The Costs of International Tax Cooperation

Tsilly Dagan (Bar-Ilan University) published this 2002 article at Michigan Law and Economics Research Paper No. 02-007; and U of Michigan Law, Public Law Research Paper No. 13

Here is theAbstract:

This Article discusses the three levels of international tax (the unilateral, the bilateral and the multilateral). It describes the seemingly appealing arguments (based on cooperation) advocating neutrality, double taxation prevention, and harmonization. A closer look at these arguments, however, reveals that pursuing these goals often brings about completely different and sometimes undesirable results. While acknowledging the potential benefits of inter-nation cooperation for some, this article highlights the (sometimes hidden) costs of such cooperation for others. Thus, domestic interest groups tend to win or lose from adopting an (elusive) cooperative strategy as the unilateral mechanisms of their countries; developing countries tend systematically to lose tax revenue when they enter into the (more cooperative and thus seemingly benign) bilateral treaty regime; finally, the emerging multilateral regime, promoted as an all-benefiting cooperative strategy, also creates potential losers both among and within nations.

Based on this analysis, the paper argues that cooperation serves as a useful rhetorical tool that supports a certain contingent policy choice, but obscures other, potentially important, considerations and alternatives. Identifying the winners and losers of cooperative policies is necessary in order to evaluate such polices. Cooperation cannot be and is not the ultimate goal in international tax policy.

Available at SSRN: http://ssrn.com/abstract=315373 or DOI: 10.2139/ssrn.315373

Exchange-of-Information Clauses in International Tax Treaties

Philippe Bacchetta (University of Lausanne; Swiss National Bank - Study Center Gerzensee; Centre for Economic Policy Research (CEPR); Swiss Finance Institute) and Maria Paz Espinosa (Universidad del Pais Vasco - Department de Fundamentos del Analisis Economico) published this 2001 paper in International Tax and Public Finance, Vol. 7, No. 3, 2000

Here is the Abstract:

This paper examines bilateral double taxation treaties, with an emphasis on information exchange among tax authorities. A major objective is to understand which countries are more likely to sign a tax-relief treaty and when information-exchange clauses will be added to a treaty. A simple model with two asymmetric countries and repeated interactions among governments is used. The paper shows that no information exchange clause may be added to a tax treaty when there is a reciprocity requirement, when there is a high cost of negotiation, when there is a cost of providing information, or with one-way capital flows. It is also shown that an information clause increases the gains from a tax relief treaty, but may make it less sustainable.

Available at SSRN: http://ssrn.com/abstract=261971