Part 1 - AL-Tax

Chapter 1AbstractInternational taxation is becoming less and less about national sovereignty and increasinglyabout tax competition and the need for harmonization. While expanding spheres of economicinfluence meant that the first important steps of international taxation arose as the UnitedStates grappled with 50 semi-sovereign tax states and a growing influence around the world,many of our lessons now come from the experiences of the European Union countries. Atthe same time, the economics of international taxation theory increased in sophistication.The confluence of these influences could not come at a better time as emerging nationshave the opportunity to, often for the first time, introduce new and integrated internationaltaxation protocols. These countries can benefit from the collective insights before them,many of which are summarized in the articles assembled in this book.1.1 IntroductionThere was a time, before customs unions, free trade treaties, GATT, and otherpost-WW1 institutions, when international aspects of taxation were confined totariffs and treaties. Innovations in transportation began to open up the trade ingoods. Colonization and the heartland/hinterland political realities set up systemsof trade in services. However, the resulting taxation implications of theseinnovations were often confined to excise taxes and customs duties or the domestictaxation of profits from these new multinational corporations. The spread ofthe Western economic model, ‘innovations’ in taxation avoidance, freer flows ofcapital resulting from balance of trade surpluses and the spread of capitalism allrequired innovations in the treatment of foreign profits, and, as such, the measurementof foreign costs and revenues. This is the traditional scope of internationaltaxation. However, as firms become more clever in adjusting to new taxregimes, as broader customs unions (most notably the EU) give rise to more unifiedinternational taxation principles, and as a greater share of international tradebecomes centered around the movement of services rather than goods, new internationaltaxation principles soon arose. This is especially true as labor more easilycommutes across borders, and as the definition of the value and location of agood or service changes with innovations such as the Internet and supply chainmanagement. The articles in this book describe some of the innovations, in theoryand practice, and their implications on tax policy in the developed andemerging nations.In the first part of the book, we begin by describing the important implicationsof globalization on labor mobility, effective tax rates, and tax competition. In theirquest to meld tax policy with economic growth, policymakers are now delving5