Tsilly Dagan – International Tax Policy: between Competition and Cooperation (Cambridge University Press, 2017)

By Ricardo García Antón

Resultado de imagen de International Tax Policy: between Competition and CooperationIn the field of international taxation, few books have had an impact beyond the time they were written. Together with the diagnosis of the current landscape, those books frame and foresee the debate for the forthcoming years. I am thinking for example on the still revolutionary findings presented by Avi-Yonah in International Tax as International law. Dagan’s inspiring book enters into this limited Mount Olympus of contributions which would give food for thoughts to entire generations of scholars and points the real grassroots of the current challenges of domestic and international taxation.

In a nutshell, her powerful claim, already outlined in previous author’s contributions, strengthens the domestic interest of the State in order to promote a just and efficient international tax regime. Based on compelling criticisms to the bilateral solutions yielded in the current international tax cooperation framework, Dagan argues firstly that tax competition is not something we should get rid of. Secondly, the current tax cooperation linked with the standardization process derived from the OECD/UN Models may not trigger favorable and fair results for developing countries.

The market analogy embedded in game theory labels the current problems of international taxation as market failures (free-riding, transaction costs, information asymmetries and anti-competitive collusion). As an example, in the absence of perfect information, taxpayers look for loopholes to pay less taxes as possible and therefore transaction costs increase: “ the decentralized structure of the international tax regime is responsible for significant conflicts between jurisdictions. These conflicts, in turn, have led to the creation of loopholes. Loopholes are prominently abused by tax planners seeking to reduce their effective tax rates through what has been colloquially termed “tax arbitrage. The loopholes not only create free-riding opportunities but also entail major planning costs (for taxpayers) and enforcement costs (for the government). In social welfare terms, these are pure transaction costs that reduce the collective welfare” (Chapter 4). To achieve an efficient tax competition and eliminate market failures, the author proposes several alternative solutions, from creating an interstate antitrust agency to counter anti-competitive strategies by states, to enhance an information-sharing system or to develop an international tax standard to prevent free-riding and reduce transaction costs (Chapter 7).

The compelling arguments contained in the book to increase fair and efficient tax competition, which cannot be entirely summarized in this brief post, have already sparkled debate. In their book review, Edoardo Traversa & Anne-Grace Kleczewski (Intertax, Vol. 46, Issue 3, 2018) observe that the solutions proposed, namely the increase of information sharing, coincides with the current international developments conducted by the OECD, although in Dagan’s view, the justification is totally different. But, “no matter the road taken, what matters is that they lead to Rome”, those authors summarized. Laurens van Apeldoorn (A sceptic’s guide to justice in international tax policy, forthcoming 2018) focused on Dagan’s argument premised in Thomas Nagel, who limits distributive justice within the exclusive boundaries of the States. For Nagel, going beyond the State, albeit out of the scope of the duty of distributive justice, is necessary to secure a minimal humanitarism. Under this exception, van Apeldoorn suggests that Dagan should ground her argument. In his view, international taxation is governed by moral norms of humanitarian nature which require the States to prevent human rights deficits.

In this post, due to space constraints, I have chosen to briefly comment on the dilemma enshrined in Chapter 1 concerning the deep identity crisis of our modern tax systems. While the adagio ¨no taxation without representation¨ enhanced the citizen´s identity within the boundaries of their territory, the current Post-BEPS landscape depicts a taxpayer cherry-picking the most convenient jurisdiction to pay less taxes by means of exploiting the loopholes (“tax arbitrage”). The vanishing of the sense of “belonging” embedded in the concept of tax diminishes the democratic quality of our societies. Taxes are conceived as burdensome, in other words, ¨something to avoid or minimize at all costs¨. The democratic grounds of taxes seems to be completely broken down. The market analogy employed by Dagan, which labels taxpayers and States as ¨network users¨ (Chapter 7) does not definitely aspire to restore the democratic foundations of our tax system. The author’s “international tax standard” would operate as a manual to facilitate the States to collect certain revenue and reduce transactions costs for both parties. However, do we have to sacrifice the democratic grounding of taxes to achieve efficiency and eliminate “market failures”? Are taxes simply costs in the Profit & Losses sheet of multinationals?

In my personal view, taxes are core elements to fortify the democratic concrete of our society. Restoring the “sense of belonging” of taxpayers when paying taxes is therefore crucial to the democratic sustainability of our societies. But this identity cannot be found out any longer within the State boundaries. Inasmuch as the economy is global and interconnected, reconstructing the “sense of belonging” ought to be transnational. The market analogy leaves us an image of States competing for resources and taxpayers looking for minimizing their tax rate under a cost benefit analysis. That means a sort of State navel-gazing. Therein plays an important role the current processes of regionalization such as the EU. Our big endeavor, as Habermas recently advocated, is to overcome the nation-state selfishness to search for a truly European ethos. Dagan’s book is perhaps still much heir of the so-called by Habermas the nation-sate selfishness. Restoring a transnational identity in the taxes to be paid by citizens within regional integration process is fundamental to solve the dilemma of our globalized times and ensure democracy in our societies.

To conclude, this book’s major ability is to wisely freeze for a moment “the waters that are ever flowing on to you” , in the famous Heraclitus’s river. The current tax literature seems to be made up of rapid patchworks, always urgently reacting to the new OECD reports, EU proposals for the digitalized economy, etc. Dagan’s contribution may become the Great Birnam Wood in the Macbeth’s prophecy: the forest that would defeat the permanent state of scholar’s emergency.