This chapter brings a legal perspective to the pressures in the international corporate tax system that have been discussed in other chapters largely from an economic point of view. In addition to the economic drawbacks of the current architecture, the current system is also marked by major legal weaknesses leading to continued uncertainty and providing opportunities for ongoing tax arbitrage and aggressive tax planning. The proliferation of anti-avoidance rules to combat these opportunities has made the international corporate tax system more complex. Failure to address the core structural weaknesses in the system has intensified the debate surrounding the fair allocation of taxing rights, particularly over lightly taxed residual profits—amplifying the need for fundamental reform.

Why Reform Is Needed and How It Could Be Designed