An International Tax Research Agenda

Originally published: February 2024

Quite often, tax technical articles analyse tax topics as a specific technical problems, while losing sight on how that problem fits into a larger story. But most technical problems are related and connected to fundamental design questions of how international tax is meant to work. So, I can only applaud that Aitor Navarro looks beyond the mere tax technical questions and identifies five trends in international tax that are worthy of further deeper research in what he calls “an international tax law research agenda” (https://lnkd.in/eBjNUd2d).

The questions he identifies are:
1. should anti-BEPS rules expand or contract?
2. how should tax sovereignty and impact of tax competition be weighed against each other?
3. should economic rents be taxed in market jurisdictions and if so, how?
4. should transfer pricing adopt formulaic approaches?
5. how should multilateral cooperation be structured?

These five questions are intended as a guide for anyone deciding on a research topic. But even these questions are related (I asked Navarro and he agreed). Essentially, international tax is structured around the arm’s length principle (ALP), which the OECD Guidelines interpret as allocation based on ‘functions, assets and risk’ (FAR) to the extent that humans manage the FAR. That principle is under pressure, as corporate profits become more financialised (ie dependent on financial flows where profit volume is relatively large as compared to human activity), concentrated in super-rents (ie profits greatly exceeding labour and capital inputs), more digital (ie no clear location) and humans themselves became more mobile too.

So, the key question confronting international tax if we should keep ALP, reform ALP, supplement it with other rules (eg anti-BEPS rules or rules against tax competition, see question 1 and 2) or replace with something else (eg question 3 and 4). Right now, the alternatives lack ALP’s single unifying principle and economic rigour. Similarly, anti-BEPS rules or rules against tax competition (question 1 and 2) only make sense if the tax base is not allocated to its ‘proper’ location, so these are alternative approaches to the same (perceived) problem. The risk with anti-BEPS and anti-competition rules is that they introduce a different conception of the ‘proper’ tax base and its ‘proper’ location through the backdoor (in case of a neat definition of tax base and location, you wouldn’t need such rules). The question around forum (question 5) is distinct from that, but the current OECD-UN rivalry can’t be seen as separate from the other questions.

So, in short, it seems that all questions lead to the question: what is arm’s length and what is the appropriate transfer pricing? Like a TP colleague of me used to say: “let’s get back to work, these prices are not going to transfer themselves.”

Obvious disclaimers: this is not advice. These views are my own and do not necessarily represent my employer.

An International Tax Law Research Agenda by Aitor Navarro :: SSRN

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