COSMOPOLITAN RIGHTS, GLOBAL TAX JUSTICE, AND THE MORALITY OF COOPERATION.

• Author: Garbarino, Carlo

1. INTRODUCTION: TAX COMPETITION AND GLOBAL JUSTICE 744 II. RAWLSIAN PREMISES AND THE INTERNATIONALIST APPROACH 749 III. THE COSMOPOLITAN CHALLENGE 751 IV. THREE NORMATIVE OPTIONS FOR GOVERNANCE OF TAX COMPETITION AND BEPS 756 A. Option 1: The Minimalist Rawlsian Approach 756 B. Option 2: Addressing Cosmopolitan Rights Directly with Global Institutions 757 C. Option 3: Moving Beyond the Minimalist Version of Internationalism Through Supra-National Arrangements 758 V. THE MORALITY OF NON-SELF-INTERESTED COOPERATION 760 VI. EXTENDING THIS ANALYSIS TO THE SOCIAL SANCTIONING TAX COMPETITION 765 VII. CONCLUSION 768 I. INTRODUCTION: TAX COMPETITION AND GLOBAL JUSTICE

   In the traditional approach, human rights and taxation are linked as taxation is viewed through the lens of human rights. In this view, the problem of human rights is addressed only at the state level: state taxation has a fundamental role in the realisation of human rights since taxes are necessary for raising revenue and state fiscal policies are a crucial instrument to mitigate inequalities. (1)

   A new seminal aspect of the connection between human rights and taxation is, however, emerging in light of the new challenges of sustainable taxation: countries unilaterally reduce their effective tax rates to attract capital, thereby affecting the mobile capital base. When this occurs, there is "tax competition," which has unwanted distributive domestic consequences and increases international inequality.

   In addition to the race to the bottom of tax rates through measures taken by governments, a new epochal phenomenon known as "base erosion and profit shifting" (BEPS) has recently been identified by the international community and the OECD in a project launched in 2013. BEPS has runaway effects because it compounds the structural negative effects of tax competition: multinational enterprises (MNEs) meeting certain organizational and dimensional features deliberately pursue BEPS and develop strategies that often conflict with those of governments.

   These MNEs operate in a sort of geo-political "meta-nation," which is not defined by traditional state boundaries--and thus in a regulatory vacuum--when they are asymmetrically confronted with the limited regulatory reach of territorial states. So, they can be denominated as "Global Actors" that interact not only with markets but also with governments and their local communities of citizens. Global Actors employ top-down coordinated "aggressive tax strategies" leading to no or limited taxation of their global profits at the expense of citizens.

   In summary: not only governments, but also Global Actors contribute to the current situation of unregulated tax competition compounded with BEPS. This situation is a thoroughly global phenomenon (full mobility of capital across the globe) that has idiosyncratic local impacts on individuals. There is a complex relationship between these global and local impacts, which can be termed as "impact-glocalization," defined here as the integration of global and local impacts of tax competition and BEPS. This phenomenon combines the word globalization with localization (2) and identifies a new dimension of taxation, which should also be analysed in its anthropological post-modern dimension, a novel perspective. (3)

   So, the relevant question is the following: if tax competition is a global phenomenon that permeates human communities, are the individual members of those communities entitled to human rights to be protected from the negative impacts of tax competition compounded with BEPS? Can these rights be independent from the direct operation of state organizations? Can we define a new brand of human rights in taxation in terms of tax "cosmopolitan rights"?

   The current literature does not really engage these fundamental ethical questions--i.e., "first-order questions"--and instead directly poses policy questions--i.e., "second-order questions." This Article endeavours to address these first-order questions, which decouple individual rights from the exercise of state powers, asking whether there are cosmopolitan rights independent from the traditional exercise of state tax powers. Moreover, this decoupling raises relevant theoretical questions of global tax justice, a territory that is still rather unchartered. So, also relying on the tools of political philosophy, this Article strives to understand whether tax competition combined with BEPS, in addition to being politically sensitive, is unjust from an ethical standpoint and violates basic human rights.

   This Article thus addresses two strictly related first-order questions about morality that enable us to discern solutions to second-order questions in the specific policy context of regulation of tax competition and BEPS: (1) what kind of justice conception has sufficient normative support to undergird regulation attempts of this global phenomenon to ensure cosmopolitan tax rights? (the global tax justice question); and (2) what are the pre-conditions of effective cooperation, not based on immediate self-interest, that eschew a market-based approach to tax competition, enabling background conditions for the morality of multilateral cooperation? (the morality of cooperation question).

   After this introduction about tax competition and global justice in which a normative approach is propounded to the problem, Part II of this Article addresses the global tax justice question by discussing the Rawlsian premises to the concept of tax justice and its developments within the internationalist approach; Part III then shifts the focus to the cosmopolitan challenge to Rawls, which introduces, at least theoretically, the possibility of a fundamental right of global tax justice. Part IV then draws conclusions about three available normative options for the governance of tax competition and BEPS, which can be derived from the previous analysis. The Article then addresses the morality of competition question by examining current literature about non-self-interested cooperation. Part V extends this analysis to the social sanctioning of tax competition.

   Economists introduced economic efficiency (or economic neutrality) as a criterion for evaluating the interactions of national tax systems. (4) The classic tax neutrality analysis strives to keep investment and business decisions tax neutral, i.e., unaffected by tax considerations. The existence of tax rate differentials has transformed these tax neutrality theories into policy recipes that are implicitly normative in so far as they recommend top-down parametric solutions that maximize global welfare by ensuring tax neutrality across the board under different conditions. (5) This generates a predominant narrative in which tax competition is viewed as the result of inescapable market forces and evaluated in terms of market parameters. A very good example of this narrative is a recent book of international tax policy in which a proposal is made to foster tax competition by eliminating market failures rather than limiting it. (6)

   By contrast, the claim made in this Article is that, when it comes to deciding whether tax competition should be allocated by the market or by non-market principles, the traditional approach by tax economics based on tax neutrality is a poor guide. This type of utilitarianism seeks to maximize global welfare without regard for its distribution while there is need of a revival of welfare economics that acknowledges the defects of utilitarianism and considers a broader range of distributive principles. The mission of social sciences is radically changed in the Anthropocene: they become normative rather than descriptive, and ethical problems require a sense of participatory necessity.

   The mainstream approach based on tax neutrality asserts its independence from the contested terrain of moral and political philosophy and presents itself as a value-neutral description of tax rate differentials based on the assumption that the goal to be pursued is value maximization in a utilitarian economic version. This approach, however, has failed to provide a convincing basis for deciding what should, and what should not, be allocated by market forces. Deciding on social practices in general--and social practices such as tax competition--requires a form of economic reasoning that is bound up with moral reasoning. (7)

   The notion that economics is a value-free science has always been questionable, and the more markets extend their reach into non-economic aspects of life, such as the glocal aspects of tax competition, the more entangled they become with moral and political questions. Another reason to doubt the market-based approach to tax base stems from debates about commodification: should tax sovereignty, like other public goods, be up for sale? This debate goes beyond debates about distributive justice and is entirely political.

   Another moral objection to the predominant narrative is about the tendency of market practices to corrupt or crowd out non-market values worth caring about. Even where markets improve efficiency, they may be undesirable if they corrupt or crowd out non-market norms of political importance. So, before we can decide whether to create a market of tax sovereignty based on perfect capital mobility, we have to figure out what values and norms should govern the social practices of tax sovereignty.

   In conclusion, a market approach to tax competition presupposes moral reasoning. The extension of market thinking into almost every aspect of social life complicates the distinction between market reasoning and moral reasoning, between explaining the world and improving it. To decide under what conditions tax competition should operate, economists must go beyond simply describing tax competition, they should also evaluate it. If economics is to help us decide where markets and tax competition serve the public good, it should relinquish its claim to be a value-neutral...