Coordination and Legitimacy in International Business Taxation

This paper will outline the changing forms of cooperation between national tax authorities in the taxation of income or profits from international business, especially transnational corporations (TNCs). The case study will illustrate broader trends of transformation both of statehood and the international state system, from the classical liberal model based on interdependence and coordination of nation-states through central governments, towards a post-liberal one of decentred multi-level global governance, in which state functions are increasingly fragmented, and coordination is increasingly by international regulatory networks. Direct taxation of income and profits has been the centrepiece of the modern fiscal state during the past century, when the internationalization of business, especially through transnational corporations (TNCs) helped to transform the world economy. In response to the first phase of emergence of TNCs (1870-1914), arrangements were developed for allocation between states of rights to tax business income (1920-1945). These were consolidated after 1950, and helped to lay the basis for the rapid growth of foreign direct investment by TNCs in the 1950s and 1960s. Increasing strain has been placed on these arrangements for coordination in the past thirty years, both by the increased integration of international business, and the greater complexity of international finance, especially with the emergence of tax havens and offshore financial centres. The various initiatives to strengthen international tax coordination are examined, focusing especially on the problems of (i) legitimising cooperation based on governmental and professional networks, and (ii) coordination between taxation and related regulatory issues, especially supervision of financial institutions and markets (e.g. money-laundering, financial fraud, and prudential supervision).? ? This paper is part of a research programme being pursued under a Research Fellowship funded by the Economic and Social Research Council, and I am extremely grateful to the Council for the opportunity for an extended period of research and writing. This paper is in draft, please refer to the author if you wish to cite it; comments also welcome, to [email protected].