Papers & Reports

This article argues that the fact that the 2021 global tax deal, particularly Pillar 2, is cooperative, is not in itself proof of the deal being beneficial for all parties. Developing countries may benefit less and even lose from the agreement. The article focuses on two features of cooperation that may tilt the playing field in favor of developed countries – one is the agenda influence and the other structural incentives to cooperate. Since the OECD had control over both the agenda and the ways in which the deal was structured, it is not surprising that the deal served the interests of its members.

This article explores the need for interest limitation rules targeting intra-group debt financing, together with certain design options. It is concluded that most issues related to intra-group debt financing are already covered by the anti-tax avoidance directive (ATAD), transfer pricing rules and the Pillar 2 reform. Only the debt/equity balance is not addressed by these rules. Therefore, thin capitalization rules appear to be the most motivated type of targeted rule, if such rules are to be adopted. Other types of targeted rules, such as those taking into account the level of taxation of the recipient or the intention to avoid tax are hardly justified in cases covered by the Pillar 2 reform. In addition, thin capitalization rules can be designed in a manner that does not distinguish between domestic and cross-border situations, hence raising fewer issues of compatibility with the EU fundamental freedoms than other types of targeted rules that rely on the difference in taxation between domestic and cross-border loan transactions.

The OECD deleted Article 14 from its Model Tax Convention (MTC) in 2000, however, the UN decided to retain it in 2009. The OECD has since been chastised for eliminating it and the UN eulogized for retaining it. This article, contrary to the prevailing perspective, supports the deletion, albeit for reasons diametrically different from those canvassed by the OECD for the deletion. The paper berates the UN for retaining article 14 by debunking the grounds thereof and by mounting new arguments. The paper postulates that without a robust built-in anti-base erosion principle, which was deleted in 1999, Article 14 presence in the UN MTC is counterproductive, base eroding, and inimical to fiscal interests of developing countries.

Global tax hubs are the black boxes of the international tax regime (ITR). The driving forces of their strategic interaction with other building blocks of the ITR remain undertheorized. This paper offers the first theory of tax hubs as a two-sided global marketplace. It argues that tax hubs are the matchmakers of the ITR. International investors, tax hubs and endpoint jurisdictions play different yet interrelated roles within the same ecosystem i.e. the two-sided platform. The theory is positive rather than normative. It aims to explain how the creeping marketization of the ITR, as part of international law, has been frequently instrumented worldwide over the last century. The paper provides a stress test to the theory’s explanatory power and its limitations.

This article studies action 1 of the OECD’s base erosion and profit shifting (BEPS) project as a policy narrative. The authors outline the role of narrative in international tax policy making and evaluate the argumentative and material coherence of the OECD’s story about the need to ensure the stability of the international tax framework. Focusing on the narrative strategy adopted by the OECD to promote its pillar one proposal, the authors assess the likely persuasiveness of the OECD’s stability argument, particularly, how it may have influenced the response to the proposal by the members of the Inclusive Framework. The authors conclude that the OECD’s concern about the destabilizing effects of digital services taxes on the international tax system propagates a global fiscal illusion and may not sustain long-term support for pillar one by many members of the Inclusive Framework.

This article analyzes the issue of whether the OECD can establish an equitable international tax architecture which will be acceptable by all countries, particularly developing countries. The author believes that the fiscal challenges faced by developing countries are partly due to the OECD’s Model Tax Convention which predominantly favors developed countries by allocating taxing rights to the residence jurisdiction. In view of the opposition against the UN model tax treaty by developed countries led by the OECD and its agenda to establish an international taxing standard, the author urges stakeholders for a push towards a UN intergovernmental tax body to ensure a tax cooperation architecture constructed on the principles of equity and inclusive representation.

In recent years, a growing number of countries have enacted tax rules that require MNEs to document their intra-firm trade prices and show that they are set as in third-party trade. The objective of these rules is to limit opportunities for strategic trade mispricing and profit shifting to lower-tax affiliates. In this paper, the authors studied these regulations’ fiscal and real effects, using data on the transfer pricing documentation rules in France. They observed that MNEs reduced their outward profit shifting from France, while simultaneously lowering real investment in the country. Outside of France, MNEs decreased their investments in low-tax (but not high-tax) group locations. The authors then showed that the observed investment response in France and abroad is driven by reform-induced increases in firms’ effective tax costs.

This article develops a framework to study the aggregate implications of taxing multinational enterprises (MNEs) that shift profits to tax havens by transferring ownership of nonrival intangible capital. The paper finds that profit shifting increases intangible investment, leading to higher output at the MNE level. The paper also evaluates the consequences of two OECD proposals designed to reduce profit shifting i.e. the 15% minimum global corporate income tax and allocating the rights to tax some of an MNE's profits to the countries in which it sells its products. It concludes that these policies would reduce profit shifting by more than two-thirds but would also reduce output in all regions of the global economy. 

This article provides an introduction to the anatomy of tax incentives. It provides tools for the evaluation of tax incentives that have been designed and implemented. Evaluating tax incentives can be done in a variety of metrics: a traditional legal nature, where the emphasis is on technical features and legal certainty. It can also be evaluated using political metrics, where the focus is on regulatory functions that have been dictated by underpinning tax policies. Alternatively, the evaluation can be rooted in economics, where the emphasis is placed on economic efficiency, economic competitiveness, administrative simplicity, adequacy, and equity. The paper then shows how these different tools for tax policy analysis can be combined to evaluate tax incentives in a more holistic and pragmatic manner.

This report provides an analysis of the existing arrangements in international tax cooperation, identifies additional options to make such cooperation fully inclusive and more effective, and outlines potential next steps. The findings of the report show that enhancing the role of the United Nations in tax-norm shaping and rule-setting, with full consideration of existing multilateral and international arrangements, appears the most viable path for making international tax cooperation fully inclusive and more effective.