Growing concerns with economic security have prompted states to shift from prioritizing trade openness toward building resilience against global shocks, supply chain disruptions and great-power rivalry. Not only has this transformation affected governments, but it has also impacted corporations. Often described as a geoeconomic chain reaction, the shift from trade openness to economic security has imposed unintended consequences on corporate governance. This transformation is driven primarily by Western governments’ coordinated efforts to de-risk economic engagement with a rising China across trade, investment, technology transfer and cross-border acquisitions.

In the classical global political economy, multinational enterprises are not merely passive recipients of geoeconomic risks. Recent research suggests that the shift from globalization to weaponized interdependence has placed profit-seeking corporations at the center of geoeconomic rivalries and national security interests. Worldwide networks of interdependence (financial, legal, physical) have grown asymmetrically hierarchical, generating distinct configurations of power and vulnerability. The result is what scholars call the weaponization of interdependence, a defining feature of international trade and investment that affects cross-border transactions and taxation. 

What corporate tax governance means for corporation-state relations

At its core, conventional corporate governance prioritizes shareholder value maximization, often aligning managerial decisions with profit-oriented goals. In contrast, corporate tax governance brings a balancing mechanism that reconciles corporate responsibilities toward shareholders with obligations to governments and broader societal interests. In the international tax ecosystem, shaped by jurisdictions, political mandates, markets and normative environments, corporations function as gatekeepers of market activity.

Moreover, corporate tax governance is often understood as the integration of tax risk management into the broader enterprise risk framework and the alignment of the tax function with the company’s core values and strategy. In practice, tax compliance is a central component of this process, including decision-making on tax planning and transparency in tax reporting. In short, it concerns how a company manages tax risks, compliance, planning and reporting. 

Corporation–state dynamics in tax affairs

The global business and finance sector has been transformed by digitization and innovative regulatory approaches, enabling multinational corporations to increase cross-border capital mobility and to develop financial structures and infrastructure in offshore financial centers, commonly known as tax havens. Consequently, governments now face two major challenges from corporations: the emergence of corporate governance behavior aligned with economic security and the incremental adaptation of tax havens to the era of weaponized interdependence. 

Profit concealment through tax havens emerged as a structurally dominant strategy during the era of globalization, driven by high capital mobility, opportunities for regulatory arbitrage and the decentralized treatment of multinational entities. However, this strategy is increasingly challenged by the rise of geoeconomic fragmentation and weaponized interdependence, highlighting how past “blind spots” in the global political economy often stemmed from deliberate corporate strategies lacking sufficient geoeconomic oversight.

Conceptually, tax havens lie at the structural foundation of the globalized neoliberal economic order and have evolved into instrumental tools for sustaining US hegemony. They function as an institutionalized form of “club good,” provided by US power to benefit the global elite. Tax havens and offshore financial centers are increasingly evolving into strategic “connector” countries, acting as neutral intermediaries that facilitate trade and capital flows between competing geopolitical blocs, particularly as global trade becomes more fragmented.

How governments combat corporate tax avoidance 

The era of weaponized interdependence has also created opportunities for states to curb multinational corporations’ tax avoidance. The networked infrastructure of multinational companies, long used to undermine national tax bases globally, is now being mobilized to advance economic security objectives. The EU’s implementation of the global minimum tax demonstrates how states can harness network power to transform corporate subsidiaries into “chokepoints” for enforcement. By exploiting these networked liabilities, the EU has effectively reasserted its authority over multinational actors to ensure regional economic resilience. 

Traditionally, multinational corporations used the implicit threat of capital flight to pressure states into favorable tax policies. However, governments can now neutralize this threat by treating the multinational corporation as a single economic actor and targeting its networked liabilities. This approach enables states to enforce tax agendas regardless of where a company claims to be headquartered, effectively transforming the networked infrastructure of globalization from a device for tax avoidance into a mechanism for compliance enforcement. 

However, this strategy is contingent upon two conditions: The state or region must have physical or legal jurisdiction over key hub nodes and it must possess well-established legal and regulatory institutions. The EU, for example, benefits from its supranational authority, single market integration and binding directives, allowing it to exercise considerable power in regional tax governance.

Consequently, tax havens have become a leverage point in the structural power struggle between states and corporations. These jurisdictions act as a permanent friction point in state-corporate relations, where firms leverage offshore mobility to bypass national legal mandates, while state and regional bodies attempt to weaponize these same networks for fiscal enforcement. Companies that wish to operate successfully in this complex regulatory environment must closely monitor the rapidly evolving domain of tax governance.

[Omar Abdelrahman edited this piece.]

The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.