ETHICAL INSTITUTIONAL LEADERSHIP: NAVIGATING INTERNATIONAL TAX COMPETITION IN THE 21ST CENTURY

Tax competition is hardly a new issue, but globalization and digitalization of recent years made it very obvious that many lower-income countries’ ability to effectively generate domestic revenue is significantly affected by other countries’ tax policy choices. Addressing the issue of harmful tax competition through OECD-led policy process resulted in development of the Two Pillar Solution, which was supposed to (1) reallocate more taxing rights to the market jurisdictions in accordance with actual value creation in conditions of the modern economy, and (2) tax the profits of the world’s largest MNEs at an effective CET rate of at least 15%. Due to the interlocking mechanism of the Global Minimum Tax’ design, the eventual allocation of taxing rights over multinationals’ profits depends on policy decisions of headquarter, intermediary, as well as “source” jurisdictions. In this dynamic “game”, the outcomes of the “players” are majorly affected by decisions of others, however, the design of the tax incentivizes developing countries to implement the reform to preserve reasonable taxing rights over the world’s largest corporations. However, multiple pieces of evidence make us believe that not every developing jurisdiction will benefit from implementing GMT, and in fact, the very same countries that facilitated corporate tax avoidance for years might become the biggest “winners” of the reform. Nevertheless, the “global tax deal” has been presented as a win for all, and the official impact assessment estimated significant benefits, most of which were expected to be absorbed by developing countries. In its communication, the OECD also presented the reform as a historical win for international taxation, sometimes using simplifications, generalizations, etc., which led to growing discontent, distrust and resentment , especially among developing countries. Notwithstanding a formal commitment demonstrated by majority of countries to GMT implementation, we observe multiple jurisdictions all they can to mitigate the impact of the reform on competitiveness of their economies. Struggling with competing for FDI on the international arena in healthier ways and receiving little support in this regard, they are trying to compensate affected MNEs with alternative, unilateral measures, often using alternative fiscal policy tools. Even after the center of international policy making has been moved to the UN in a pursuit of designing a more just system of international taxation and as an act of mistrust in OECD, representatives of the Global North still express significant resentment to the idea of changing the status quo. In my thesis, I argue that the lack of ethical, responsible institutional leadership, and the pressure put on international organizations to produce tangible results rapidly to be perceived as “effective” and “successful” for retaining their influence, reputation and funding, often draws attention away from their actual purpose, the nature of “global deals” they secure, and, which is no less important, from how they achieve their institutional goals. In the context of the latest international tax development, I discuss practical steps to achieving a fairer system of international taxation, and the necessity of addressing informational asymmetries between different actors as well as misinformation and manipulation, claiming that in a highly interdependent world IOs have an obligation to address such issues.