New Puzzles In International Tax Agreements

Wei Cui (British Columbia; Google Scholar), New Puzzles in International Tax Agreements:

The G-7 countries’ recent accord on a global minimum corporate tax has been proclaimed a breakthrough in international tax cooperation: at the least, it is expected to spur international tax negotiations at unprecedented scales. Yet these developments seriously challenge our understanding of international economic agreements. I identify three paradoxes in recent narratives about why countries should cooperate in corporate taxation. First, it is widely claimed that because business transactions increasingly take place remotely instead of through physical presence, traditional assumptions of international income taxation are undermined. Yet there is little evidence that the remote provision of services has grown at the expense of services trade through branches and foreign affiliates. Second, an explicit rationale for international agreement has been that it would appease the U.S. and preempt it from starting trade wars.

Yet the actions that the U.S. threatens to take against others are regulated by the WTO, leaving it unclear why countries would move from non-cooperation to cooperation on the same subject just by changing forums. Third, the G7’s proposed global minimum tax purportedly aims to end corporate tax competition and the use of tax havens. Yet no explanation has been offered for why strengthened residence country taxation requires international cooperation, or why ending tax competition yields cooperative gains for all countries.