The Trouble with Tax Competition : From Practice to Theory

Over the past few years, policymakers have argued that everything from Apple's Irish tax deal to patent boxes to the LuxLeaks tax rulings represent “harmful tax competition.” Despite the ubiquity of this term, however, there is no internationally accepted definition of so-called harmful tax competition.This Article uses the anti-tax-competition measures proposed and implemented over the last twenty years to reverse-engineer what policymakers believe to constitute harmful tax competition. Their different visions of harmful tax competition lead to three important lessons. First, when governments claim to be limiting tax competition, they are not leveling the playing field so much as they are shifting it in their own favor. Second, international tax competition relies on international tax avoidance, and international tax avoidance relies on international tax competition. Thus, governments are complicit in international tax avoidance, while taxpayers (usually multinational corporations) are complicit in tax competition. Finally, governments often use both anti-tax-competition measures and anti-avoidance measures not just to limit tax competition by other countries but also as an additional form of tax competition that strengthens their own competitive position