The International Crisis in Taxation: A Critical Analysis

This doctoral dissertation investigates from a philosophical point of view the contemporary crisis in international tax law. In the past decades it has become clear how multinational corporations, and persons of considerable wealth, are organizing and planning their taxes to pay as little as possible. This is achieved by using mechanisms such as for example double non-taxation (i.e. the exploitation of double tax treaties between different countries to avoid paying taxes in either country). These findings have caused the legitimacy of the international tax framework to be questioned by specialists as well as by the larger public.

The wide-spread tax avoidance has not been without answer and there have been efforts from the Organisation for Economic Co-operation and Development (OECD) with the formulation of an action plan against Base Erosion and Profit Shifting (BEPS), as well as the European Union with the formulation of the Anti-Tax Avoidance Directives (ATAD) to combat the issue. In this dissertation I identify two fundamental notions that run throughout the whole debate: sovereignty of state (a) and the common good (b). The former is important because there has been the question on what level tax legislation should be formulated, states have sovereignty with regard to matters of taxation, but how far should their sovereignty go? The latter is of importance because it gives us an answer to questions such as ‘why is tax avoidance unjust?’ ‘why combat aggressive tax planning?’; i.e. it situates the question in a broader ethical framework.

This dissertation is sub-divided in two distinct parts. The first part is of a fundamental philosophical nature and it defends a specific position in (legal) philosophy: natural law theory. The second part applies this framework of natural law to the contemporary landscape of international tax law by formulating a set of principles that should be adhered to in the international realm of tax law. Based upon these principles I evaluate the contemporary efforts to combat tax avoidance. It is in this second part that the notions of sovereignty of state and the common good are taken up based upon the theory of natural law expounded in the first part.

The first part gives an argument for the position of natural law. I argue that the theory of natural law gives an interesting take on the issue of international tax law. Natural law is more than a theory of law, it is a theory of ethics and political philosophy that also encompasses a legal philosophy. In the first chapter I start off in strictly legal philosophical fashion by trying to formulate a conception of law; i.e. what is law? To do this I start out by going through the definitions formulated by the legal positivist (i.e. law is understood separate from morality and legal philosophy is possible without guidance from other domains of philosophy), by doing so I point out the shortcomings in these definitions and how they naturally lead to the necessity of a full theory of ethics and political philosophy (i.e. the impossibility of treating legal philosophy distinct from other philosophical issues as well as the impossibility of the legal positivist position itself). Further on in the first chapter I argue that the theory of ethics and political philosophy that seems to implicitly underlie the legal positivist is ill-suited for explicating what law is. I argue here that the whole tradition of modern political philosophy (started by Hobbes) harbours shortcomings and is unable to ground what law is. Following this destructive part I start by going through the history of natural law (the foundation by Plato and the full elaboration by Aquinas) whilst arguing how this theory is able to alleviate the issues that came up earlier. In the second chapter I explicate a full (contemporary) theory of natural law as it is formulated by John Finnis. This is done by first explicating his theory of ethics and how it subsequently moves from ethics to political philosophy and also legal philosophy. This concludes the first part of the thesis.

The second part zones in on the issue of international tax law and has as its goals: (a) the formulation of a set of principles that should underlie the international tax law framework, (b) the evaluation of the measures already taken by the OECD (and the EU) and (c) the formulation of a set of limits of what can be dictated by ethics or philosophy. I address the limit to which political philosophy can go and from whereon it has to leave things to political discourse.

The first chapter gives a full overview of the contemporary international tax landscape as well as the remedies undertaken by the OECD (BEPS) and EU (ATAD). The second chapter formulates practical recommendations by means of principles, these principles are deduced by applying the theory expounded in the first part. The move is made from an ethical theory and a legal philosophy to a full political philosophy by investigating the topic of sovereignty of state (i.e. on what level should we try to alleviate the issues with regard to international tax law?), and by questioning what exactly this means ‘finding a solution to the problem of international tax law’ and this in light of these ethical considerations deduced in the first part. The chapter is concluded by giving a critical overview of other positions on the subject. The third chapter starts with an analysis of the BEPS reports of the OECD, I discuss the texts of the OECD; the main topics of interest are the ‘diminished trust’ of people in the tax framework, the principle of ‘taxation according to value creation’ and finally their proposal of a multilateral instrument (which is since June 2017 effectively applied). Following this I give a (positive) evaluation of the OECD’s BEPS report in light of the principles formulated earlier. In the fourth chapter I address two topics that will be of key importance for the future: (a) Is sovereignty of state still workable as concept in the future? (b) What form of punishment is suitable for states who refuse to cooperation in a meaningful manner?