Law Commons^™

Stanley Surrey, The 1981 Us Model, And The Single Tax Principle, Reuven S. Avi-Yonah

Articles

2021 marks the fortieth anniversary of the 1981 US Model Tax Treaty as well as the fifth anniversary of the 2016 US Model Tax Treaty. The first author has repeatedly argued that the 1981 Model gave life to the single tax principle (‘STP’). The 2016 Model updates effectively implemented the principle that cross-border income should be taxed once – that is not more and but also not less than once. For example, the 2016 Model does not reduce withholding taxes on payments of highly mobile income that are made to related persons that enjoy low or no taxation with respect …

The New International Tax Framework: Evolution Or Revolution?, Reuven S. Avi-Yonah

Other Publications

On July 1, 2021, 130 countries signed on to a new framework for reforming international corporate taxation. This outcome, which still needs to be finalized and implemented in national legislation, represents the culmination of over a decade of attempts to bring the 100-year old international tax regime into the 21st century. This Insight will explain the background to the new framework and assess its prospects for success.

The Worst Tax Law Ever Enacted?, Reuven S. Avi-Yonah

Articles

Some tax laws are worse than others. The 1986 Tax Reform Act is generally considered one of the best. The 2017 Tax Cuts and Jobs Act is generally considered one of the worst, although I would say it is too early to tell what its long-term impact might be, and some of its worst features (like the Code Sec. 199A deduction) might be repealed in the future.

Another example of a generally condemned tax law is the American Jobs Creation Act of 2004. This law was a must-pass piece of legislation because Congress needed to react to the sanctions imposed …

Globalization, Tax Competition And The Fiscal Crisis Of The Welfare State: A Twentieth Anniversary Retrospective, Reuven S. Avi-Yonah

Book Chapters

I first met David Rosenbloom in 1993. I had just been hired lo leach international tax at Harvard Law School, and was replacing David, who had taught there for many years. I felt a bit apprehensive approaching such a giant in the field, especially since I actually had little experience in international tax and none in lax treaties. But David was extraordinarily generous. Not only did he give me his materials (some of which made it into my casebook, now co-authored with Yariv Brauner and David's student Diane Ring) but he also agreed to come teach treaties as a guest …

Taxes As Pandemic Controls, Ashley C. Craig, James R. Hines Jr.

Articles

Tax policy can play important roles in limiting the spread of communicable disease and in managing the economic fallout of a pandemic. Taxes on business activities that bring workers or customers into close contact with each other offer efficient alternatives to broad regulatory measures, such as shutdowns, that have been effective but enormously costly. Corrective taxation also helps raise the revenue required to cover elevated government expenditure during a pandemic. Moreover, the restricted consumer choice that accompanies a pandemic reduces the welfare cost of raising tax revenue from higher-income taxpayers, making it a good time for deficit closure. Current U.S. …

Overcoming Political Polarization: Federal Funding Of Education Is The Key, Reuven S. Avi-Yonah

Law & Economics Working Papers

The best way of overcoming political polarization in the US (the last two elections were both decided by fewer than 100,000 votes in WI, MI, PA (2016) and WI, AZ, GA (2020)) is to reduce disparities in education. But how can we do that?

The basic problem arises from the US system of funding K-12 education from property taxes. While the picture above refers to college education, it is K-12 education that determines both college admissions and college readiness.

Thus, the only viable solution is a federal solution. As President Nixon proposed in 1972, the United States should adopt an …

Recovery For Causing Tax Overpayment - Lyeth V. Hoey And Clark Revisited, Douglas A. Kahn, Jeffrey H. Kahn

Law & Economics Working Papers

The question has arisen in numerous cases as to the extent to which a settlement between arms’ length parties is dispositive in tax cases of the claims on which the settlement is based. Another issue that often arises is whether the receipt of compensation for a tax payment that was incurred because of the negligence of the payor is excluded from gross income. While those two issues were central to the proper resolution of a recent case in the United States Court of Appeals for the Eleventh Circuit, McKenny v. United States, the court failed even to note one of …

Covid-19 And Us Tax Policy: What Needs To Change?, Reuven Avi-Yonah

Articles

The COVID-19 Pandemic already feels like a historical turning point akin to Word Wars I and II and the Great Depression. It may signal the end of the second period of globalization (1980-2020) and a change in the relative positions of the US and China. It could also lead in the US to significant changes in tax policy designed to bolster the social safety net which was revealed as very porous during the pandemic. In what follows I will first discuss some short-term effects of the pandemic and then some potential longer-term effects on US tax policy.

A Case For Higher Corporate Tax Rates, Edward G. Fox, Zachary D. Liscow

Law & Economics Working Papers

In this report, Fox and Liscow argue that, while conventional wisdom holds that we should lower taxes on corporations because of international competition, two recent changes militate in favor of higher corporate taxes, which would close the deficit, fund social programs, and reduce inequality. First, changes in tax law have increasingly targeted the corporate tax at economic “rents,” the supersized returns that businesses receive when they enjoy advantages like market power. Because taxing rents is progressive and does little to harm economic activity, a higher rate is justified. Second, shifts in the American economy have allowed companies to earn more …

"Do Lawyers Need Economists?" Review Of Economic Transplants: On Lawmaking For Corporations And Capital Markets, Reuven S. Avi-Yonah

Reviews

Katja Langenbucher’s outstanding book seeks to address the question of why and in what ways have lawyers been importing economic theories into a legal environment, and how has this shaped scholarly research, judicial and legislative work? Since the financial crisis, corporate or capital markets law has been the focus of attention by academia and media. Formal modelling has been used to describe how capital markets work and, later, has been criticized for its abstract assumptions. Empirical legal studies and regulatory impact assessments offered different ways forward. This excellent book presents a new approach to the risks and benefits of interdisciplinary …

Medical Marijuana, Taxation, And Internal Revenue Code Section 280e, Douglas A. Kahn, Howard J. Bromberg

Articles

Congress enacted § 280E of the Internal Revenue Code in 1982 to punish businesses engaged in illegal drug trafficking, including marijuana. Section 280E denies all credits and deductions, including ordinary business expenses, from gross income of businesses illegally trafficking in a Schedule I or II controlled substance. This provision violates the principle that the tax code should foster a consistent treatment of income, regardless of source; and that the income tax is ill-used for punitive measures. Now that marijuana has been legalized in some form in at least 46 states for therapeutic purposes, this federal tax penalty transgresses principles of …

Sharp Lines And Sliding Scales In Tax Law, Edward Fox, Jacob Goldin

Articles

The law is full of sharp lines, where small changes in one’s circumstances lead to significant changes in legal treatment. In many cases, a sharp line can be smoothed out by replacing it with a sliding scale. Under a sliding scale, small changes in one’s circumstances lead to small changes in legal treatment. In this paper, we study the policy choice between sharp lines and sliding scales in tax law. We focus on considerations relating to efficiency, complexity, administration, tax planning, and the objectives of specific provisions. Although sharp lines are currently widespread in tax law, we argue that sliding …

Taxes In The Time Of Coronavirus: Is It Time To Revive The Excess Profits Tax?, Reuven S. Avi-Yonah

Law & Economics Working Papers

A recent NY Times headline summarizes one of the biggest economic impacts of the current pandemic: “Big Tech Could Emerge From Coronavirus Crisis Stronger Than Ever.” At a time when most American citizens and businesses suffer catastrophic economic damage from the Coronavirus Recession, some corporations such as Amazon, 3M, Gilead, and Zoom see their profits rise dramatically because of the pandemic. Given that most corporations are losing money but some are now earning excess profits due to the crisis, it is time to revive the wartime excess profits taxes that the US deployed in WW1 and WW2 to prevent the …

Tax Treaties, The Constitution, And The Noncompulsory Payment Rule, Reuven S. Avi-Yonah

Articles

US Tax treaties have been regarded as self-executing since the first treaty (with France) was ratified in 1932. Rebecca Kysar has argued this raises a doubt on whether the treaties are constitutional, because tax treaties (like other treaties) are negotiated by the executive branch and ratified by the Senate with no involvement by the House, and all tax-raising measures must originate in the House under the Origination Clause (U.S. Const. Art I, section 7, clause 7). Her preferred solution is to make tax treaties non-self executing, but that would reverse the universal practice since 1932, and is therefore unlikely. Moreover, …

Covid-19 And Us Tax Policy: What Needs To Change?, Reuven S. Avi-Yonah

Law & Economics Working Papers

The COVID-19 Pandemic already feels like a historical turning point akin to Word Wars I and II and the Great Depression. It may signal the end of the second period of globalization (1980-2020) and a change in the relative positions of the US and China. It could also lead in the US to significant changes in tax policy designed to bolster the social safety net which was revealed as very porous during the pandemic. In what follows I will first discuss some short-term effects of the pandemic and then some potential longer-term effects on US tax policy.

Taxation And Business: The Human Rights Dimension Of Corporate Tax Practices, Reuven S. Avi-Yonah

Law & Economics Working Papers

If we want to narrow the North-South divide that threatens our world, some limits on tax competition are inevitable. The world faces a crucial choice in the 2020s. We can either continue retreating from globalization in favor of xenophobic nationalism, tariffs, immigration restrictions, and exchange controls. That road leads ultimately to war, as it did in the 1930s. Or we can revive globalization by investing in a robust social safety net, infrastructure, education, and job creation. While more needs to be done, we have made significant progress in curbing tax competition in the last decade. The key move now is …

Income Inequality, Progressive Taxation And Tax Expenditures, James R. Hines Jr.

Book Chapters

There are important and growing concerns about income inequality in the United States and other high-income countries. These concerns reflect rising apprehension about the political and social consequences of inequality and worries that the advance of technology, expanding international trade and investment, and other economic developments may have significantly widened income gaps in recent decades and will continue to do so in the future. In the United States, these concerns have prompted renewed calls for political activism and vigorous searches for policy measures that might improve the relative economic positions of low- and middle-income Americans.

There are many ways in …

Should Us Tax Law Be Constitutionalized? Centennial Reflections On Eisner V. Macomber (1920), Reuven S. Avi-Yonah

Law & Economics Working Papers

The US Supreme Court last decided a federal tax case on constitutional grounds in 1920, a century ago. The case was Eisner v. Macomber, and the issue was whether Congress had the power under the Sixteenth Amendment (authorizing an income tax, 1913) to include stock dividends in the tax base. The Court answered no because “income” in the Sixteenth Amendment meant “the gain derived from capital, from labor, or from both combined.” A stock dividend, since it did not increase the wealth of the shareholder, was not “income.” Macomber was never formally overruled, and it is sometime still cited by …

Does Capital Bear The U.S. Corporate Tax After All? New Evidence From Corporate Tax Returns, Edward Fox

Articles

This article uses U.S. corporate tax return data to assess how government revenue would have changed if, over the period 1957–2013, corporations had been subject to a hypothetical corporate cash flow tax—that is, a tax allowing for the immediate deduction of investments in long-lived assets like equipment and structures—rather than the corporate tax regime actually in effect. Holding taxpayer behavior fixed, the data indicate actual corporate tax revenue over the most recent period (1995–2013) differed little from that under the hypothetical cash flow tax. This result has three important implications. First, capital owners appear to bear a large fraction of …

Why Study Tax History?, Reuven S. Avi-Yonah

Law & Economics Working Papers

This book review addresses the question why studying tax history is helpful to tax policy makers and practitioners.

Why Study Tax History?, Reuven S. Avi-Yonah

Reviews

Since the beginning of this century, John Tiley organized an annual tax history conference at Cambridge, a tradition that was continued after his death under the leadership of Peter Harris. These are the papers from the ninthCambridge Tax Law History Conference, held in July 2018. In the usual manner, the papers have been selected from an oversupply of proposals for their interest and relevance, and scrutinized and edited to the highest standard for inclusion in this prestigious series. The result is an outstanding book, with many high quality contributions to historical tax research.

The Digital Consumption Tax, Reuven S. Avi-Yonah, Nir Fishbien

Articles

Amid rising tension between the United States and France over the Digital Services Tax (DST), this article propositions the imposition of a Digital Consumption Tax, rather than the gross-receipts DST. The Digital Consumption Tax is not a new tax. It is a consumption tax (i.e. Value-Added Tax, or VAT, in Europe and sales tax in the United States) that is imposed on digital transactions. Such consumption tax would be applied on the seemingly free interaction between Facebook (and other companies alike) and its Users. This interaction, under which Users gain access to the Facebook platform for ‘free’ – should be …

Constructive Dialogue: Beps And The Tcja., Reuven Avi-Yonah

Articles

From its inception, the international tax regime was heavily influenced by the United States. The regime is traditionally traced back to the work of the four economists for the League of Nations in 1923, who came up with the orig- inal compromise underlying the tax treaty network, i.e., that passive income should be taxed primarily at residence and active income primarily at source (the “benefits principle”). Arguably, this compromise between the claims of res- idence and source countries was made possible by the U.S. unilateral adoption of the foreign tax credit in 1918, because the United States (already the world’s …

Us And Capital Flight, Reuven S. Avi-Yonah

Articles

The recent leaks of the Panama and Paradise Papers have highlighted the difficulty of taxing the income of residents of developed and developing offshore countries. The basic problem is that such income is subject to neither withholding at source nor information reporting. In the absence of both withholding and reporting, it is easy to use tax havens to hide such income from tax authorities. Estimates of the scope of the problem vary widely, but it is certainly larger than the $200 billion in estimated losses from legal corporate tax avoidance.

This article explains the historic roots of this problem, which …

Toward A 21st-Century International Tax Regime, Reuven S. Avi-Yonah

Law & Economics Working Papers

The OECD has been struggling to respond to countries that wish to tax large US technology companies on the basis of where their consumers live. The current OECD work program on digitalization is unlikely to produce a stable consensus or prevent countries from following the lead of France, India, Italy and the United Kingdom toward digital services taxes. The United States response should not be to target French, Indian, Italian or British companies for retaliation. Instead, the United States should consider adopting a sales-based formulary apportionment (SFA) solution that would apply to all large enterprises. Such a move is more …

Response To 'Reverse Al Capone-Ism' And The Tax Treatment Of Marijuana Businesses, Douglas A. Kahn, Howard J. Bromberg

Other Publications

Mr. Silverberg’s comment stresses that the proponents of the legalization of marijuana have not been able to convince Congress to legalize it, and so it is appropriate for Congress to penalize trafficking in that drug. Apparently, he sees our contention that the penalty adopted in I.R.C. § 280E is irrational and contravenes established punitive jurisprudence as a backdoor attempt to accomplish indirectly, by weakening the penalties on the marijuana businesses, what has not been able to be accomplished by those seeking its federal legalization. That was not the motive for our proposal and is not a fair reading of our …

Response To Dude, Where's My Deduction?, Douglas A. Kahn, Howard J. Bromberg

Other Publications

Mr. Pullin’s thesis is that marijuana should be excluded from § 280E when it is operated legally under state law. However, his preferred solution is that the federal government remove marijuana from Schedules I and II of the Controlled Substances Act of 1970 (CSA), thereby legalizing it for federal law purposes. Either action would exclude the marijuana business from § 280E.

If Not Now, When? U.S. Tax Treaties With Latin America After Tcja, Reuven S. Avi-Yonah

Articles

Since the 1990s, the US tax treaty network has expanded to include most large developing countries. However, there remains a glaring exception: The US only has two tax treaties in Latin America (Mexico and Venezuela), and one pending tax treaty (Chile). The traditional explanation for why the US has no treaty with, for example, Argentina or Brazil is the US refusal since 1957 to grant tax sparing credits to developing countries. Before the Tax Cuts and Jobs Act of 2017 (TCJA), this explanation was wrong, because the combination of deferral and cross-crediting meant that tax holidays in a source country …

Amazon Goldcrest Project And The Relevance Of Comparability Analysis Under The Arm's Length Principle, Reuven S. Avi-Yonah

Articles

The arm’s length principle, which has long been the guiding rule in the area of transfer pricing, in recent years is increasingly challenged. One of the focus points of discussion is the comparability analysis of intra-group and independent transactions. Especially intangibles do not lend themselves to such analysis, because they are unique in a way that does not match with existent market equilibria. The analysis of the Amazon case in this article reflects this argument.

If Not Now, When? Us Tax Treaties With Latin America After Tcja, Reuven S. Avi-Yonah

Law & Economics Working Papers

Since the 1990s, the US tax treaty network has expanded to include most large developing countries. However, there remains a glaring exception: The US only has two tax treaties in Latin America (Mexico and Venezuela), and one pending tax treaty (Chile). The traditional explanation for why the US has no treaty with, for example, Argentina or Brazil is the US refusal since 1957 to grant tax sparing credits to developing countries. Before the Tax Cuts and Jobs Act of 2017 (TCJA), this explanation was wrong, because the combination of deferral and cross-crediting meant that tax holidays in a source country …