International Tax Coordination

Introduction

Taxation is an important tool for governments in raising revenues to support their public expenditure. It is also a means for governments to ensure that resources are effectively allocated for the provision of public services, for redistribution and for incentivising certain investments. The taxation system is therefore fundamental to all societies, as it has the potential to play a significant role in advancing economic, social and environmental objectives.

Taxation also involves both domestic and international aspects. A state’s domestic tax system should be coherent, aligned and consistent with its overall monetary and fiscal policies, while at the same time respecting international conventions and obligations of the state concerned. International coordination of the tax system, however, is a more challenging affair. This paper will provide an overview of the international coordination and cooperation of state taxation, focusing primarily on direct taxation.

International Taxation

The international taxation landscape has evolved significantly in recent years. The use of international taxation rules, policies and regulations have become increasingly important in order to facilitate global trade and commerce. Even while countries are retaining sovereign control over their domestic tax systems, taxation agreements and double taxation conventions are entering into increasingly complex arrangements. This has been helped by the development of increasingly sophisticated technological systems, which has allowed for the exchange of information internationally and made the process of taxation more efficient and cost effective.

At the same time, states and international institutions have become increasingly active in developing and strengthening a legal framework to govern international taxation. This has involved state and multilateral co-operation to reach shared solutions to common problems. For example, there have been agreements and international instruments on the prevention of double taxation, the exchange of information, the prevention and avoidance of tax avoidance and evasion, and the targeting of profits from digital businesses.

The Organisation for Economic Co-operation and Development (OECD) has played a key role in promoting international taxation coordination and co-operation. Its efforts to tackle tax avoidance, evasion and aggressive avoidance have led to the formulation of the Base Erosion and Profit Shifting (BEPS) project, which outlines 15 actions for countries to take to ensure global tax fairness and enhance the functioning of international taxation. It also promotes the exchange of information and the development of the standard for automatic exchange of information.

Other organisations, such as the International Monetary Fund (IMF), the World Bank, the European Commission (EC) and the UN have also played important roles in promoting and strengthening the international taxation framework. The IMF and the EC, in particular, have been instrumental in developing and updating international tax norms and standards.

Conclusion

International taxation coordination and co-operation is essential for ensuring global tax fairness and improving the efficiency of international taxation. The BEPS project is the main standard-setting and capacity-building mechanism to this end. It outlines 15 actions to be taken by countries to tackle tax avoidance, evasion and aggressive avoidance. Other organisations, such as the IMF, the World Bank, the EC and the UN, have been instrumental in promoting and strengthening the international taxation framework. These efforts will continue to be necessary in order to ensure the sustainability of the international taxation system and promote global cooperation.

Taxes are an integral part of a nations economic growth, but there is no single jurisdiction in the world with sole power to dictate what taxes are due to be paid in a certain market. International cooperation is essential for companies operating in multiple countries to ensure compliance with global tax laws.

The increasing complexity of international tax laws has made it necessary for countries to work together to ensure tax compliance of international businesses. As taxes vary from country to country, in order to ensure a level playing field, the Organisation for Economic Co-operation and Development (OECD) Legal Ground Rules on Taxation provide a set of guidelines to ensure that multinational corporations and organisations comply with national level tax laws throughout the world. The OECD issued common reporting standards (CRS) in 2014, requiring more transparency from countries and companies in deciding where taxes should be paid when doing business internationally.

In addition, on a regional level, the EU has introduced the Common Consolidated Corporate Tax Base (CCCTB) to dictate how corporate tax should be paid across the European Union. The CCCTB safeguards against tax avoidance and tax evasion in cross-border activities, as well as creating a harmonized tax base within Europe.

International tax coordination also works in the opposite direction, with countries attempting to impose taxes on overseas-based businesses as a way of protecting their domestic markets. The long arm of the law exists not just domestically, but internationally too, with many countries enforced their taxation laws on overseas companies.

In addition to individual-country activity, international organizations such as the UN and the World Bank have recently become involved in the efforts to increase international tax coordination. The organisations are looking for ways to create a global taxation policy, through the Global Forum on Taxation, that is intended to promote transparency and cooperation between governments and businesses.

Overall, as globalization increases and technology advances, there will be more opportunities for businesses to operate in multiple countries, and therefore more need for international tax coordination between countries. It is essential for countries to cooperate with each other through organisations such as the OECD, EU and the UN to ensure that taxes are paid appropriately, which will create a fairer playing field for businesses across the world.