Law Commons^™

Reimagining A U.S. Corporate Tax Increase As A Supplemental Subtraction Vat, Daniel S. Goldberg

Faculty Scholarship

The U.S. federal government raises tax revenue almost exclusively through income taxes, both corporate and individual, whereas its trading partners and competitors rely for their national revenue on both income taxes and “destination-based” value added taxes (VATs), which are not imposed on exports but are imposed on imports. As a result, U.S. corporations, which are subject to U.S. corporate income tax, may be at a serious trade disadvantage to competitor non-U.S. corporations with respect to both U.S. domestic sales and foreign sales, if the U.S. corporate income tax exceeds the foreign country’s income tax imposed on those competitors.

The Biden …

Digital Taxation Lessons From Wayfair And The U.S. States’ Responses, Walter Hellerstein, Jeffrey Owens, Christina Dimitropoulou

Scholarly Works

This article provides a detailed and structured synthesis of the discussion that took place in the context of the "fireside chat" event held by the WU Global Tax Policy Center at the Institute of Austrian and International Tax Law on December 17, 2018, at which Hellerstein was the guest speaker. The event was one of the initiatives of the Digital Economy Tax Network, a multi-stakeholder forum, which organized a workshop on the VAT/goods and services tax and the digital economy December 17-18, 2018, in Vienna. In this article, the authors examine the lessons that the U.S. Supreme Court's Wayfair decision …

The First Real-Time Blockchain Vat - Gcc Solves Mtic Fraud, Richard Thompson Ainsworth, Musaad Alwohaibi

Faculty Scholarship

Following years of study the Gulf Cooperation Council (GCC) appears ready to adopt the recommendations of the International Monetary Fund (IMF) and put in place a tax system that will stabilize revenue. A value added tax (VAT) and corporate income tax (CIT) are considered. A VAT Framework Agreement, that functions like the VAT Directive in the EU, has been agreed.

Although new, the GCC VAT is very worthy of attention. From a tax policy perspective, it is making notable improvements to EU VAT design. The GCC VAT is (potentially) the world’s first real-time, blockchain-secured, multi-jurisdictional VAT. This is a remarkable …

Trump & Vat: Nafta, Trade Barriers & Retaliatory Tariffs, Richard Thompson Ainsworth

Faculty Scholarship

During the first presidential debate President-elect Donald J. Trump argued that the value added tax (VAT) operated as a trade barrier to American business everywhere. He particularly pointed to the North American Free Trade Agreement (NAFTA). Mexico was a special concern. China was also a concern, but in this instance Trump was troubled both by China’s VAT and by China’s alleged currency manipulation.

This paper can only consider the VAT aspect of Trump’s trade policy. There appears to be some confusion about the operation of the VAT, particularly the border adjustment mechanism, and how US tariffs could “level the playing …

Blockchain, Bitcoin, And Vat In The Gcc: The Missing Trader Example, Richard Thompson Ainsworth, Musaad Alwohaibi

Faculty Scholarship

Blockchain is coming to tax administration and will cause fundamental change. This article considers the potential for blockchain technology as it applies to the introduction of a value added tax in the Gulf Cooperation Council.

Blockchain technology disrupts centralized ledgers. Blockchain improves efficiency, security and transparency. Perhaps no centralized ledger system presents more challenges than that of the modern tax administration. The central data storage system of a modern tax authority contains all return, payment, and audit activity for all taxpayers arranged tax-by-tax for three years or longer periods of time.

It is likely that blockchain will come first to …

Gcc Vat: The Intra-Gulf Trade Problem, Richard Thompson Ainsworth, Musaad Alwohaibi

Faculty Scholarship

It seems reasonably clear that by January 1, 2018 events will be set in motion for the adoption of a community-wide 5% value added tax (VAT) in the six Member States of the Gulf Cooperation Council (GCC).

The GCC’s Framework VAT document is expected to be published by the end of October 2016. One of the clearest, consistently placed observations is that the Arabian VATs will be destination-based and modeled on a European credit-invoice design. Intra-Gulf business-to-business (B2B) transactions will be effectively zero-rated by the supplier, and the buyer’s VAT will be directed to the destination jurisdiction. It is not …

Dice – Digital Invoice Customs Exchange, Richard Thompson Ainsworth, Goran Todorov

Faculty Scholarship

A digital invoice customs exchange (DICE) is a technology-intensive tax compliance regimen for VAT/GST that utilizes invoice encryption to safeguard transactional data exchanged between seller and buyer in both domestic and import/export contexts while simultaneously notifying concerned jurisdictions of the transaction details.

DICE facilitates real-time VAT/GST enforcement as well as real-time commercial contract verification. It is a commercial invoice validation system that prevents tax evasion, most notably missing trader fraud and the non-declared import of trade-able services. DICE mimics the most effective administrative enforcement effort ever undertaken by the US IRS – the requirement to disclose the social security numbers …

Vat Fraud & Triangulation, Richard Thompson Ainsworth

Faculty Scholarship

Missing trader intra-community (MTIC) fraud has received a lot of domestic enforcement attention. True cross border enforcement (joint or coordinated multi-Member State audit) has been limited. There are signs that this is changing as the Member States become more aggressive in their search for revenue.

Along with this shift in enforcement focus, triangulation analysis has moved from being an interesting aspect of the MTIC fraud structure to the central element in a larger understanding of how a fraudster thinks and how he carries out his fraud. We are coming to understand that triangulations are not only the mechanism of how …

A Perfect Storm In The Eu Vat: Kittel, 'R' And Marc, Richard Thompson Ainsworth

Faculty Scholarship

EU VAT authorities are close to turning the tables on missing traders. For many years organized fraudsters have been stealing huge amounts of VAT on the domestic re-sale of exempt cross-border supplies. Losses have been enormous whether the transactions are in goods (notably cell phones and computer chips) or in tradable services (CO2 permits and VoIP). No market has been safe from the fraudsters.

Answers are developing, but these answers may look more like Armageddon than measured enforcement. Solutions are so draconian, and so all-encompassing that very few intra-community traders will feel safe from the gathering storm. The situation is …

German Vat Compliance - Moving One Step Closer To Automated Third-Party Solutions, Richard Thompson Ainsworth

Faculty Scholarship

Recent developments in German VAT compliance, notably (a) the imposition of criminal penalties for failing to immediately amend a preliminary return that is known to be in error [Bundesgerichtshof decision of March 17, 2009, No. BGH 1 StR 342/08], when considered in tandem with (b) amendments to the voluntary disclosure rules, Gesetz zur Vebesserung der Bekämpfung von Geldwäsche und Steuerhinterziehung, it is clear that the German VAT compliance landscape has changed dramatically in the past year.

Taken as a whole, the German rules strongly encourage internal audits, self-reviews, and immediate self-disclosures of errors in previously filed returns and taxes paid. …

Co2 Mtic Fraud -- Technologically Exploiting The Eu Vat (Again), Richard Thompson Ainsworth

Faculty Scholarship

On February 1, 2010 Algirdas Šemeta is expected to be confirmed as the next European commissioner for taxation, customs union, audit and anti-fraud. If his nomination passes a confirmation hearing at the European Parliament he will succeed László Kovács. At the top of Mr. Šemeta’s list of things requiring attention should be MTIC fraud in tradable CO2 permits. Political and fiscal realities make CO2 MTIC fraud a top priority.

CO2 MTIC is a technology-driven fraud that takes advantage of the same weaknesses in the EU VAT that have become well known in the cell phone and computer chip trade. The …

Use And Enjoyment Of Intangible Services: The German, Austrian, Danish And Estonian Vat Derogations, Richard Thompson Ainsworth

Faculty Scholarship

When the Czech Republic elected (effective January 1, 2009) to derogate from the standard rules for determining the place of supply for intangible services, pursuant to Article 58 of the Recast VAT Directive (RVD), it was following the lead of ten other Member States. This paper considers four of those other jurisdictions - Germany, Austria, Estonia, and Denmark - and compares their derogations with that of the Czech Republic.

In each instance a use and enjoyment standard determines the place of supply for certain intangible services. The affected transactions are (potentially) wide ranging. In each instance non-EU countries are on …

Use And Enjoyment Of Intangible Services: The Czech Republic's Vat Derogation, Richard Thompson Ainsworth

Faculty Scholarship

On January 1, 2009 a minor change in the Czech Republic VAT became effective. A use and enjoyment standard was added to modify the sourcing of certain service transactions. Traditional proxy-based rules, derived from Articles 43 and 56(1) of the Recast VAT Directive (RVD), are set aside by this modification when the customer receiving the services has a permanent establishment (PE) in the Czech Republic. The modification is authorized by RVD 58.

This change is a limited adoption of RVD 58(b), and functions like a full force of attraction principle in direct taxation. If caught by these rules, transactions that …

Quebec's Module D'Enregistrement Des Ventes (Mev): Fighting The Zapper, Phantomware And Tax Fraud With Technology, Richard Thompson Ainsworth

Faculty Scholarship

On January 28, 2008 the Quebec Minister of Revenue, Jean-Marc Fournier, announced that by late 2009 the MRQ will begin testing a device, the module d'enregistrement des ventes (MEV) that is projected to substantially reduce tax fraud in the restaurant sector. By 2010 or 2011 MEVs will be mandatory in all Quebec restaurants, where they will assure accuracy and retention of business records within electronic cash registers (ECRs).

This paper moves beyond a discussion of the variety of sales suppression programs in use - zappers and phantom-ware. The concern here is on enforcement efforts, particularly the MEV. The intent is …

Mtic (Carousel) Fraud: Twelve Ways Forward; Two Ways 'Preferred' - Has The Technology-Based Administrative Solution Been Rejected?, Richard Thompson Ainsworth

Faculty Scholarship

In a May 31, 2006 Communication to the Council, the European Parliament, and the European Economic and Social Committee, the European Commission indicated a need to develop a co-ordinated strategy to improve the fight against fiscal fraud [COM(2006) 254 final]. Although the Communication considers fiscal fraud broadly (VAT, excise duties and direct taxes) the most pressing need seems to be for a VAT strategy that will effectively deal with MTIC (Missing Trader Intra-Community) or carousel fraud. To this end the Commission hosted a conference: Fiscal Fraud - Tackling VAT Fraud: Possible Ways Forward. The March 29, 2007 conference was constructed …

Zappers: Tax Fraud, Technology And Terrorist Funding, Richard Thompson Ainsworth

Faculty Scholarship

"Zappers," or automated sales suppression devices, have brought unheard of efficiencies and economies of scale to a very simple tax fraud - skimming cash sales at point of sale (POS) terminals (electronic cash registers). Until recently the largest tax fraud case in Connecticut, also the "largest computer driven tax-evasion case in the nation," was a zapper case. Stew Leonard's Dairy in Norwalk Connecticut skimmed $17 million in receipts and hid the cash in St. Martin (a Caribbean island). Talal Chahine and his wife, Elfat El Aouar, owners of the La Shish restaurant chain in Detroit Michigan have the dubious honor …

It-Apas: Harmonizing Inconsistent Transfer Pricing Rules In Income Tax - Customs - Vat, Richard Thompson Ainsworth

Faculty Scholarship

In most jurisdictions there are three separate spheres of transfer pricing analysis - income tax, customs and VAT. Although they share policy objectives, terminology and frequently borrowing methodologies from one another these domestic transfer pricing systems are not in harmony.

Businesses find this lack of harmony costly, problematical, but also a planning opportunity. The door is open for arbitrage.

What if the transfer pricing rules within a jurisdiction were harmonized? The World Customs Organization (WCO) and the Organization of Economic Cooperation and Development (OECD) are considering this question.

This paper synthesizes the range of transfer pricing regimes currently in use, …

Taxing Services Under The Eu Vat And Japanese Consumption Tax: A Comparative Assessment Of New Eu Place Of Taxation Rules For Services And Intangibles, Richard Thompson Ainsworth

Faculty Scholarship

Place of taxation rules are the seminal cross-jurisdictional provisions of any consumption tax regime. They determine where among competing jurisdictions a particular service is taxed. They are not important for transactions that are restricted to a single jurisdiction and to businesses or individuals belonging to that jurisdiction. However, when two or more jurisdictions are involved, these are the essential tools for revenue allocation and avoidance of double taxation.

It is therefore of considerable importance to Japanese businesses and consumers when the European Union (EU) undertakes a wholesale revision of the place of supply rules for services and intangibles. The European …

Digital Consumption Tax (D-Ct), Richard Thompson Ainsworth

Faculty Scholarship

Modern technology is dramatically changing the way consumption taxes are collected, but it is also changing the way policymakers assess the operation and impact of these taxes. Whether the design is a standard credit-invoice value added tax (VAT) of European design, or a retail sales tax (RST) of American design, or the credit subtraction VAT without invoices type of consumption tax (CT) of Japanese design, technology is having a profound impact.

Government certified transaction software is in place in the United States. The Streamlined Sales Tax offers taxpayers in 18 states the option of having their retail sales tax determined …

Digital Vat And Development: D-Vat And D-Velopment, Richard Thompson Ainsworth

Faculty Scholarship

This article suggests that the time is right for developing countries to consider adopting a comprehensive, fully digital VAT, (complete with certified software and trusted third party intermediaries who could assume all of the taxpayer's VAT responsibilities) within the limited group of enterprises encompassed by the large taxpayer group.

Since the e-commerce revolution began in the 1990's, tax policy discussions in developed economies have enlisted "e-solutions" to streamline consumption tax administration, as well as to resolve technical problems.

Inspiration came from the marketplace. Policy-makers observed widespread, business-initiated e-solutions to consumption tax compliance problems in a wide spectrum of jurisdiction. There …

The One-Stop-Shop In Vat And Rst: Common Approaches To Eu-Us Consumption Tax Problems, Richard Thompson Ainsworth

Faculty Scholarship

In March 2004 the European Commission solicited comments on a proposal to simplify value added tax (VAT) obligations through a one-stop scheme. The proposal was modest in scope. It was designed to build upon the success of a similar scheme that dealt with non-EU established persons supplying digital products to non-taxable EU persons. That scheme is found in Article 26c of the Sixth VAT Directive.

In its March Consultation Paper the Commission proposed that businesses established within the EU be allowed to participate in a one-stop scheme that would be similar to the Article 26c scheme. Limited to B2C transactions, …