International trends in taxation and the taxation of investment

Abstract

This paper updates and extends an earlier analysis (James, 1999) of factors influencing the shape of the international tax system but with particular reference to the taxation of investment. This was done using the strategic management technique of STEP analysis: a technique that has subsequently been reformulated as a PESTEL analysis. Since the original work was undertaken in 1998 there have been many further contributions to our understanding of the issues involved. This paper examines methods of analysing the tax development process, and the pressures affecting it – dealing in turn with Political, Economic, Social, Technical, Environmental and Legal factors. There are several areas that particularly affect the taxation of investment including the increasing mobility of capital, tax competition and tax harmonisation. It is also noted that the percentage of national tax revenues accounted for by corporate income tax has been declining in many countries primarily as a result of falls in headline corporate tax rates. It is concluded that a blending of national and international tax policies is the most appropriate way to deal with the implications of the factors described with national policies requiring increased modification to take account of changing international conditions