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The G20, BEPS and the Future of International Tax Governance


Eccleston, R and Smith, H, The G20, BEPS and the Future of International Tax Governance, Global Tax Governance: What is wrong with it and how to fix it, ECPR Press, P Diestsch and T Rixen (ed), United Kingdom, pp. 175-198. ISBN 978-1-785521263 (2016) [Research Book Chapter]

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Copyright 2016 Peter Dietsch and Thomas Rixen

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This volume highlights the challenges of international tax governance and the normative, political and institutional barriers to the effective regulation of international tax competition. Despite periodic attempts at co-ordinated reform, international tax co-operation has been noto11ously difficult to achieve. States have been extremely reluctant to cede the sovereign 1-ight to make and administer domestic taxation law because of the profound impact these policies have on economic interests and competitiveness. Indeed, the most significant impediment to the creation of formal structures to enhance international tax co-operation is the perceived threat they pose to state sovereignty and established principles of international public law.

The need for greater international tax co-operation is now well understood but the international tax regime is highly path-dependent and constrained by the large number of bilateral treaties between states - which are only ' loosely coordinated by agreed standards' (Eccleston 2012: 69). Furthermore, and despite the projected benefits that tax co-operation would yield for the collective good, there remain powerful financial incentives for individual countries to defect from taxation agreements. Reducing tax rates or offering concessions and secrecy attracts mobile capital investment; and the incentives to defect from regimes aimed at counte11ng these practices only increase with the number of states participating in the regime (Eccleston 2012: 74). The nature of the international tax system necessitates the complicity, or support at the very least, of powerful states in international tax governance, which, as will be demonstrated, is far from guaranteed. The incentives to defect also mean that governance regimes must be especially attentive with regard to compliance, arguably the Achilles heel of tax regulation (Drezner 2007). Given such challenges, reforming the international tax regime is a critical test of both international leadership and the G20's capacity to provide effective global governance.

Despite the historical absence of an effective multilateral regime to promote international tax co-operation there is growing optimism, especially among political leaders, that the financial c11sis (FC) of 2008- 9 and its aftermath has fostered renewed determination to establish more robust and effective international tax regulation. A wide range of FC-induced international tax initiatives have been implemented since 2008, as increasingly indebted governments seek to improve the integrity of their tax systems in an attempt to rein in budget deficits. Arguably the most significant post-crisis innovation in global governance has been the creation of the G20 Leaders' Forum, which, despite a broad and ambitious remit, has played a key role in endorsing various international tax initiatives since 2009 (Eccleston et al. 2013: 3). This chapter will provide an overview of the G20 's role in post-crisis international tax governance, including an assessment of whether there is capacity for an effective and sustainable regime for regulating tax competition to be promoted through the G20.

The challenges of establishing multilateral regimes to promote international economic co-operation are well documented. Even when international agreement can be reached, intergovernmental bodies such as the G20 are still faced with the critical challenge of ensuring that these groups are not simply 'toothless talkshops' (Rachman 2010; .Volverson 2010), and that the commitments made by member states are honoured. As one of the most important international forums, whose membership includes the key players in international tax policy, these challenges mean that the G20's engagement with international tax issues and the impact of this engagement on global governance is of profom1d political and economic significance. Having endorsed the OECD's international tax agenda since 2009, the G20's credibility as a key actor in post-FC governance is dependent on its ability to promote effective compliance among its members. Yet while there is evidence that the G20's endorsement of the initiatives designed to promote tax-information exchange has been successful, both in terms of encouraging states to commit to international standards and in ensuring subsequent compliance (Eccleston et al. 2013), it is less clear that the G20 has the capacity to foster agreement in relation to measures designed to limit international tax avoidance.

Reflecting these issues, this chapter seeks to assess the G20's role in global tax governance, with a particular emphasis on the politics of compliance. After providing a sm1una1y of the G20's role in promoting international tax transparency, the chapter assesses the G20's critical role in the OECD's new and more ambitious Base Erosion and Profit Shifting (BEPS) initiative. We argue that although it remains too early to tell whether BEPS will provide an effective framework for regulating international tax avoidance, given differing interests and incentives among the G20 member-states it appears increasingly likely that BEPS will not succeed in its ambition of curbing the increasingly aggressive tax-planning practices of multinational corporations (MNCs). In order to appreciate the governance challenges associated with international taxation, it is necessary to outline the conceptual differences (and political implications) between promoting international tax transparency on the one hand and regulating the international tax competition that makes avoidance possible on the other.

Item Details

Item Type:Research Book Chapter
Research Division:Human Society
Research Group:Policy and administration
Research Field:Public administration
Objective Division:Economic Framework
Objective Group:Microeconomics
Objective Field:Microeconomic effects of taxation
UTAS Author:Eccleston, R (Professor Richard Eccleston)
UTAS Author:Smith, H (Ms Helen Smith)
ID Code:104170
Year Published:2016
Deposited By:School of Social Sciences
Deposited On:2015-11-04
Last Modified:2017-12-14

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