The Power Politics of International Tax Cooperation. Why Luxembourg and Austria accepted automatic exchange of information on foreign account holders’ interest income

Lukas Hakelberg

EUI-RSCAS Working Papers from European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS)

Abstract: Theories of tax competition predict that small countries competing with large countries benefit, as they find it relatively easy to substitute revenue lost in a tax cut with revenue gained from incoming foreign tax base. If small countries can only lose from tax co-operation, why are Luxembourg and Austria bound to agree to a revised EU Savings Tax Directive that will oblige them to automatically provide information on foreign account holders’ interest income to residence countries? Putting emphasis on the neglected issue of power, I show that Luxembourg and Austria were first coerced into bilateral agreements on automatic exchange of information by the United States, which then activated a most-favored nation clause contained in the EU Directive on Administrative Co-operation in Tax Matters. As a result, the two countries were under a legal obligation to also extend greater co-operation to EU partners.

Keywords: tax competition; tax policy (search for similar items in EconPapers)
Date: 2014-03-04
New Economics Papers: this item is included in nep-acc, nep-pbe and nep-pub
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Persistent link: https://EconPapers.repec.org/RePEc:erp:euirsc:p0375

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