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Tax Competition, Tax Arbitrage, and the International Tax Regime

41 Pages Posted: 14 Jan 2007  

Reuven S. Avi-Yonah

University of Michigan Law School

Date Written: January 2007

Abstract

This paper argues that a coherent international tax regime exists, embodied in both the tax treaty network and in domestic laws, and that it forms a significant part of international law (both treaty-based and customary). The practical implication is that countries are not free to adopt any international tax rules they please, but rather operate in the context of the regime, which changes in the same ways international law changes over time. Thus, unilateral action is possible, but is also restricted, and countries are generally reluctant to take unilateral actions that violate the basic norms that underlie the regime. Those norms are the single tax principle (i.e., that income should be taxed once - not more and not less) and the benefits principle (i.e., that active business income should be taxed primarily at source, and passive investment income primarily at residence).

Keywords: tax competition, tax arbitrage, international tax regime

JEL Classification: H25, H26

Suggested Citation

Avi-Yonah, Reuven S., Tax Competition, Tax Arbitrage, and the International Tax Regime (January 2007). U of Michigan Law & Economics, Olin Working Paper No. 07-001; U of Michigan Public Law Working Paper No. 73. Available at SSRN: https://ssrn.com/abstract=955921 or http://dx.doi.org/10.2139/ssrn.955921

Reuven S. Avi-Yonah (Contact Author)

University of Michigan Law School ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States
734-647-4033 (Phone)

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