A New Governance Framework in Cross-Border Tax Policymaking

Authors

Tamir Shanan
Doron Narotzki
Noam Zamir

First Page

115

Abstract

The first tax treaty can probably be traced to the end of the 19th century: the treaty between the Swiss Federal Council (on behalf of the Canton of Vaud) and Great Britain. However, most tax scholars refer to the period following World War I, including the work of the League of Nations, as the formative period in which the international tax regime was founded. In the 1920s, the League of Nations formed a committee of four renowned economists that was asked to formulate a set of rules that would assist states in allocating taxing rights of cross-border income and gains among themselves, reducing double taxation. The committee presented its report in 1923, which proposed a compromise between capital-exporting countries and capital-importing countries (the closest equivalent of developing and developed countries). Following World War II, international tax policy was highly influenced by the OEEC, the predecessor of the OECD (made up of 38 rich member states), leaving behind the U.N., which mainly served as a voice for developing countries. In the 21st century, the international tax framework is still influenced by the OECD and the G20. For instance, in the early 2010s, the G20 was an important driver in the OECD’s BEPS project. Over the past decade, some scholars have alleged that international tax policy decisions are no longer made by a few dozen OECD member states. Instead, these scholars argue that international tax policy is influenced by over 140 countries from all regions and levels of development through the “Inclusive Framework,” with all countries on an equal footing. However, recent literature identifies obstacles that lead to the unequal participation of developing countries in practice. Our Article explores the relations between developed and developing countries, examines different organizations’ impact in shaping international tax policymaking, and proposes that a new World Tax Authority (“WTA”) could replace the existing governmental framework. Alternatively, global tax policy could be handed over to a more politically balanced international organization such as the WTO or the World Bank, neither of which is bound by decision-making arrangements that require achieving consensual support of all its member states. Furthermore, irrespective of the formation of a WTA, the rise of bilateral tax treaties as the foundation of the existing international tax system—together with intensifying global mobility of businesses, investments, and trade, as well as human migration—has undoubtedly increased potential cross-border tax conflicts. Currently, cross border tax conflicts are adjudicated by thousands of tax tribunals around the world and tens of thousands—if not hundreds of thousands—of tax judges and arbitrators that interpret cross-border tax treaties and disputes. This complex structure maintains tribunals’ domestic fiscal revenues, which creates competing and overlapping claims to tax cross-border income and gains, promoting uncertainty in the application and interpretation of the tax rules that govern cross-border transactions. We therefore propose forming an international World Tax Court (“WTC”) whose justices would be appointed in a manner that would represent high- and low-income countries. This novel tax court would serve as the supreme judicial authority, and its rulings would ideally be binding on national judges from all over the world. Nevertheless, to the extent that it would be difficult for countries to waive their independence in interpreting tax treaties, we propose that the court’s rulings could have declaratory (non-binding) status. The non-binding status would still assist national judges from all over the world in interpreting tax treaties in a more consistent and conforming manner.

Recommended Citation

Tamir Shanan, Doron Narotzki & Noam Zamir, A New Governance Framework in Cross-Border Tax Policymaking, 19 Brook. J. Corp. Fin. & Com. L. 115 (2024).
Available at: https://brooklynworks.brooklaw.edu/bjcfcl/vol19/iss1/6