Pathways to International Tax Governance

Revenue bargaining is a domestic issue that has become increasingly internationalised over recent decades. Developing countries – above all, those highly dependent on natural resource exports – are particularly affected by this development, as a large share of their governmental revenue depends on the behaviour of multinational corporations and external powers. In such a context, revenue bargaining should involve taking part in international standard setting and cooperative implementation. But does the international tax system provide an institutional framework that is fit for such purpose? This paper discusses the emerging institutional framework for revenue bargaining at an international stage. It argues that there are currently three major issues at stake: the widespread avoidance of tax payments by multinational corporations through different mechanisms of base erosion and profit-shifting (BEPS), the evasion of taxes by rich individuals through illicit capital flows, and the worldwide race to the bottom in capital taxation through the lowering of statutory tax rates and the granting of tax exemptions. In conceptual terms, the paper identifies competition and cooperation among nation-states as the two basic drivers of policy change in international taxation. Competition in tax matters takes place in order to attract foreign direct investments and to protect a country’s tax base. Cooperation refers to policies that seek to define common standards to avoid moral hazard behaviour by countries, companies or individuals. So far, governments have primarily relied on club governance structures (above all, the G20 and the OECD) to achieve progress in international standard setting. This has left most low- and lower-middle-income countries at the margin of current processes. Based on a literature review, the paper discusses pathways to international tax governance geared towards implementing new standards on a broad scale, thus providing a suitable institutional setting for revenue bargaining in times of globalisation.