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Working Paper

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The current international tax system allocates the taxation of cross-border income by reference to the residence of the taxpayer and/or the source of income. The governing rules are contained in domestic tax laws and bilateral tax treaties. As noted by Professor Easson, the current regime of allocation is not based on any real agreement between nations and cannot be rationalized by any “obvious principle of fairness”. In fact, it is biased in favour of the capital exporting nations that devised the rules of the game. In order to improve fairness, Professor Easson considered it desirable to have some “redistribution” in favour of less developed, net capital-importing nations. Professor Easson was one of few legal scholars that have emphasized the importance of internation equity. International tax literature has recently been preoccupied with efficiency and welfare maximization, predominantly from a one-country perspective.

This paper joins Professor Easson in his pursuit of inter-nation equity. The main argument is that inter-nation equity in the sense of fair allocation of tax base as well as international redistribution should be taken seriously in future tax reforms. It demonstrates, at a conceptual level, that inter-nation equity can be improved through adopting a territorial system of taxing business income and redesigning the tax sparing system. The main goal of this paper is to tease out the conceptual challenge of identifying inter-nation equity without suggesting any specific mechanism or process by which it might conceivably be resolved.


This article is dedicated to the memory of Professor Eason who supervised the author’s LL.M thesis and introduced her to the fascinating world of international tax research.