The Causes and Consequences of Automatic Exchange of Information
7.6 Conclusion and Policy Implications
Unlike efforts to curb tax avoidance by corporations, international cooperation against tax evasion proved to be successful. As a result, governments regained manoeuvring room to democratically set domestic tax policies that had previously
been lost to the constraints of tax competition. However, pressing challenges remain.
First, there are remaining loopholes that plague the AEI regime. As our research shows, one problem is golden passport schemes that allow tax evaders to become citizens of countries that they never lived in. The OECD already put such schemes on its agenda and compiled a blacklist of jurisdictions providing golden passports (OECD 2018a). Governments must continue to apply pressure on countries offering golden passports to abstain from this practice. The second problem is that while the coverage of the AEI regime is high, several jurisdictions are still reluctant to join threatening its future success. Most importantly, the United States do not share information with foreign jurisdictions. This is especially worrisome because the US is the largest financial centre in the world. It has both an incentive and the possibility to develop tax haven operations in the future.
States such as Delaware, Nevada, and South Dakota already allow foreign invest-ors to establish shell corporations that do not require identity verification. The EU should pressure the US into participating in reciprocal AEI in the future. While the US is the most importantfinancial centre of the world, the European market is certainly big enough to leverage economic power. However, in order to make its sanction threats credible, the EU would need to speak with one voice. This requires overcoming internal dissent. Abandoning the unanimity principle in EU tax policy in favour of simple or qualified majority voting would be a step in the right direction.
Second, a return to a truly progressive tax system hinges on effective cooper-ation in the area of business taxcooper-ation. However, to date, no comparable break-through to AEI has been achieved. Political pressure to move forward on this front should be upheld. Replacing separate entity accounting and the ALS with unitary taxation, as currently proposed by the European Commission in its proposal for a common consolidated corporate tax base (CCCTB), seems to be the most ambi-tious but also the most promising way forward.
Third, and more generally, ourfindings bear on current debates about the role of international cooperation in thefight against growing income inequality and populism. While discussions of income inequality and taxation are often limited to national institutions and policies only (but see Piketty 2014), we show that the creation of enabling international institutions and policies are a necessary precondition for progress. If policy-makers aim to end the neoliberal and regressive tax policies that have characterized recent decades, they need to strengthen international cooperation. In contrast to assertions by nationalists, international cooperation does not constrain national policy choices. Instead, it expands the domestic policy space. Rather than being pressured by tax compe-tition to lower taxes on portfolio capital, under AEI governments have real discretion over the applicable rate. In other words, while tax cooperation requires governments to give up some of their de jure sovereignty, they regain
de facto sovereignty, i.e. actual democratic control over their tax policy.
International tax cooperation is an essential and necessary element of the normative vision of‘sensible globalization’that could end the current trajectory of unregulated‘hyper globalization’, which is unsustainable because it puts all states into a ‘golden straitjacket’ that makes it impossible to compensate the losers of globalization at the national level (Rodrik 2011). In the face of rising nationalist and protectionist tendencies, it is high time for internationalists and international institutions to act on this insight and push for more effective tax cooperation.
7.7 References
Ahrens, L. and Bothner, F. 2020.‘The Big Bang: Tax Evasion After Automatic Exchange of Information Under FATCA and CRS’.New Political Economy 25(6): 849–64.
Ahrens, L. and Bothner, F. 2019. ‘The Big Bang: Tax Evasion After Automatic Exchange of Information Under FATCA and CRS’.New Political Economy1–16.
Ahrens, L., Bothner, F., Hakelberg, L., and Rixen, T. 2019a.‘New Room to Maneuver:
National Tax Policy under the Automatic Exchange of Information.’ COFFERS Working Paper.
Ahrens, L., Bothner, F., Hakelberg, L., and Rixen, T. 2020a.‘New Room to Maneuver:
National Tax Policy under the Automatic Exchange of Information’. Socio-Economic Review.doi: 10.1093/ser/mwaa007.
Ahrens, L., Hakelberg, L. and Rixen, T. 2020b. ‘A victim of regulatory arbitrage?
Automatic exchange of information and the use of golden visas and corporate shells’.Regulation & Governance. doi:10.1111/rego.12363.
Alstadsæter, A., Johannesen, N., and Zucman, G. 2019.‘Tax Evasion and Inequality’, American Economic Review 109(6): 2073–103.
Basinger, S. J. and Hallerberg, M. 2004.‘Remodeling the Competition for Capital: How Domestic Politics Erases the Race to the Bottom’.American Political Science Review 98(2): 261–76.
Büttner, T. and Thiemann, M. 2017.‘Breaking Regime Stability? The Politicization of Expertise in the OECD/G20 Process on BEPS and the Potential Transformation of International Taxation’.Accounting, Economics, and Law: A Convivium 7(1): 484.
Caruana-Galizia, P. and Caruana-Galizia, M. 2016.‘Offshore Financial Activity and Tax Policy: Evidence from a Leaked Data Set’.Journal of Public Policy 36(3): 457–88.
Christensen, R. C. and Hearson, M. 2019.‘The New Politics of Global Tax Governance:
Taking Stock a Decade After the Financial Crisis’.Review of International Political Economy 26(5): 1068–88.
Cobham, A. and Janský, P. 2018.‘Global Distribution of Revenue Loss from Corporate Tax Avoidance: Re-estimation and Country Results’. Journal of International Development 30(2): 206–32.
Crivelli, E., Mooij, R. de, and Keen, M. 2016. ‘Base Erosion, Profit Shifting and Developing Countries’.FinanzArchiv: Public Finance Analysis72 (3): 268–301.
Devereux, M. P., Lockwood, B., and Redoano, M. 2008.‘Do Countries Compete Over Corporate Tax Rates?’.Journal of Public Economics 92(5): 1210–35.
Eccleston, R. and Gray, F. 2014.‘Foreign Accounts Tax Compliance Act and American Leadership in the Campaign against International Tax Evasion: Revolution or False Dawn?’.Global Policy 5(3): 321–33.
Eden, L. 1998.Taxing Multinationals: Transfer Pricing and Corporate Income Taxation in North America. Toronto: University of Toronto Press.
Eggenberger, K. and Emmenegger, P. 2015. ‘Economic Vulnerability and Political Responses to International Pressure: Liechtenstein, Switzerland and the Struggle for Banking Secrecy’.Swiss Political Science Review 21(4): 491–507.
Elbra, A. and Mikler, J. 2017. ‘Paying a ‘Fair Share’: Multinational Corporations’
Perspectives on Taxation’.Global Policy 8(2): 181–90.
Emmenegger, P. 2015. ‘The Long Arm of Justice: U.S. Structural Power and International Banking’.Business and Politics 17(3): 473–93.
Emmenegger, P. 2017. ‘Swiss Banking Secrecy and the Problem of International Cooperation in Tax Matters: A Nut Too Hard to Crack?’. Regulation &
Governance 11(1): 24–40.
Fuchs, D. and Lederer, M. M. L. 2007.‘The Power of Business’.Business and Politics 9(3): 1–17.
G20. 2009. ‘The Global Plan for Recovery and Reform’. http://www.g20.org/
Documents/final-communique.pdf, accessed 26 January 2011.
Ganghof, S. 2006. The Politics of Income Taxation: A Comparative Analysis.
Colchester: ECPR Press.
Genschel, P. and Schwarz, P. 2011. ‘Tax Competition: A Literature Review’. Socio-Economic Review 9(2): 339–70.
Genschel, P. and Schwarz, P. 2013. ‘Tax Competition and Fiscal Democracy’. In W. Streeck and A. Schäfer (eds), Politics in the Age of Austerity: pp. 59–83.
Cambridge: Polity.
Grinberg, I. 2012.‘Beyond FATCA: An Evolutionary Moment for the International Tax System’. Georgetown Law Faculty Working Paper.
Grinberg, I. 2015. ‘The New International Tax Diplomacy’. The Georgetown Law Journal 104:1137–96.
Hacker, J. S. and Pierson, P. 2002.‘Business Power and Social Policy: Employers and the Formation of the American Welfare State’.Politics & Society 30(2): 277–325.
Hakelberg, L. 2015. ‘The Power Politics of International Tax Co-operation:
Luxembourg, Austria and the Automatic Exchange of Information’. Journal of European Public Policy 22(3): 409–28.
Hakelberg, L. 2016. ‘Coercion in International Tax Cooperation: Identifying the Prerequisites for Sanction Threats by a Great Power’. Review of International Political Economy 23(3): 511–41.
Hakelberg, L. 2020.The Hypocritical Hegemon: How the United States Shapes Global Rules against Tax Evasion and Avoidance.Ithaca, NY: Cornell University Press.
Hakelberg, L. and Rixen, T. 2020. ‘Is Neoliberalism Still Spreading? The Impact of International Cooperation on Capital Taxation’. Review of International Political Economy. doi: 10.1080/09692290.2020.1752769.
Hakelberg, L. and Schaub, M. 2018. ‘The Redistributive Impact of hypocrisy in International Taxation’.Regulation & Governance 12(3): 353–70.
Handelsblatt 2006. ‘Steinbrück will mit 25 Prozent einsteigen’. https://www.hand elsblatt.com/politik/deutschland/abgeltungssteuer-steinbrueck-will-mit-25-pro zent-einsteigen/2708232.html?ticket=ST-61512157-wJhXGi42dDWquPNh9CdK-ap2, accessed 3 November 2019.
Hanlon, M., Maydew, E. L., and Thornock, J. R. 2015.‘Taking the Long Way Home:
U.S. Tax Evasion and Offshore Investments in U.S. Equity and Debt Markets’.The Journal of Finance 70(1): 257–87.
Harrington, B. 2016.Capital without Borders. Cambridge: Harvard University Press.
Johannesen, N. 2014. ‘Tax Evasion and Swiss Bank Deposits’. Journal of Public Economics 111: 46–62.
Johannesen, N. and Zucman, G. 2014.‘The End of Bank Secrecy? An Evaluation of the G20 Tax Haven Crackdown’.American Economic Journal: Economic Policy 6(1):
65–91.
Lierse, H. and Seelkopf, L. 2016. ‘Room to Manoeuvre? International Financial Markets and the National Tax State’.New Political Economy 21(1): 145–65.
Limberg, J. 2019.‘What’s Fair? Preferences for Tax Progressivity in the Wake of the Financial Crisis’.Journal of Public Policy 5:1–23.
Lips, W. 2019.‘Great Powers in Global Tax Governance: A Comparison of the US Role in the CRS and BEPS’.Globalizations 16(1): 104–19.
Meinzer, M. 2017.‘Automatic Exchange of Information as the New Global Standard:
The End of (Offshore Tax Evasion) History?’. In Ateş, L. & Englisch, J. (eds), Automatic Exchange of Information and Prospects of Turkish-German Cooperation, Istanbul. Available at SSRN: https://ssrn.com/abstract=2924650 or http://dx.doi.org/
10.2139/ssrn.2924650
Menkhoff, L. and Miethe, J. 2019. ‘Tax Evasion in New Disguise? Examining Tax Havens’International Bank Deposits’. Journal of Public Economics 176:
53–78.
OECD. 1998.Harmful Tax Competition. An Emerging Global Issue. Paris: OECD.
OECD. 2013.‘The OECD Work on Base Erosion and Profit Shifting’. https://www.
oecd.org/ctp/TheOECDworkonBEPS.pdf.
OECD. 2014.‘Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information’. http://www.oecd.org/tax/exchange-of-tax-information/multilateral-competent-authority-agreement.pdf, accessed 7 May 2015.
OECD. 2017.‘Model Tax Convention on Income and on Capital, Condensed Version 2017’. Paris: OECD.
OECD. 2018a.‘Residence/Citizenship by Investment Schemes’. http://www.oecd.org/
tax/automatic-exchange/crs-implementation-and-assistance/residence-citizenship-by-investment/, accessed 21 October 2019.
OECD. 2018b. ‘Taxation of Household Savings’. OECD Tax Policy Studies. Paris:
OECD.
OECD. 2019a.‘AEOI: Status of Commitments’. http://www.oecd.org/tax/automatic-exchange/commitment-and-monitoring-process/AEOI-commitments.pdf, accessed 03 November 2019.
OECD. 2019b. ‘OECD Tax Database’. http://www.oecd.org/tax/tax-policy/tax-database.htm, accessed 21 October 2019.
Office of the Press Secretary. 2009.‘Levelling the Playing Field: Curbing Tax Havens and Removing Tax Incentives for Shifting Jobs Overseas’. https://www.treasury.
gov/press-center/press-releases/Pages/tg119.aspx, accessed 21 October 2019.
Palan, R., Chavagneux, C., and Murphy, R. 2010. Tax Havens. How Globalization Really Works,Cornell Paperbacks. Ithica: Cornell University Press.
Palan, R. and Wigan, D. 2014. ‘Herding Cats and Taming Tax Havens: The US Strategy of‘Not In My Backyard’.Global Policy 5(3): 334–43.
Picciotto, S. 1992.International Business Taxation: A Study in the Internationalization of Business Regulation. New York: Quorum Books.
Picciotto, S. 2015. ‘Indeterminacy, Complexity, Technocracy and the Reform of International Corporate Taxation’.Social & Legal Studies 24(2): 165–84.
Piketty, T. 2014.Capital in the Twenty-First Century. Cambridge: The Belknap Press of Harvard University Press.
Plümper, T., Troeger, V. E., and Winner, H. 2009.‘Why Is There No Race to the Bottom in Capital Taxation?’,International Studies Quarterly 53(3): 761–86.
Rixen, T. 2008. The Political Economy of International Tax Governance, Transformations of the state. Basingstoke: Palgrave Macmillan.
Rixen, T. 2011. ‘From Double Tax Avoidance to Tax Competition: Explaining the Institutional Trajectory of International Tax Governance’.Review of International Political Economy 18(2): 197–227.
Rixen, T. and Schwarz, P. 2012.‘How Effective is the European Union’s Savings Tax Directive? Evidence from Four EU Member States’. Journal of Common Market Studies 50(1): 151–68.
Rodrik, D. 2011.The Globalization Paradox: Democracy and the Future of the World Economy. New York: W.W. Norton.
Scheve, K. and Stasavage, D. 2016.Taxing the Rich. A History of Fiscal Fairness in the United States and Europe. New Jersey: Princeton University Press.
Seabrooke, L. and Wigan, D. 2017.‘The Governance of Global Wealth Chains’.Review of International Political Economy 24(1): 1–29.
Swank, D. 2006.‘Tax Policy in an Era of Internationalization: Explaining the Spread of Neoliberalism’International Organization 60(4): 1.
Tiebout, C.M. 1956. ‘A Pure Theory of Local Expenditures’, Journal of Political Economy 64(5): 416–24.
Young, C. 2017.The Myth of Millionaire Tax Flight: How Place Still Matters for the Rich. Stanford, CA: Stanford University Press.
Zucman, G. 2013. ‘The Missing Wealth of Nations: Are Europe and the U.S. Net Debtors or Net Creditors?’.The Quarterly Journal of Economics 128(3): 1321–64.