The Trouble with Tax Competition: From Practice to Theory

69 Pages Posted: 7 Feb 2017 Last revised: 27 Jun 2017

Lilian V. Faulhaber

Georgetown University Law Center

Date Written: February 6, 2017

Abstract

Over the past few years, policymakers have argued that everything from Apple’s Irish tax deal to patent boxes to the LuxLeaks tax rulings represented so-called “harmful tax competition.” Despite the ubiquity of this term, however, there is no internationally accepted definition of either tax competition or harmful tax competition.

This Article uses the anti-tax-competition measures proposed and implemented over the last twenty years to reverse-engineer what policymakers believe to constitute harmful tax competition. This Article then distills three lessons about international tax competition from these measures.

First, the different visions of harmful tax competition represented by recent anti-tax-competition measures reveal that, when countries claim to be limiting tax competition, they are not leveling the playing field so much as they are shifting it in their own favor. Second, international tax competition relies on international tax avoidance, and international tax avoidance relies on international tax competition. This in turn means that jurisdictions are complicit in international tax avoidance, while taxpayers (often multinational corporations) are complicit in tax competition. Third, these two lessons together suggest that countries are often using both anti-tax-competition measures and anti-avoidance measures not just to limit tax competition by other countries but also to strengthen their own competitive position.

Keywords: Tax Policy, Tax Competition, International Taxation, Tax Reform, Regulatory Competition

JEL Classification: H20, H21, H25, H26, H30, H41, H73, H87

Suggested Citation

Faulhaber, Lilian V., The Trouble with Tax Competition: From Practice to Theory (February 6, 2017). 71 Tax L. Rev. ___ (Forthcoming). Available at SSRN: https://ssrn.com/abstract=2912477 or http://dx.doi.org/10.2139/ssrn.2912477

Lilian V. Faulhaber (Contact Author)

Georgetown University Law Center ( email )

600 New Jersey Avenue, NW
Washington, DC 20001
United States

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