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Political Research Exchange - PRX

Tax Competition: an Internalised Policy Goal

Lyne Latulippe
Concordia University
Lyne Latulippe
Concordia University

Tax competition is reinforced at the national level by being elevated to a powerful tax policy goal in itself in the case of international taxation, which overshadows other fundamental objectives of taxation policy such as fairness, neutrality, or efficiency. The paper argues that in order to understand the forms of tax competition and also global tax governance, analysis should include the study of international taxation policy-making at the domestic level. The paper studies a consultation process leading to modifications of international taxation policies in two countries: Australia (2002) and Canada (2008). The structure of the consultation process is analyzed in both countries as well as relevant documents, including consultation papers, submissions, final reports and proposed modifications. This study allows apprehending how these countries anchored the consultation process with regard to international taxation issues in the context of tax competition and the consequences of this process with regard to the comments submitted by participants, which are multinational enterprises, their advisers or banks, and the outcome of the consultation process.
The results of the analysis demonstrate how states constrain their sovereignty with regard to taxation policy through a discourse of competitiveness. The domestic policy-making process concerning international taxation issues is framed as a problem of competitiveness in a liberal economic ideology. When searching for solutions, public consultations are conducted to find ways to improve the competitiveness of the tax system, which is interrelated to the competitiveness of resident multinational enterprises. States do not compete only to attract investment from abroad but also to facilitate investment abroad by resident multinational enterprises. The resulting reforms facilitate investments by multinational enterprises in other states including those offering tax incentives to attract investment. The internalization of tax competition opens up further opportunities for double non-taxation.
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