Can the WTO Stop the Race to the Bottom? Tax Competition and the WTO

79 Pages Posted: 20 May 2020

See all articles by Martin Vallespinos

Martin Vallespinos

University of Michigan at Ann Arbor - Law School

Date Written: March 23, 2020


In this article, I analyze the interaction between income tax competition and the multilateral trade regime. I argue that several forms of tax competition such as special tax zones (STZs), export tax incentives, participation exception, profit shifting toleration, and tax havens distort international trade and therefore should be policed by the WTO. I also argue that the international tax regime (ITR) will not be able to curtail these distortive effects anytime soon because of insurmountable collective action issues. The limitations of the ITR heighten the importance of a timely, thorough, and comprehensive response by the WTO, which has not been seen so far.

In addition to the legal application of the WTO agreements to tax competition measures, the article discusses the shortages, inconsistencies, and unfair results of the current WTO legal framework, and the immediate need for modernization. A first step for modernization will be achieved if WTO adjudicators use evolutive and systemic methods of interpretation. With the support of these methods, the WTO dispute settlement bodies could police several tax competition measures that have not been scrutinized in the past. A second step for modernization should be expanding the scope of the SCM to include services and digital industries. But this expansion would require reversing the current political inertia, which remains to be seen.

Keywords: international tax, international taxation, tax competition, WTO, trade regime, special tax zones, profit shifting

JEL Classification: H26, H87, K33

Suggested Citation

Vallespinos, Martin, Can the WTO Stop the Race to the Bottom? Tax Competition and the WTO (March 23, 2020). Forthcoming in Virginia Tax Review, Vol. 40, No. 1, Fall 2020, Available at SSRN:

Martin Vallespinos (Contact Author)

University of Michigan at Ann Arbor - Law School ( email )

Ann Arbor, MI
United States

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