Paradigm Shift: International Taxations Move from Double Taxation Remedies to the Battle Against Aggressive Tax Planning

The globalization of the economy has sparked a tax competition among nations, leveraging low tax rates to attract investments and inadvertently fostering international tax avoidance and transfer pricing. This dynamic, intensified by the digital economy's ascent, has inflicted economic losses on both resident and source countries. The conventional "permanent establishment" criterion, now rendered obsolete by online business operations, facilitates tax evasion by international corporations. Recognizing the urgency for change, the international tax system has shifted focus from eliminating double taxation to confronting aggressive tax planning. This essay critically analyzes this paradigm shift, primarily emphasizing the move from preventing double taxation to avoiding double non-taxation. Two pivotal considerations drive this transformation: equitable sharing of benefits from multinational corporations among involved countries and collaborative efforts to prevent dual taxation. Delving into Tax Challenges Arising from the Digitalization of the Economy, including Global Anti-Base Erosion Model Rules (Pillar Two) and the OECD/G20 Inclusive Framework on BEPS, the essay examines causes and consequences of double taxation and scrutinizes reasons and repercussions of double non-taxation resulting from aggressive planning. The analysis unveils the main elements and impacts of the international tax system reform, shedding light on both its strengths and shortcomings. This essay provides a concise yet comprehensive understanding of the evolving global economic landscape and the imperative changes in international taxation, offering insights into the critical nuances of the reformed framework.