Substantive Tax Sovereignty Under Globalisation: Re-empowering the States?

Abstract

Tax sovereignty, traditionally the exclusive right of states to determine and implement their own tax systems, stands at a crossroads due to unprecedented global interconnectivity. This sovereignty, once a clear-cut aspect of national governance, is now frequently contested by forces transcending traditional political boundaries—forces such as multinational corporations exploiting global tax discrepancies, digital economies that defy conventional tax jurisdictions, and international regulatory efforts aimed at harmonizing tax practices to prevent base erosion and profit shifting. Historically, the concept of sovereignty has evolved significantly. Sovereignty has been shaped by the dual forces of territorial integrity and the non-interference principle. However, as globalization intensifies, these principles are increasingly challenged by the need for international cooperation in economic, environmental, and security issues, which includes the complex arena of tax regulation. This commentary aims to integrate various perspectives, including constitutional law, and explores the intersection with constitutional identity. The focus lies on reconciling the enduring principles of constitutional identity and citizenship with the evolving demands of global tax governance. As we delve into these discussions, we must consider the broader implications of these shifts—not only how they affect the legal standing and economic strategies of nations but also how they influence the very fabric of societal governance and the philosophical underpinnings of democratic participation in the fiscal realm. This conversation is crucial as it shapes the path toward developing tax systems that are both just and effective in a world where traditional boundaries are continually redrawn. Dagan highlighted the delicate balance between maintaining national tax sovereignty and embracing the necessary cooperation required by an interconnected world economy.