Papers & Reports

This paper develops a three-country theoretical model and uses highly disaggregated transaction-level data on South Korea’s imports to analyze how third-country tariffs influence bilateral trade flows. The study shows that while bilateral applied tariffs directly reduce imports, higher tariffs imposed on competing third-country suppliers divert trade toward the partner country, with the effect varying by preferential regime and the number of alternative suppliers. These results underscore that the trade consequences of tariff changes cannot be fully understood without accounting for third-country tariff schedules, a consideration especially relevant amid current U.S. proposals for broad tariff increases.

This study investigates the economic consequences of the European Union’s 2019 earnings stripping rules, which restrict interest deductibility based on a firm’s profitability under the Anti-Tax Avoidance Directive. The analysis shows that the reform reduced operational risk-taking, investment, and innovation, as profit-contingent deductibility diminished the expected debt tax shield in low-profit years. The negative effects are most pronounced for firms with higher pre-reform operating risk, which subsequently face slower growth and a greater likelihood of financial distress. The findings demonstrate that profit-linked interest limitations carry significant real effects, highlighting the need for careful rule design to balance anti-avoidance goals with the preservation of firms’ investment and innovation capacity.

Source: TRR 266 Accounting for Transparency Working Paper Series No. 210

This article argues that trade wars should be understood fundamentally as tax wars, positioning tariff policy within the broader fiscal architecture of the U.S. tax system. Against escalating global economic tensions, it contends that tariffs, often framed as protectionist measures, actually reflect structural distortions in U.S. taxation. The analysis develops across three dimensions: reshoring production, promoting fair trade, and raising revenue. These show how tariff policy is intertwined with tax rules. Importantly, it challenges the conventional view that U.S. export mechanisms such as the Domestic International Sales Corporation, the Foreign Sales Corporation, and the Extraterritorial Income Exclusion arose as responses to European VAT border adjustments, arguing instead that they were designed to address deficiencies within the U.S. corporate income tax regime.

This paper examines the risks of creating a permanent establishment (PE) from work-from-home arrangements, focusing on the legal framework under Article 5 of the OECD Model Tax Convention and its commentaries. It analyzes case law across jurisdictions to show how tax authorities are interpreting PE rules in light of remote work and explores the practical and economic consequences of treating an employee’s home office as a PE. The paper concludes by proposing clarifications to the existing framework to better align with the OECD’s objectives and provide greater certainty for taxpayers and administrations in an evolving work environment.

This research develops the Boomerang Tariff Effect Simulator (BTE-Simulator), a novel model designed to assess how high tariffs, volatile oil prices, reduced labor supply under strict immigration policies, and declining productivity interact to accelerate inflation. Unlike traditional frameworks, the BTE-Simulator runs simulations across multiple tariff scenarios, offering policymakers tools to anticipate inflationary risks while designing strategies that minimize export losses, support sustainable growth, and preserve low inflation and unemployment. A central case study applies the model to the U.S.-China trade war, demonstrating its significant consequences for both countries and for global trade.

This paper analyzes how the rapid rise of cryptocurrency markets is undermining traditional tax systems, with a focus on the challenges of regulating digital-to-fiat conversions. It identifies deep structural and policy gaps across major jurisdictions: the United States, European Union, United Arab Emirates, and Singapore—ranging from inconsistent asset classification and taxable event recognition to weak cross-border enforcement standards. The study underscores how decentralized finance (DeFi), peer-to-peer exchanges, and privacy technologies complicate tax compliance and facilitate regulatory arbitrage. Using insights from institutional economics and regulatory arbitrage theory, it critiques the limitations of emerging frameworks such as the OECD’s Crypto-Asset Reporting Framework (CARF) and the FATF’s Travel Rule. The paper concludes that without coordinated international standards, tax evasion in the crypto sector will persist, and it proposes policy reforms aimed at achieving equitable, technologically practical, and globally harmonized digital asset taxation that safeguards both fiscal integrity and digital privacy.

This article examines how states might equitably share tax revenue from cross-border activities that give rise to overlapping claims of taxing rights. It categorizes the prevailing normative perspectives into two distinct approaches. The first focuses on locating the economic factors that enable income production and allocating taxing rights proportionally to the degree of a state’s economic connection, thereby granting greater taxing rights to states more closely tied to the income-generating activity. The second, which draws on cosmopolitan distributive justice theory, views cross-border tax revenue allocation as a mechanism for redistributing resources from high-income to low-income countries to support humanitarian or developmental objectives. By distinguishing between these frameworks, the article clarifies the conceptual underpinnings of inter-nation equity debates and their implications for international tax policy.

This Policy Brief assesses the Trump administration’s “reciprocal” tariffs, most recently revised on August 1, 2025, and concludes that both their rationale and execution are flawed. The author argues that because bilateral trade imbalances do not inherently prove unfair practices, the tariffs relied on a defective metric, with the methodology systematically overstating tariff levels, especially for primary commodity exporters where pass-through effects on U.S. consumer prices are high. According to the author, given these biases, the tariffs appear less as genuine measures of foreign trade barriers and more as a negotiation tactic to bolster U.S. leverage. The brief further warns that even at a reduced rate of 15 percent, applying such tariffs to the poorest U.S. trading partners would do little to narrow the overall trade deficit while severely undermining their economic development.

Peterson Institute for International Economics Policy Brief 25-6

This article provides a comprehensive overview of the 2025 update to the United Nations Model Tax Convention, marking the culmination of four years of deliberations by the UN Tax Committee on pressing cross-border tax issues. The updated UN Model reflects evolving priorities in international tax cooperation, particularly emphasizing the needs of developing countries in tax treaty negotiations. Key revisions address areas such as digital economy taxation, source-based taxation rights, and dispute resolution mechanisms, signaling a broader shift toward enhancing tax equity and administrative capacity in lower-income jurisdictions. The report not only clarifies substantive treaty provisions but also highlights emerging trends in global tax policy debates, including stronger assertions of source-country rights and increased recognition of unilateral measures that align with fairness and development objectives. As such, the 2025 update functions both as a technical guide and a normative signal of future directions in international tax treaty practice.

Note: This report was written for and first published by the Tax Justice Network.

This article critiques the European Commission’s and EU courts’ handling of the Apple state aid case, arguing that the Commission improperly applied a retroactive profit allocation method that lacked support in Irish law or binding international tax standards. The article details procedural and substantive flaws, including the Commission’s reliance on post hoc OECD guidance, internal inconsistencies in its legal theories, and disregard for factual evidence concerning the actual control over Apple’s intellectual property. It further faults the General Court for introducing new justifications absent from the Commission’s original decision and for misapplying superficial parallels between Irish law and the OECD’s Authorized OECD Approach. The Court of Justice is also criticized for reinstating the recovery order based on a procedural technicality, thereby evading a more thorough legal analysis and undermining prior precedent in similar cases such as Fiat, Amazon, and Engie. The article contends that this approach threatens legal certainty, infringes on Member State tax autonomy, and damages the legitimacy of state aid enforcement in the tax context. As a corrective, it proposes reforms aimed at enhancing procedural transparency, limiting retroactive enforcement, and clarifying the doctrinal basis of EU tax state aid law to preserve both the rule of law and tax sovereignty.