Summer in academia is a time for tidying up, so I have updated the page of this site with my publications. Here are three recently published items, with links to downloadable versions and their abstracts:
The challenges for developing countries in international tax justice (link is to PDF of accepted version)
This is a review article to appear in the Journal of Development Studies, which was published online in May.
Developing countries face three main challenges in international tax cooperation. The most widely known is the twin problems of tax avoidance by foreign investors and tax evasion by domestic actors, which have become a major focus of debate in international organisations and of civil society activism in recent years. The second problem, tax competition, incorporates a range of issues from the ‘prisoners’ dilemma’ facing countries competing for inward direct investment through to the harmful tax rules used by tax havens that enable tax avoidance and evasion. This article reviews four recent monographs that analyse these problems at an international level. While they contain much useful discussion of the problems and potential technical solutions, there remains a need for political economy research to understand why certain technical solutions have not been adopted by governments. A third challenge faced by developing countries, barely considered in the tax and development literature up to now, leads to a note of caution: international tax institutions tend to be designed in ways that place disproportionate restrictions on capital-importing countries’ ability to tax foreign investors.
The UK’s tax treaties with developing countries during the 1970s (link is to PDF of accepted version)
This is a chapter in Studies in the History of Tax Law, volume 8, edited by Peter Harris and Dominic De Cogan. It’s been published today by Hart Publishing.
Tax treaties between developed and developing countries impose considerable costs on the latter, in the form of curbs on their right to tax investment from the former. Existing research assumes that such restrictions are accepted as a quid pro quo for resolving the problem of double taxation, which might act as an obstacle to inward investment. This paper uses archival documents to examine treaty negotiations between the United Kingdom (UK) and developing countries during the 1970s, focusing on contentious provisions concerning ‘tax sparing’, the taxation of shipping, and withholding taxes. Consistent with critical literature on tax treaties, it finds that neither side was concerned about the double taxation problem, which was resolved unilaterally by the UK’s tax credit. Rather, developing countries were primarily focused on obtaining matching tax credits in the UK to maximise the benefits to investors from their tax incentives. UK priorities, meanwhile, were to bind developing countries into OECD-type tax treatment of British firms. Negotiated outcomes did not reflect the true balance of costs and benefits to each side, but their different negotiating capacities, the political salience of particular taxes, and the precedent certain concessions might set for future negotiations.
What makes countries negotiate away their corporate tax base? (link is to published pdf)
This is a working paper for the United Nations University World Institute for Development.
Qualitative case studies suggest that the outcomes of tax treaty negotiations are determined by power politics and negotiating capability. In contrast, quantitative studies have tended to depart from a model that implies absolute gains, full rationality, and perfect information on the part of both treaty signatories. This paper bridges the gap by replicating two existing quantitative studies, introducing new, more sophisticated data. New fiscal data are drawn from the ICTD Government Revenue Dataset, while treaty content is measured using the ActionAid Tax Treaties Dataset. It finds that developing countries that raise more corporate income tax are more likely to sign tax treaties with wealthier countries, and more likely to negotiate higher withholding tax rates in those treaties, but not more likely to obtain a better negotiated result overall. In contrast, developing countries that raise more revenue in total are more likely to negotiate better outcomes in other clauses of the treaty that are more obscure and technically complex. There is also a strong learning effect, with better outcomes across the board as a developing country gains experience of signing tax treaties. Finally, greater asymmetries in investment stocks and material capabilities lead to worse outcomes for developing countries.
Martin Hearson 