International Tax, Regulatory Arbitrage and the Growth of Transnational Corporations

28 Pages Posted: 11 Jun 2020

See all articles by Sol Picciotto

Sol Picciotto

Lancaster University Law School; Institute of Advanced Legal Studies, University of London

Date Written: November 20, 2018

Abstract

This paper traces the history of international corporate taxation, discusses how transnational corporations (TNCs), through their tax advisers, have helped to shape the system, and suggests that this is important in understanding the development of TNCs. It argues that a key competitive advantage of TNCs is their ability to exploit differences in corporate tax rules, as a form of regulatory arbitrage, which is facilitated by the inadequate coordination of those rules. It focuses on the divergence between the understanding in business, economics and international studies that TNCs are unitary firms and the principle which has increasingly hardened in international tax rules, especially on transfer pricing, that the various affiliates of TNCs in different countries should be treated as if they were independent entities dealing with each other at arm’s length. It argues that this facilitates tax avoidance, which is one of the strategies of the exploitation of regulatory differences, or regulatory arbitrage, which has contributed to the growth and oligopolistic dominance of large TNCs. While claiming that they merely obey the laws of each country where they do business, TNCs have taken advantage of their global reach to mould laws and normative practices, and develop structures taking maximum advantage of the loose coordination of global governance regimes.

Keywords: arm’s length principle, BEPS, formulary apportionment, transnational corporations, tax avoidance structures

Suggested Citation

Picciotto, Sol, International Tax, Regulatory Arbitrage and the Growth of Transnational Corporations (November 20, 2018). Transnational Corporations Journal, Vol. 25, No. 3, 2018, Available at SSRN: https://ssrn.com/abstract=3621965

Sol Picciotto (Contact Author)

Lancaster University Law School ( email )

FLAT 5 Regency House, Newbold Terrace
Leamington, CV32 4HD
United Kingdom

Institute of Advanced Legal Studies, University of London ( email )

Charles Clore House
17 Russell Square
London, WC1B 5DR
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
102
Abstract Views
684
Rank
520,804
PlumX Metrics