Research Tarcisio Diniz Magalhaes

Abstract

Nations around the world are currently reforming income tax systems to address perceived problems of low or no taxation associated with modern economic activity. Yet, this is being done in a way that preserves rather than solve long-standing and well-known issues of unsustainability in business practices. Accordingly, this project investigates how to incorporate into tax rules economic assessment methods that trace sustainability-related factors throughout global supply chains. The objective is to propose technical reforms to align income taxation of multinational corporations with sustainable development goals. Such proposals aim to incentivize more sustainable corporate practices while allocating revenues to countries affected by negative externalities. In doing so, the project will promote a wholly new, cross-fertilized scientific literature between income tax law and environmental economics of interest to researchers, policymakers, and socially responsible investors.

Researcher(s)

• Promoter: Diniz Magalhaes Tarcisio
• Fellow: Wintle Elle

Research team(s)

• Business and Law

Project type(s)

• Research Project

Abstract

Tech digital giants like Google, Amazon, Facebook, and Apple have become notorious for their ability to avoid paying taxes, even as their combined environmental and social footprints grow exponentially. One response from the international community has been to focus on the tax challenges arising from the digitalisation of the economy and the emergence of disruptive technologies. One hundred years after the international tax system was first established, policymakers around the world are now considering a redesign of its basic tenets. Parallel to this movement, there has been growing public demand for sustainable development policies and private investors interest in corporate sustainable activities. At the same time, practical tools have recently begun to emerge in the form of innovative technologies that can trace sustainability-related factors throughout global supply chains. Yet to date, these interrelated phenomena are all but absent from the current discussions on digital taxation. Global leaders acknowledge that achieving sustainability requires public and private funding, and they have even set up resources specifically considering the mobilisation of new technologies to the problem of sustainable development. But there is virtually no connection of these efforts to the reconstruction of the global tax system in response to the digital economy. This research accordingly seeks to close this gap by establishing how international tax rules and proposals to update them affect sustainability, as well as how sustainability measurements based on blockchain, big data analytics, and artificial intelligence can improve the raising and spending of tax revenues for both developed and developing countries in today's high-tech digitalised global economy.

Researcher(s)

• Promoter: Diniz Magalhaes Tarcisio
• Fellow: Diniz Magalhaes Tarcisio

Research team(s)

• Business and Law

Project type(s)

• Research Project

Abstract

Ongoing global negotiations on a new design for the international tax law framework to cope with the digital economy depart from the assumption that coordinated reform efforts should ensure that cross-border business income is taxed in accordance with the idea of value creation, as a proxy for each countries' contribution to global wealth production. Because the existing rule set tends to assign most profits of multinationals to where hard-to-value intangibles like intellectual property are located, nations around the world have endorsed a series of technical proposals at the level of the Organisation for Economic Co-Operation and Development (OECD), the aim of which is to shift a portion of tax revenues to so-called "market jurisdictions". Yet, consumer markets are not the only places where value is being created but not properly recognized by global tax rules. Countries with high development deficits that suffer with the costs associated with mass production, extraction of natural resources, the use of cheap labour and so on have not seen their contributions to international commerce and trade appropriately reflected in interjurisdictional tax allocation methods. This is partially because the underlying value theory that informs discussions does not account for the negative impacts of various corporate actions that are currently externalised and omitted from market prices. In applying a value theory that ignores these externalised costs in the income generating process, the OECD's or any other approach – traditional transfer pricing and profit attribution rules to permanent establishments or new tax nexuses and formulas for fractional apportionment – will maintain, rather than resolve, long-standing and well-known issues of sustainability. As long as the extraction of value from human and natural resources remains undetected by the international tax system, technical rules will always reveal value that is inaccurate in financial terms, thus rewarding unsustainable business and investment practices, while sustainable activities are priced out of the market. This project aims to close this knowledge gap by proposing a sustainable theory of value for the distribution of tax revenues among countries.

Researcher(s)

• Promoter: Diniz Magalhaes Tarcisio
• Fellow: Ottoni Uébe Mansur Débora

Research team(s)

• Business and Law

Project type(s)

• Research Project