The challenges of the international tax system have become ubiquitous. Newspapers recount the tax exploits of multinational corporations that are household names and announce the jail sentences of the latest Swiss bankers and U.S. taxpayers to fall in the ongoing attack on tax evasion. The twin pressures on effective income taxation captured by these stories are those of tax evasion (typically engaged in by individual taxpayers) and tax avoidance (typically characterized by the planning and structuring undertaken by multinational corporations). In both cases cooperation between and among states plays a pivotal policy and enforcement role. That is not to say that cooperation (in its various iterations) is a universal or achieved objective. Rather, the question of whether states can identify a shared goal and move cooperatively toward that goal is an important focus of international tax policy discussions. With respect to the problem of tax evasion there have been some notable steps of cooperation through information sharing measures (including Tax Information Exchange Agreements) as well as domestic changes designed to increase transparency. Less agreement and coordination has been evident for the problem of tax avoidance. The current context in which these questions are being explored communally is the Organization for Economic Cooperation and Development (OECD) project on “Base Erosion and Profit Shifting” (the “BEPS” project).
But regardless of the degree of current cooperation, agreement, and coordination achieved on these international tax issues, the focus on the status of state-to-state relations can obscure another critical factor in the international tax system: domestic politics. Even if and when states reach a shared understanding of a dimension of the evasion or avoidance problems, a resulting agreement by states is not the end game. Although states must act and negotiate as monoliths in their state-to-state interactions, there remains the ever-present constraint of democracy at home and the possibility that a deal struck on the global stage is undone in the domestic sphere. This dynamic between international relations and domestic “politics” is neither new nor limited to taxation. But the serious attention to and heightened expectations from cooperation among nations regarding major issues of international tax policy requires that comparable attention be directed at the domestic side of cooperation.
The task of this paper is to explore how domestic politics can impact the heart of the international tax system – agreements among states on important issues of tax policy design and practice. Through a better understanding of the intersection of domestic politics with international debates and agreements, we can consider how and under what circumstances states might diminish the likelihood that domestic discord will ultimately undermine sovereign harmony (i.e. international agreement). Part I outlines three recent examples of international agreement or cooperation that risked rejection or at least significant undermining on the domestic front. Part II reviews the literature regarding international cooperation to develop a framework for approaching the case studies on domestic politics in international tax. Part III draws upon the theoretical work reviewed in Part II to develop a framework for understanding the intersection of international tax and domestic politics. In light of the increasing role that global cooperation and coordination plays in the development of successful international tax policy and practice, the Conclusion considers further research that could illuminate the domestic side of international agreements.The McGill Tax Policy Colloquium features distinguished visiting academics and offers a forum for students, professors, and local practitioners to discuss issues of tax policy and theory, along with related issues of economics and social justice. Professor Ring's talk will commence at 2:30 pm tomorrow; members of the public are warmly welcomed.
Location: McGill Faculty of Law, 3644 Peel Street, New Chancellor Day Hall, Room 203.
Date and Time: Monday, 25 November, 14:30–16:30.