The Nonlinear Library EA - International tax policy as a potential cause area by Tax Geek
Jan 24, 2024
21:09
Welcome to The Nonlinear Library, where we use Text-to-Speech software to convert the best writing from the Rationalist and EA communities into audio. This is: International tax policy as a potential cause area, published by Tax Geek on January 24, 2024 on The Effective Altruism Forum.
This is more of an exploratory post where I try to share some of my thoughts and experience working in international tax.
Thanks in particular to David Nash for his encouragement and help in reviewing my drafts.
Summary
International tax rules govern how taxing rights are allocated between countries.
International tax policy is likely to be an
impactful cause area:
Not only is there a significant amount of tax revenue at stake, there is a broader indirect impact as international tax rules can constrain domestic tax policies.
International tax rules tend to be relatively sticky, persisting for decades.
In recent years, as international tax has gotten increasingly political, there may also be broader foreign policy implications.
Yet international tax seems to be relatively neglected.
Domestic tax issues tend to be more politicised, possibly because they affect voters more directly.
International tax can be highly technical and rather opaque.
Tractability depends on how you identify the "problem":
In my view, a problem is that the development of international tax policy is dominated by relatively wealthy countries (particularly the US), who focus too heavily on their own national interest.
While I doubt this broad problem can ever be fully "solved", I believe individuals can still play a significant role in mitigating it.
Problem
International tax policy plays a key role in determining how much companies are taxed and where. This in turn affects the level of tax revenue different countries get.
The development of international tax policy is dominated by the Organisation for Economic Co-operation and Development (OECD), which is made up of relatively wealthy countries. The US also plays a key role in international tax policy.[1] I believe that many people currently working in international tax policy focus too heavily on their national interest over the global interest.
The problems here are not ones I think we can hope to fully "solve", as the problems stem from the underlying power dynamics between developed and developing countries and the natural incentives for government officials to prioritize their own country.
However, international tax policy could still be a worthwhile area to consider working in, because it seems to be a relatively neglected space where individuals can have a surprisingly large impact in mitigating these problems.
Background
What is international tax policy?
In broad terms, international tax policy governs how taxing rights are allocated between countries as well as matters of tax administration such as information sharing and dispute resolution.
Countries enter into bilateral tax treaties that aim to prevent double taxation (i.e. when two or more countries try to tax the same income) without creating opportunities for tax avoidance or evasion.
In recent years, there has also been a focus on multilateral tax projects, which may or may not result in a formal tax treaty.
Bilateral DTAs
A bilateral double tax agreement (DTA) is a tax treaty entered into by two countries.
When a person/entity resident in one country earns income from another country, both countries may attempt to tax the same income. Such double taxation would inhibit cross-border investment and trade, so countries enter into bilateral DTAs to prevent this. Depending on the circumstances, DTAs will allocate taxing rights over the income to either:
the residence country - where the person/entity earning the income lives or is managed; or
the source country - where the income is earned.
In very broad terms, in a treaty negotiation, developed countries generally want to increase the residence country's taxing rights, because they tend to have wealthy resident...
This is more of an exploratory post where I try to share some of my thoughts and experience working in international tax.
Thanks in particular to David Nash for his encouragement and help in reviewing my drafts.
Summary
International tax rules govern how taxing rights are allocated between countries.
International tax policy is likely to be an
impactful cause area:
Not only is there a significant amount of tax revenue at stake, there is a broader indirect impact as international tax rules can constrain domestic tax policies.
International tax rules tend to be relatively sticky, persisting for decades.
In recent years, as international tax has gotten increasingly political, there may also be broader foreign policy implications.
Yet international tax seems to be relatively neglected.
Domestic tax issues tend to be more politicised, possibly because they affect voters more directly.
International tax can be highly technical and rather opaque.
Tractability depends on how you identify the "problem":
In my view, a problem is that the development of international tax policy is dominated by relatively wealthy countries (particularly the US), who focus too heavily on their own national interest.
While I doubt this broad problem can ever be fully "solved", I believe individuals can still play a significant role in mitigating it.
Problem
International tax policy plays a key role in determining how much companies are taxed and where. This in turn affects the level of tax revenue different countries get.
The development of international tax policy is dominated by the Organisation for Economic Co-operation and Development (OECD), which is made up of relatively wealthy countries. The US also plays a key role in international tax policy.[1] I believe that many people currently working in international tax policy focus too heavily on their national interest over the global interest.
The problems here are not ones I think we can hope to fully "solve", as the problems stem from the underlying power dynamics between developed and developing countries and the natural incentives for government officials to prioritize their own country.
However, international tax policy could still be a worthwhile area to consider working in, because it seems to be a relatively neglected space where individuals can have a surprisingly large impact in mitigating these problems.
Background
What is international tax policy?
In broad terms, international tax policy governs how taxing rights are allocated between countries as well as matters of tax administration such as information sharing and dispute resolution.
Countries enter into bilateral tax treaties that aim to prevent double taxation (i.e. when two or more countries try to tax the same income) without creating opportunities for tax avoidance or evasion.
In recent years, there has also been a focus on multilateral tax projects, which may or may not result in a formal tax treaty.
Bilateral DTAs
A bilateral double tax agreement (DTA) is a tax treaty entered into by two countries.
When a person/entity resident in one country earns income from another country, both countries may attempt to tax the same income. Such double taxation would inhibit cross-border investment and trade, so countries enter into bilateral DTAs to prevent this. Depending on the circumstances, DTAs will allocate taxing rights over the income to either:
the residence country - where the person/entity earning the income lives or is managed; or
the source country - where the income is earned.
In very broad terms, in a treaty negotiation, developed countries generally want to increase the residence country's taxing rights, because they tend to have wealthy resident...