Multinational Firm Theory and International Tax Law : Seeking Coherence

This study provides an interdisciplinary analysis of firm theory and international tax law, applied within a framework of hypothetical illustrations of prototypical multinational enterprises. The study finds that the construct and interpretation of different norms of international tax law correlate over time with different and partial views of the functioning of multinational enterprises and of their value drivers. Accordingly, international tax law is incoherent or ineffective in key aspects of its design, interpretation and enforcement, such as in the recognition of permanent establishments under articles 5(1), 5(5) and 5(7) of the OECD Model, the attribution of profits to permanent establishments under article 7, and the interpretation of the arm's length principle under article 9. The “value creation” approach promoted through the G20/OECD BEPS Project, as well as the “Authorised OECD Approach” for the attribution of profits to permanent establishments under article 7, seem to approximate the interpretation of treaty law to modern firm theories, albeit inconsistently and still requiring improvement. Other fundamental rules for the allocation of taxing rights, however, remain unaltered and dated, and/or incoherently interpreted. This study supports the consistent use of modern firm theories and the convergence of international tax norms to a common and coherent approach