The new politics of global tax governance: taking stock a decade after the financial crisis

Rasmus Corlin Christensen & Martin Hearson (2019). The new politics of global tax governance: taking stock a decade after the financial crisis, Review of International Political Economy, 26:5, 1068-1088

As the new academic year gets underway, it’s time for me to promote a review piece that Rasmus Christensen and I published over the summer. We provide a framing of current developments in global tax governance from a political economy perspective. The piece is written at introductory level and fills the gap for an overview reading in university courses. It is framed as a review of four interdisciplinary books, all of which we recommend. Oh and it’s open access, thanks to EU funding!

Here’s the abstract:

The financial crisis of 2007–2009 is now broadly recognised as a once-in-a-generation inflection point in the history of global economic governance. It has also prompted a reconsideration of established paradigms in international political economy (IPE) scholarship. Developments in global tax governance open a window onto these ongoing changes, and in this essay we discuss four recent volumes on the topic drawn from IPE and beyond, arguing against an emphasis on institutional stability and analyses that consider taxation in isolation. In contrast, we identify unprecedented changes in tax cooperation that reflect a significant contemporary reconfiguration of the politics of global economic governance writ large. To develop these arguments, we discuss the links between global tax governance and four fundamental changes underway in IPE: the return of the state through more activist policies; the global power shift towards large emerging markets; the politics of austerity and populism; and the digitalisation of the economy.

This table sets out the trends we identify, and our explanation of how they are affecting tax politics.

And here are the books we discuss:

Dietsch, P., & Rixen, T. (Eds). (2016). Global Tax Governance: What is wrong with it and how to fix it. Colchester: ECPR Press.

Fairfield, T. (2015). Private wealth and public revenue in Latin America: Business power and tax politics. Cambridge: Cambridge University Press.

Harrington, B. (2016). Capital without borders: Wealth managers and the one percent. Cambridge, MA: Harvard University Press.

Jogarajan, S. (2018). Double taxation and the league of nations. Cambridge: Cambridge University Press.

Why the US and Argentina have no Tax Information Exchange Agreement

AFIP offices

The HQ of Argentina’s tax authority, AFIP (Photo credit: blmurch)

In this new era of automatic information exchange between tax authorities, the United States has come to be seen as the driving force behind the end of tax secrecy. (Although I note that back in 2010 Tax Justice Network said that the US’ FATCA initiative “preserves the essential Tax Haven USA approach – preventing the US
having to provide information to foreign governments about their own fatcats using the USA as a secrecy jurisdiction. What it does is to beef up the ability of the U.S. to find out about its own tax cheats.”)

I’ve been looking through the US embassy cables made public by Wikileaks, and one of the most interesting tax stories relates to the US and Argentina.

In March 2007, Argentina made a request for a tax information exchange agreement (TIEA) with the US. A cable explains how the US responded by offering a full tax treaty, not a TIEA:

Following AFIP’s March 2007 TIEA information request, EconCouns contacted U.S. Treasury Tax Treaty officer Henri Louise [sic] who provided background on USG BITT protocols and models as well as on the USG’s 2007 negotiation of a TIEA with Brazil. At the request of AFIP Tax Director Castagnola, EconCouns then presented copies of the 1998 U.S./Venezuela BITT and the 2006 model tax treaty. Also at AFIP’s request, EconCouns met on this issue with the Ministry of Economy’s Undersecretary for Public Revenue Mario Presa, whose office develops broad GoA tax policy guidelines. On August 27, the GoA’s Ministry of Economy Washington rep Jorge Heilpern and Washington Embassy DCM Jose Gabolindo met with Treasury Tax Treaty officers Kissel and Louise for exploratory discussions on the potential to negotiate a Bilateral Income Tax Treaty (BITT).

This is akin to saying “you can have tax information exchange, so long as you surrender some of your taxing rights through a double tax treaty.” Argentina clearly didn’t want to do so, and later that year the cables record two discussions between the head of Argentina’s tax and customs authority, Alberto Abad, and the US Ambassador to Argentina. The second discussion, in November, is recorded as follows:

Abad recalled that the U.S. Treasury Department continues to condition a formal US/GoA Tax Information Exchange Agreement (TIEA) on negotiation of a broader Bilateral Income Tax Treaty, notwithstanding the fact that the U.S. in 2007 signed a TIEA with Argentina’s Mercosur partner Brazil based only on the promise of future tax treaty negotiations… AFIP sees the U.S. IRS as a model to be emulated and seeks a closer working relationship. The only solution to the globalization of tax evasion, money laundering and terror finance, Abad concluded, is increased exchange of information by tax and revenue authorities. “Give us a signal,” he concluded. “We don’t need to negotiate a big bilateral agreement, but we want to develop a new, closer relationship with you.”

(Elsewhere, the cables record an almost comical level of frustration that the US has been unable to obtain a tax treaty with Brazil. One is headed “small victory in the 40-year struggle for a BTT”.)
The continued absence of a TIEA between Argentina and the US suggests that both sides held firm on their positions (and in the meantime Argentina has cancelled a few of its other tax treaties). So any time the US gets on its high horse about the fight against tax avoidance, it is worth remembering that it is using Argentina’s need for information on its taxpayers’ foreign income to hold that country to ransom for a tax treaty.