International Tax as a Geoconomic Tool

During the seventh century, Muslim armies rapidly expanded their influence beyond the neighbouring Sasanian and Byzantine empires.

Departing from traditional military conquests, these forces employed sophisticated tax strategies.

They provided the conquered population with three choices: embracing Islam, paying taxes with exemptions and tailored to specific circumstances, or facing potential death. This nuanced tax approach facilitated the triumphs of Islamic armies, sometimes resulting in unchallenged entry into territories where resistance had been anticipated.

In the current global power struggle between the United States (US) and China, international taxation emerges as a pivotal tool used to assert dominance, constrain domestic tax policy autonomy, influence economic dynamics, and shape the geopolitical agenda.

The US's active resistance against China's intent to challenge its global power is highlighted through its pursuit of tax code reform via the Inflation Reduction Act (IRR) and the proposal of a worldwide minimum tax of at least 15 percent. These actions, among others, are aimed at recalibrating global commerce.

A century ago, the League of Nations laid the groundwork for today's international tax system, aiming to resolve conflicts stemming from national tax laws post-World War I. The United States played a pivotal role in fostering global cooperation to address issues of double non-taxation, introducing pioneering measures and regulations. These US initiatives later became international standards adopted through The Organisation for Economic Co-operation and Development (OECD).

As the OECD assumed responsibility for overseeing the international tax framework, it embarked on additional initiatives addressing harmful tax competition, multilateral efforts in administrative cooperation, information exchange, and the adoption of the Common Reporting Standard (CRS) and the Multilateral Instrument (MLI) designed to combat Base Erosion and Profit Shifting (BEPS).

The United States strategically employs international taxation as a versatile tool, serving not only to generate revenue but also to protect national interests, counter economic adversaries, and assert its geoeconomic dominance. Crafting intricate tax strategies,the US aims to hinder the economic momentum of its current rival, China. In response, China and a coalition from the so-called 'Global South,' acknowledging the significance of international tax rules, initiated a collective counteroffensive. Represented by Nigeria, they proposed a United Nations (UN) tax convention and the establishment of a new global UN tax body, challenging the OECD's legitimacy in governing the international tax agenda.

The proposal emphasised the necessity for an inclusive global tax framework, favouring the UN's forum over the OECD's efforts. However, it faced opposition from the US, concerned that it might undercut the OECD's work. The amendment contesting the creation of a new body was rejected, revealing divisions between developed and developing economies on the direction of international tax reform.

The coalition's goal is to challenge the established order, assert influence, and shape the international tax agenda. Through collaborative efforts, these nations seek not only financial benefits but also a reconfiguration of global economic power, showcasing the pivotal role taxation plays in their geoeconomic ambitions.

Indeed, tax policy mirrors a country’s fiscal decisions, reflecting its cultural, economic, and social landscapes. Each nation possesses autonomy in determining revenue collection and tax expenditure without overarching international laws to curtail such independence. However, the ongoing narrative of tax-centric geopolitics underscores how tax policies shape the balance of power in today's interconnected world, akin to its influence during medieval times.