Global Tax Policy and Governance
Week 7: Tax Compettono Ethics and ಌeveloping Coಌntries
STUಌY & ಌISCUSSION QUESTIONS
1. What is your take on Metha and Dayle Siu’s ten recommendatons for developing countries?
Please address these from the perspectve of (a) governments, (b) corporatons (tax payers), and
(c) the general public, both in developed and developing countries.
10 ways proposed
1. Be very cautous about signing tax treates
2. Do not fall into the trap of tax competton and tax incentves
3. Impose withholding taxes on payments to non-residents
4. Adopt safe harbors + other similar measures to simplify tax administraton + compliance
5. Use the proft split method (PSM) more widely to determine taxable profts
6. Natural resource management (NRM): review and renegotate based on return on
investment
7. Adopt more disclosure and atestaton rules
8. Have ant-abuse rules and beter training for tax administrators
9. Tax the informal economy and reduce outlows from informal banking trade, mispricing, and
other means
10. Form regional alliances
ಌEVELOPING COUNTRIES ಌEVELOPEಌ COUNTRIES
GOVERNMENTS
CORPORATIONS
TAX PAYERS
GENERAL PUBLIC
2. How do hಌman rights relate to tax compettono
Taxaton remains a crucial instrument for the realisaton of human rights beyond the
rhetoric of artculaton to implementaton through service provision.
This is not only because of its importance as a source of income but also because tax policies
and taxaton itself play a pivotal role in remedying ine ualites.
For states to meet their human rights obligatons such as educaton, housing, ade uate
living standards, e uality in access of opportunites, access to justce, access to clean water
, and healthcare among others as stpulated by the Universal Declaraton of Human Rights, it
is essental to have a progressive tax system that can collect and utlise the revenue
generated accountably and e uitably.
Tax incentves or tax holidays for corporatons represent foregone public revenue in
amounts fre uently large, especially when compared with the human rights needs that
could have been met with such revenue.
In Liberia, extensive tax concessions to foreign investors involved in ore projects go far beyond the
arrangements set out in the Liberia Revenue Code (LRC), to the point that the IMF recommended
that if such concessions came up for renegotaton, the authorites should aim to harmonize the
terms with the Revenue Code and avoid tax breaks
States commonly justfy grantng incentves on the need to atract foreign investment. So,
based on jurisprudence from the Commitee on Economic, Social and Cultural Rights, in a
case like that the state will have the burden of showing which human rights the investment
meant to be atracted by the incentves will advance
Link between human rights and extreme poverty: More than 14 human rights
violated as a conse uence of extreme poverty (right to food, health, social security,
etc.).
CASE
As a successful tax advisor you are being consulted by a big multnatonal, Greenbrand Internatonal, which has
plans to engage in massive foreign direct investment (FDI) in a developing country in Africa. It plans to open up
several factories to proft from a 10-year tax holiday ofered over there to foreign companies that establish
themselves in a so-called free trade zone. The multnatonal is known for being heavily engaged in fair trade and its
major eforts to reduce polluton. For them these, next to being able to sustain high annual profts for their
shareholders, have been main selling points to both consumers as well as investors.
In your discussions with the management staf it becomes clear that Greenbrand will be moving its factory to a
neighboring developing country as soon as these 10 years are over, in order to use a similar regime over there. For
now, the only viable alternatve would be to build the factory at home (in a developed country). However, this
would lead to a sಌbstantal 35% tax bಌrden which would make the company uncompettte. This would have an
impact on its future fnancial engagement to protect the environment. You doubt whether you should engage in a
project like this, as Greenbrand does not seem commited to engage in long-term investment (>10 years), as
intended by the tax holiday scheme. Several weeks later, the Ministry of Finance of another developing country is
contactng you as its government is planning to introduce a tax holiday scheme of its own. Any recommendatons
would be most welcomed.
We atorneys cannot foresee the conse uences of our actons, so that what seems moral ex ante
might be the clearly immoral decision ex post.
o This is because we have imperfect foresight but perfect hindsight.
The “baby Hitler” problem is illustratve. The bafing metaphysics of tme travel aside, what if I
told you that you could go back in history and kill a certain, fortuitous Austrian baby named
Adolf Hitler?
o Under the simple assumpton that the killing would result in the sacrifce of one life
for forty million spared, many people would indeed murder the young Adolf.
We owe occasionally-confictng obligatonssto clients, to the legal profession, to the public.
Week 7: Tax Compettono Ethics and ಌeveloping Coಌntries
STUಌY & ಌISCUSSION QUESTIONS
1. What is your take on Metha and Dayle Siu’s ten recommendatons for developing countries?
Please address these from the perspectve of (a) governments, (b) corporatons (tax payers), and
(c) the general public, both in developed and developing countries.
10 ways proposed
1. Be very cautous about signing tax treates
2. Do not fall into the trap of tax competton and tax incentves
3. Impose withholding taxes on payments to non-residents
4. Adopt safe harbors + other similar measures to simplify tax administraton + compliance
5. Use the proft split method (PSM) more widely to determine taxable profts
6. Natural resource management (NRM): review and renegotate based on return on
investment
7. Adopt more disclosure and atestaton rules
8. Have ant-abuse rules and beter training for tax administrators
9. Tax the informal economy and reduce outlows from informal banking trade, mispricing, and
other means
10. Form regional alliances
ಌEVELOPING COUNTRIES ಌEVELOPEಌ COUNTRIES
GOVERNMENTS
CORPORATIONS
TAX PAYERS
GENERAL PUBLIC
2. How do hಌman rights relate to tax compettono
Taxaton remains a crucial instrument for the realisaton of human rights beyond the
rhetoric of artculaton to implementaton through service provision.
This is not only because of its importance as a source of income but also because tax policies
and taxaton itself play a pivotal role in remedying ine ualites.
For states to meet their human rights obligatons such as educaton, housing, ade uate
living standards, e uality in access of opportunites, access to justce, access to clean water
, and healthcare among others as stpulated by the Universal Declaraton of Human Rights, it
is essental to have a progressive tax system that can collect and utlise the revenue
generated accountably and e uitably.
Tax incentves or tax holidays for corporatons represent foregone public revenue in
amounts fre uently large, especially when compared with the human rights needs that
could have been met with such revenue.
In Liberia, extensive tax concessions to foreign investors involved in ore projects go far beyond the
arrangements set out in the Liberia Revenue Code (LRC), to the point that the IMF recommended
that if such concessions came up for renegotaton, the authorites should aim to harmonize the
terms with the Revenue Code and avoid tax breaks
States commonly justfy grantng incentves on the need to atract foreign investment. So,
based on jurisprudence from the Commitee on Economic, Social and Cultural Rights, in a
case like that the state will have the burden of showing which human rights the investment
meant to be atracted by the incentves will advance
Link between human rights and extreme poverty: More than 14 human rights
violated as a conse uence of extreme poverty (right to food, health, social security,
etc.).
CASE
As a successful tax advisor you are being consulted by a big multnatonal, Greenbrand Internatonal, which has
plans to engage in massive foreign direct investment (FDI) in a developing country in Africa. It plans to open up
several factories to proft from a 10-year tax holiday ofered over there to foreign companies that establish
themselves in a so-called free trade zone. The multnatonal is known for being heavily engaged in fair trade and its
major eforts to reduce polluton. For them these, next to being able to sustain high annual profts for their
shareholders, have been main selling points to both consumers as well as investors.
In your discussions with the management staf it becomes clear that Greenbrand will be moving its factory to a
neighboring developing country as soon as these 10 years are over, in order to use a similar regime over there. For
now, the only viable alternatve would be to build the factory at home (in a developed country). However, this
would lead to a sಌbstantal 35% tax bಌrden which would make the company uncompettte. This would have an
impact on its future fnancial engagement to protect the environment. You doubt whether you should engage in a
project like this, as Greenbrand does not seem commited to engage in long-term investment (>10 years), as
intended by the tax holiday scheme. Several weeks later, the Ministry of Finance of another developing country is
contactng you as its government is planning to introduce a tax holiday scheme of its own. Any recommendatons
would be most welcomed.
We atorneys cannot foresee the conse uences of our actons, so that what seems moral ex ante
might be the clearly immoral decision ex post.
o This is because we have imperfect foresight but perfect hindsight.
The “baby Hitler” problem is illustratve. The bafing metaphysics of tme travel aside, what if I
told you that you could go back in history and kill a certain, fortuitous Austrian baby named
Adolf Hitler?
o Under the simple assumpton that the killing would result in the sacrifce of one life
for forty million spared, many people would indeed murder the young Adolf.
We owe occasionally-confictng obligatonssto clients, to the legal profession, to the public.
