Allocative Justice as a Constraint on Fiscal Imperialism in International Tax

Taxpayers’ cross-border activities often result in two (or more) states claiming the right to tax their income. To address concerns about how those tax liabilities might aggregate and suppress international activities, states typically agree to split the tax base between them. But how can states fairly share tax revenue from cross-border activities? Tax scholars and policymakers offer different normative perspectives to address this inter-nation equity conundrum. In this article, we conceptualize these normative perspectives into two types. One centres on identifying where the economic factors that lead to the ability to produce the income are located (and uses that determination as the basis for an equitable split of taxing rights). Accordingly, a state with a greater degree of economic connection should enjoy a greater share of taxing rights. This perspective, we contend, is distinguishable from the infusion of cosmopolitan distributive justice theory into tax law. The latter approach portrays the redistribution or transfer of tax revenue, a form of tax aid from high-income countries to low-income countries, usually with the goal of funding humanitarian or developmental spending. Perhaps due to ambiguities in the overarching inter-nation equity concept (which seemingly includes cosmopolitan distributive justice) existing tax policy scholarship often fails to adequately distinguish the two perspectives when articulating the justifications for international taxing rights (re)allocation involving low-income countries. This article demonstrates the policy imperatives for distinguishing the two perspectives. For textual and conceptual clarity, we frame the first perspective as “allocative justice” and the latter as “redistributive justice.” For low-income countries to escape the trap of fiscal imperialism it is essential that they (as well as international tax policymakers in all states) establish international tax regimes that align with allocative justice and resist tax bargains that unduly cede taxing rights to which they have a justifiable claim. Redistributive justice may also play a role in supporting or explaining tax sharing arrangements between countries, but that framework should not be conflated with allocative justice.