March 1, 2021
Frederik Heitmuller (Leiden University), “The power and limits of soft law in shaping emerging economies’ anti-tax avoidance policies”
This paper assesses the influence of international soft law on the way emerging economies defend themselves against international tax avoidance. It makes a theoretical contribution by describing five ideal-typical policy responses towards international tax avoidance. It applies this framework to the largest initiative by an international organization, the OECD’s Base Erosion and Profit Shifting (BEPS) project, and argues that the latter establishes a clear preference for one type of response (fine-tuning through more detailed rules), while discouraging blunter (but also simpler) responses. Further, the framework is applied to the responses to international tax avoidance by two emerging countries, India and Colombia, before and after the BEPS project. These case studies support the conclusion that closely following the BEPS project’s recommendations may not strengthen emerging countries’ protection against international tax avoidance. However, through indirect effects on policy processes and on voluntary compliance, the BEPS project may nevertheless contribute to that goal.
Heitmüller_Power and limits of soft law_GSIPE_draft