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International Taxation, Income Tax, Multi-National Enterprises, BEPS, International Development, Poverty, Tax Uniformity


International tax reform projects, including the OECD’s Base Erosion and Profit Shifting (“BEPS”) iterations, seek to collect additional tax from multi-national enterprises (“MNEs”) under rubrics of fairer taxation. The reform projects propose various methods of reallocating income that taxpayers have sourced to low and no tax jurisdictions to affluent developed economies for those economies to tax under their own taxing rules. The reallocation would concentrate the bulk of incremental tax revenue into the treasuries of affluent developed economies. The projects focus on allocating the tax base correctly rather than addressing the distribution of tax revenue worldwide.

This article maintains that the need to prevent taxpayers from avoiding payment of a fair tax amount should not result in additional tax revenue primarily for the economically developed economies. Arguments that the right to tax belongs to the developed economies are largely political, not moral. The arguments lack persuasive force in a world of unequal distribution of wealth and resources with which to generate wealth. Rather fairer tax collection should yield incremental revenue to eliminate poverty and improve living conditions for all people worldwide, an issue of tax revenue distribution, not base allocation.

The article addresses fairer tax revenue distribution based on need rather than resources or traditional measures of productivity and proposes as an alternative to other international projects the creation of an international taxing agency to substitute for national taxing agencies worldwide. The international taxing agency would target elimination of world poverty. The new agency would have full authority to collect income taxes from entities and individuals under uniform international, rather than disparate national, taxing rules and procedures and to distribute the revenue worldwide.

Since the global tax will increase tax revenue collection materially, distribution initially might follow a two-step formula. The first step would hold each country harmless from tax revenue loss so that following transition to the global tax, each country receives a share of tax revenue equal to its revenue from income tax in the preceding year, or an average of several years collections, possibly adjusted for inflation, and enable each country to maintain its infra- and superstructure. The second step would follow a needs-based assessment under which the nutrition, housing, education, healthcare and infrastructure needs of less developed countries would be evaluated and a plan developed to ameliorate deficits in all categories worldwide. The agency would distribute incremental tax revenue pursuant to that plan. The second step would devote incremental revenue to the gradual elimination of those deficits -- perhaps addressing life-threatening deficits first followed by improvement of living standards everywhere.

The paper proceeds as follows. Part I contextualizes the problem of base erosion against revenue collection and distribution and provides an overview of the international taxing issues this article addresses. Part II considers a US regional context as a microcosm in which multiple and often overlapping taxing jurisdictions compete for revenue and investment. Some seek to capture additional revenue by annexing high tax yield property, and others with extra-tax and, at times, predatory revenue collection. Many exchange tax concessions for development and highlight the problems of tax competition and proliferating taxing jurisdictions even in the face of centralized tax collection. This part presents a relatively complex proxy for the revenue-raising problems confronting multiple taxing jurisdictions that fail to coordinate their efforts despite the umbrella of a larger governmental unit to which they belong. Part III reviews a variety of proposals and related commentary – BEPS, GLoBE, CCCTB – highlighting the difficulty of harmonization in the face of tax competition and relentless industry pressure for tax-favored treatment. Part IV introduces the factor of relative and absolute poverty and regional development needs that contribute to the proliferation of taxing concessions in exchange for international investment, even where the benefit from the inbound investment is compromised by the loss of potential tax revenue and the corrupt reallocation of the potential revenue into private hands. Part V envisions relinquishment of national tax sovereignty in favor of an international taxing agency with the power to assess and collect tax at a uniform rate or rates under uniform international taxing rules without regard to source, residence or sales. It would base the authority to tax on multiple independent factors so that virtually all income is included and taxed in the worldwide base the international agency administers. Part VI recommends negotiation of revenue shares to dissuade regions from tax competition. It also suggests constructing a framework for formulaic revenue distribution based on relative economic need, including the maintenance of existing infrastructures. Part VII concludes and acknowledges that the project proposes the construction of a “topia” for taxation of MNEs, with the“u” or “dys” depending on individual perspectives.