11 - States and Corporations in the Global Digital Economy

Summary

Taxation is generally understood as a core sovereign function of the state, albeit ‘constrained to a limited extent’ under various international and supranational rules, including European Union (EU) law, World Trade Organization (WTO) law bilateral tax treaties and (possibly) customary international law.¹ In this context, tax competition is usually presented as an exercise of sovereignty, or sovereign right, of by tax states. On the other hand, as explained in Chapter 10, the cooperation of states with other states, in an international order of states, is also an exercise of sovereignty. Therefore, a concept of ‘sovereignty’ on its own cannot explain very much about how states behave in the international tax context. The more fundamental issue concerns in what circumstances tax competition, or tax cooperation, would be beneficial or detrimental for tax states or for global welfare.