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The Looming Tax War

A Decaying International Tax Regime Threatens the Global Economy

​An Amazon fulfillment center in S​aran, France, June 2011. Vincent Boisot / Riva Press / Redu​x

While the trade war between China and the United States has hogged headlines and driven market anxieties over the past year, an equally large threat to the global economy has gotten little attention: a looming tax war. Since the early twentieth century, countries have largely agreed on how to tax income earned by multinational corporations that conduct business across borders. But this long-standing regime is coming apart, imperiling the broader international economic order.

The current system, established through decades of practice and convention, provides a basis for determining which country can tax income earned in one jurisdiction by a business that resides in another. The regime rests on the norms set in domestic tax laws as well as a patchwork of almost 4,000 bilateral treaties. For decades, the system was stable and functional enough that no one other than international tax lawyers even talked about it.

The digital age, however, has

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