate tax competition. A normatively desirable solution would be unitary taxation with formula apportionment. In order to substantiate this claim the argument proceeds as follows. First, I describe the current structure of business tax competition and show that it is largely driven by companies’ ability to engage in “paper profit” shifting. I detail how this kind of tax competition leads to inequalities among individuals and different groups of countries. Second, I develop an egalitarian, contractualist argument why these inequalities have to be considered unjust and show that this holds irrespective of whether one adopts a “globalist” or an “internationalist” view of justice. Third, I propose unitary taxation with formula apportionment (UT FA) as a workable solution that addresses the inequalities caused by tax competition. Fourth, I consider the chances of realizing such a proposal. I first argue that judging from the historical experience of international tax cooperation, there is reason for skepticism. Focusing on the interest constellations among relevant actor groups I argue that a major reason for the failure to regulate tax competition lies in the fact that so far all relevant interest groups frame taxation as a purely national issue. If the deadlock is to be overcome, then tax policy needs more politicization on the international level. Transnational civil society could thus play an important role in the reform of international taxation.

international taxation, tax competition, global justice

Abstract:
This paper gives an overview of the institutional arrangements of international taxation and shows that they can be understood as a structure of multi-level governance.

international taxation, multi-level governance

Abstract:
This paper explores the institutional changes of international tax governance in response to growing politicization and contestation of international direct tax issues. I show that politicization – which is a very recent phenomenon in international taxation – results from a governance gap. The traditional setup of international tax cooperation has an unintended consequence in the form of harmful tax competition. In reaction to this problem, civil society groups have begun to question the effectiveness and fairness of the minimal international tax order, lobbying national governments and international organizations for more effective international regulation of tax issues. Thus, in contrast to existing hypotheses, societal politicization does not result from the increasing scope and authority of international institutions, but rather from the lack thereof. However, civil society demands have so far not led to institutional changes in international taxation. Instead, we can only observe indirect and incremental change, which falls short of what would ultimately be needed to address harmful tax competition effectively.

global governance, international taxation, politicization, civil society