ABSTRACT
This paper presents a comparative analysis of the international tax regime, arguing that its century-long evolution has been defined by a structural ‘sovereignty gap’. This gap systematically advantages developed, capital-exporting nations by constraining the fiscal policy autonomy and revenue-raising capacity of developing, capital-importing countries. The analysis traces the origins of this imbalance from the foundational principles established during the League of Nations era, which privileged residence-based taxation, through their codification in a global network of bilateral treaties dominated by the Organisation for Economic Co-operation and Development (OECD) Model. It critically examines the OECD/G20 Base Erosion and Profit Shifting (BEPS) project, contending that its limited reforms addressed symptoms of tax avoidance without rectifying the underlying inequitable allocation of taxing rights. The paper further dissects the paradoxical outcomes of the subsequent Two-Pillar Solution, which offers marginal revenue gains to developing nations at the cost of significant fiscal sovereignty and unprecedented administrative complexity. Finally, the analysis evaluates the emerging potential of a United Nations-led framework on international tax cooperation as a historic opportunity to challenge the institutional status quo and address these deep-seated structural imbalances.
INTRODUCTION
The architecture of international tax law presents a fundamental paradox. Ostensibly designed to prevent the double taxation of cross-border income and thereby facilitate global trade and investment, the regime has evolved into a complex and inequitable system. This system, comprising a web of over 3,000 bilateral treaties and a series of multilateral standards, has been instrumental in enabling the very corporate tax avoidance it purports to prevent. The consequences are most acute for developing countries, which suffer significant revenue losses and find their sovereign capacity to design and implement tax policies aligned with their unique development needs severely curtailed. While developed nations have also experienced the erosion of their corporate tax bases, the impact on developing economies is disproportionately severe, given their greater reliance on corporate income tax and their limited administrative capacity to navigate the system's byzantine complexities.
This paper argues that the international tax regime, from its inception, has created and perpetuated a ‘sovereignty gap’ between developed and developing nations. This gap is not an accidental byproduct of a neutral system but a foundational and enduring feature, reflecting the geopolitical and economic power imbalances that have shaped its design. It manifests through three primary channels: first, the codification of a bias towards residence-based taxation in model treaties, which systematically shifts taxing rights from capital-importing (developing) countries to capital-exporting (developed) ones; second, the institutional dominance of the OECD, which has historically set global standards with limited and often belated input from the global South; and third, a series of high-profile reforms that, while addressing surface-level issues of tax avoidance, have consistently failed to rebalance the underlying allocation of taxing rights and have often imposed new constraints on the policy space of developing countries.
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