The renaissance of the benefit principle for the 21th century International Tax Reform

Abstract

The benefit principle is widely known as a traditional justification for the imposition of taxes. Broadly speaking, it has customarily implied that taxpayers ought to contribute to government in proportion to the benefits obtainedfrom government institutions and programs. Today, the usefulness of the traditional version of the benefit principle appears to be confined to those taxes that are paid as a direct consideration for citizen use ofgovernment property, facilities and services (e.g. highway tolls, tuition fees or charges for administrativeconcessions or licenses). In these scenarios, the very reason why citizens are compelled to pay taxes in the first place is precisely the fact that they are directly benefiting from a government activity, while the own amount ofthe tax due is commonly directly correlated to the cost borne by government to provide such benefit. Beyond these very limited cases, the truth is that the configuration of the vast majority of taxes appear to completelydisregard benefit considerations and instead rely on other principles such as ability to pay, which demandstaxpayers with an equal ability to pay to be subject to the same amount of tax. The question that now arises is whether this old tax policy principle should be rescued from oblivion and further play some role in the tax policy discussions currently going on in the international arena, most notably those concerning the proposals on the taxation of the digital economy.