International corporate taxation and developing economies: is global tax harmonization desirable and feasible?

Abstract: Greater capital mobility and financial integration have generated greater tax avoidance and international tax competition. This has modified negatively the tax systems of countries that keep taxing corporate profits: the system is now more inefficient, might be more regressive and tax authorities have less sovereignty. This is especially relevant for developing economies, since corporate tax revenues are vital for their public finances. This thesis sees greater tax coordination as the only solution to such problems and therefore, after describing the current state of the corporate tax in developing economies, analyses the feasibility of global tax harmonization schemes. Whereas the study recognizes the positive effects that the recent BEPS project of the OECD will produce, it also detects important weaknesses to solve current problems, and concludes that a harmonization scheme, similar to the one proposed by Giovannini and Hines (1990), would generate greater benefits for developing economies, mainly by tackling tax avoidance, reducing tax competition, and incentivizing needed reforms for their tax systems. However, through an exploratory survey of the tax system of 32 developing economies, I also foresee a number of technical and political barriers that could make harmonization, especially if it implies strict implementation of the residence-based principle, unfeasible and undesirable for developing economies.