2023

Courts worldwide generally interpret tax treaties more liberally than domestic legislation, often using the OECD Model Tax Convention Commentary for guidance. This article identifies significant issues with how Australian superior courts apply the Commentary. The author argues that the courts' narrow, literal interpretation of tax treaty terms and minimal reliance on the OECD Commentary, particularly regarding the taxation of hybrid entities and double tax relief, undermine the treaties' purposes. He concludes that this approach is similar to treaty override and could jeopardize multilateral efforts to enhance tax certainty and combat base erosion and profit shifting by multinational enterprises.

Prior to the 19th century, states rarely assisted each other with tax matters due to the emphasis on fiscal sovereignty. The advent of modern income tax introduced double taxation issues, leading to the development of double tax agreements (DTAs). Initial experimental DTAs in the mid-to-late 19th century increased significantly in the early 20th century, with over 3,500 DTAs now in force. Recently, the OECD has promoted multilateral tax treaties, such as the Convention on Mutual Administrative Assistance in Tax Matters and the Multilateral Convention to Implement Tax Treaty Related Measures To Prevent Base Erosion and Profit Shifting, transforming international tax law. The OECD is drafting more treaties under its “two pillar” program for further reform, with many countries agreeing to join. Multilateralism is now viewed by the OECD and its member states as the preferred method for tax system reform, though the success of these efforts remains uncertain.

Robots are transforming various sectors by performing tasks previously thought impossible to automate, such as medical procedures, driving, and legal research. This rapid development raises concerns about widespread job loss and technological unemployment, prompting global calls for a tax on robots. This paper examines the rationale behind these calls and assesses the possibility of implementing a robot tax. It reviews the international implications of increased robot use and critiques robot tax proposals, highlighting negative policy implications and practical challenges. Concluding that a robot tax is not the optimal solution, the paper suggests alternative strategies for addressing the challenges posed by automation, emphasizing the significant responsibility of policymakers to manage the risks and opportunities of this technological shift.

Drawing on existing human rights instruments and literature, this chapter locates and develops an international cooperation model as a useful vehicle for the realization of socioeconomic rights in Africa by using Nigeria as a case study. Through the lens of Third World Approaches to International Law, the chapter engages with the structural and economic imbalances between developed states and developing states, making most African states unable to effectively deploy taxation to realize socioeconomic rights. The authors discuss the limits of the duty to cooperate. It argues that the duty requires developed states to provide economic and technical support, avoid being tax havens, and ensure that their multinational corporations operating in Africa are not only tax law-compliant but also complying with human rights obligations.

Philip Oamen & Adebolarin Adekanle, Taxation and the Realisation of Socioeconomic Rights in Africa: What Is the Role of International Cooperation?, (Eghosa Ekhator et al.)(forthcoming 2024).

This paper explores the relationship between tax incentives and the FDI location motive as a possible reason for the mixed empirical evidence. Specifically, it examines – for Indonesia -- if the tax incentives are more effective where costs considerations matter, and if they are allocated indiscriminately with respect to the investment motive. The study is based on a survey of 224 foreign-owned plants. The authors find that tax incentives are allocated randomly by motive, and that the incentives are less likely to go to labor, implying that cost considerations do not matter for the effectiveness of the incentives. Among the possible reasons for this, the authors suggest that incentives may serve objectives that are beyond the purely economic.

Tax is a hybrid of civil, common, public, and private law. Tax law has become an all-purpose tool for legislators. This article argues that the success of the BEPS projects depends on the uniformity of taxation principles through the convergence of systemic differences. Tax hybridity should nudge jurisdictions to harness their legal creative power. This should facilitate tax working towards transparent uniform rule-making that is free from opportunities for arbitrage and competition. This global cooperation on convergence and uniformity free from tax competition will depend on revenue distribution between nations. The author argues that this revenue distribution is necessary for developing nations to build a more effective tax system.

The Global Minimum Tax (GMT) is applied only to firms above a certain size threshold, permitting countries to set differential tax rates for small and large firms. The authors analyze tax competition between a tax haven and a non-haven country for heterogeneous multinationals to evaluate the effects of this partial coverage of GMT.  The paper shows that the introduction of a moderate GMT increases tax revenues in both the haven and the non-haven countries. Gradual increases in the GMT rate, however, induce the haven to set a discriminatory, lower tax rate on small multinationals, causing revenues in the non-haven country to decline at the switch of regimes.

The authors explore the intercompany cross-border trade involving Indonesian entities between 2018 and 2022. They do this to assess the risk of undervaluing in the export/import of goods with machine learning algorithms. Utilizing both micro and macro-level data, this study uncovers unique intercompany cross-border patterns, exposing a higher risk of undervaluing in cross-border trade between Indonesian entities and their counterparts overseas. This paper indicates several findings. It specifically indicates that foreign investment-based companies are more inclined to engage in cross-border trade compared to domestic-based companies, and trade transactions with low-tax jurisdictions pose a higher risk of undervaluation trade.

Gitarani Prastuti, Indah Permatasari, Lasmin, Ag. Sigit Adi Satmoko, & Arman Imran, Detecting Cross-Border Transaction Patterns Using Machine Learning: The Case of Indonesia, 16 Jurnal BPPK 132 (2023).

This Consolidated Commentary incorporates Agreed Administrative Guidance that has been released by the Inclusive Framework since March 2022 up until December 2023. It provides tax administrations and taxpayers with guidance on the interpretation and application of the GloBE Rules in order to promote a consistent and common interpretation and application of those that will facilitate coordinated outcomes for both tax administrations and MNE Groups.

This working paper reviews the literature providing empirical estimates on the tax elasticity of multinational profits and discusses the challenges faced when attempting to quantify tax-motivated profit shifting. The authors first use micro-level data to show that multinational corporations hold a disproportionately large share of profits and financial assets in tax havens, relative to real activities in these countries. The paper argues that tax notches associated with anti-tax avoidance legislation may be exploited to better understand tax-motivated profit shifting. This approach suggests a semi-tax elasticity of pre-tax profits of about 0.22, which is substantially smaller than estimates provided in earlier studies.