Mandatory Binding Arbitration – Economic Evaluation of an International Norm

Dispute resolution has gained prominence in international taxation responding to a growing risk of tax disputes driven by four factors: (i) increased international mobility of the tax base (ii) non-OECD members challenging existing tax allocations, (iii) stronger formalization of the arm’s length principle and (iv) expansion of anti-avoidance rules. Despite business preferences for greater certainty, relatively few countries have committed to mandatory binding arbitration. This article’s goal is threefold: identifying multinationals’ cost-benefit calculus for initiating international dispute resolution, examining countries’ incentives to (not) support efficient arbitration procedures and discussing binding arbitration in the context of alternative cross-border profit allocation rules.