Defining the boundaries of legitimate state practice: norms, transnational actors and the OECD's project on harmful tax competition1

International cooperation could help governments regulate mobile transnational corporations (TNCs), but cooperation is itself embedded in transnational political processes in which TNCs and other private actors exercise influence. This study of the OECD's project on“Harmful Tax Competition”argues that international cooperation has done little to enhance governments' capacities to tax TNCs, and that normative deliberations in which private actors played central roles were crucial to this outcome. State-centric, functionalist models of international cooperation therefore need to be supplemented with insights from social constructivism and with greater attention to non-state actors. In the process of defining a boundary between legitimate and illegitimate forms of tax competition, liberal economic norms encouraged a narrow focus on tax preferences rather than corporate tax rates, and materially weak tax havens were able to use normative arguments to persuade the OECD to moderate its demands, in part because they found a sympathetic audience among TNCs and the transnational tax service industry. These transnational actors also persuaded the OECD to acknowledge the legitimacy of international tax planning and legal tax avoidance. The scope of the HTC project further narrowed after 2001 because of Bush administration's anti-tax ideology, and now focuses only on improving the exchange of information among tax authorities. This resolution of the issue is unstable because of normative inconsistencies and continuing threats to corporate tax revenues.