Law Commons^™

The Effective Tax Rate Of The Largest Us And Eu Multinationals, Reuven S. Avi-Yonah, Yaron Lahav

Law & Economics Working Papers

This paper compares the effective tax rates of the 100 largest US multinationals to the 100 largest EU multinationals for the period 2001-2010, based on financial disclosures. The paper finds that despite the higher US statutory rate the effective tax rates are comparable and that EU multinationals tend to have a higher effective tax rate. The likely explanation is that EU corporate taxes have a broader base. The paper concludes that current US tax law does not subject US based multinationals to a competitive disadvantage against their EU based competitors.

Formulary Apportionment – Myths And Prospects, Reuven S. Avi-Yonah, Ilan Benshalom

Law & Economics Working Papers

This paper seeks to re-examine the formulary alternative to transfer pricing by inquiring whether partial integration of formulary concepts into current practices would offer a reasonable alternative to transfer pricing rules. We believe that the key to achieving an equitable and efficient allocation of MNE income is to solve the problem of the residual, i.e., how to allocate income generated from mobile assets and activities whose risks are born collectively by the entire MNE group. These assets and activities generate most of the current transfer pricing compliance and administrative costs, as well as tax avoidance opportunities. A limited formulary tax …

Tax Convergence And Globalization, Reuven S. Avi-Yonah

Law & Economics Working Papers

This paper addresses three questions: 1. Is there evidence that the tax systems of different countries have converged (i.e., become more similar) in the period 1980-2010? 2. If so, what is the explanation for this convergence? 3. Is convergence a positive or negative development?

The Case Against Taxing Citizens, Reuven S. Avi-Yonah

Law & Economics Working Papers

The US is the only developed country to tax citizens living permanently overseas on their worldwide income. This rule was created at a time when the income tax applied only to the rich and when some of the rich moved overseas to avoid the draft. We do not have a draft any more, the income tax applies to the middle class, and many more US citizens live permanently overseas for non-tax reasons. In a globalized world, citizenship-based taxation is an anachronism which should be abandoned.

Corporate And International Tax Reform: Long-, Medium-, And Short Term Proposals, Reuven S. Avi-Yonah

Law & Economics Working Papers Archive: 2003-2009

The current controversy surrounding President Obama’s international tax proposals seems like an opportune moment to try to consider them in context. How do these proposals fit in with an agenda for US corporate and international tax reform?

Few observers doubt that such reforms are sorely needed, for several reasons. First, the long-term budgetary outlook is unsustainable. Second, the US corporate tax rate is among the highest in the OECD. Third, the current system raises relatively little revenue and large amounts of corporate income go untaxed. Finally, the system is horrendously convoluted and imposes high transaction costs.

This paper will attempt …

The Obama International Tax Plan: A Major Step Forward, Reuven S. Avi-Yonah

Law & Economics Working Papers Archive: 2003-2009

On May 4, 2009, President Obama in person introduced a set of proposals to reform U.S. international taxation that are the most significant advance toward preserving the income tax on cross-border transactions since the enactment of Subpart F by the Kennedy Administration in 1962. In essence, the Obama proposals (the “Obama Plan”) introduce a 21st Century version of the vision begun by Thomas Adams in 1918 and continued by Stanley Surrey in 1961: A world in which source and residence taxation are coordinated so as to achieve the underlying goals of the international tax regime. As I have explained at …

Allocating Business Profits For Tax Purposes: A Proposal To Adopt A Formulary Profit Split, Reuven S. Avi-Yonah, Kimberly A. Clausing, Michael C. Durst

Law & Economics Working Papers Archive: 2003-2009

The current system of taxing the income of multinational firms in the United States is flawed across multiple dimensions. The system provides an artificial tax incentive to earn income in low-tax countries, rewards aggressive tax planning, and is not compatible with any common metrics of efficiency. The U.S. system is also notoriously complex; observers are nearly unanimous in lamenting the heavy compliance burdens and the impracticality of coherent enforcement. Further, despite a corporate tax rate one standard deviation above that of other OECD countries, the U.S. corporate tax system raises relatively little revenue, due in part to the shifting of …

The Oecd Harmful Tax Competition Report: A 10th Anniversary Retrospective, Reuven S. Avi-Yonah

Law & Economics Working Papers Archive: 2003-2009

Ten years ago the OECD published its report on Harmful Tax Competition: An Emerging Global Issue. This was followed by a series of concrete measures designed to limit some forms of harmful tax competition, such as preferential regimes in OECD countries and offshore tax havens. The OECD initiative has met considerable resistance and in some ways has fallen short of its goals. Nevertheless, this paper will argue that it has been a worthwhile effort and has achieved some measure of success. The paper will then go on to outline some future directions for the project.

Back To The Future? The Potential Revival Of Territoriality, Reuven S. Avi-Yonah

Law & Economics Working Papers Archive: 2003-2009

Until 1993, the United States led the rest of the developed world in strengthening residence-based world-wide corporate and individual income taxation. However, since 1994 this trend seems to have been reversed, at least in part, and similar developments are taking place overseas (e.g., in France and the UK). Thus, there seems to be a trend to reduce the scope of residence jurisdiction, while increasing the emphasis on source jurisdiction. If this trend continues, it seems likely that both traditional territorial countries like France and traditional world-wide countries like to UK and the US would move toward territoriality and decrease emphasis …

The Rise And Fall Of Arm's Length: A Study In The Evolution Of U.S. International Taxation, Reuven S. Avi-Yonah

Law & Economics Working Papers Archive: 2003-2009

A revised and updated version of the 1995 article (Va. Tax Review) on the evolution of US transfer pricing rules.

Tax Competition, Tax Arbitrage, And The Internation Tax Regime, Reuven S. Avi-Yonah

Law & Economics Working Papers Archive: 2003-2009

This paper argues that a coherent international tax regime exists, embodied in both the tax treaty network and in domestic laws, and that it forms a significant part of international law (both treaty-based and customary). The practical implication is that countries are not free to adopt any international tax rules they please, but rather operate in the context of the regime, which changes in the same ways international law changes over time. Thus, unilateral action is possible, but is also restricted, and countries are generally reluctant to take unilateral actions that violate the basic norms that underlie the regime. Those …

International Tax As International Law, Reuven S. Avi-Yonah

Law & Economics Working Papers Archive: 2003-2009

The purpose of this article is to introduce to the international lawyer the somewhat different set of categories (e.g., residence and source rather than nationality and territoriality) employed by international tax lawyers, and explain the reasons for some of the differences. At the same time, it attempts to persuade practicing international tax lawyers and international tax academics that their field is indeed part of international law, and that it would help them to think of it this way. For example, knowledge of the Vienna Convention on the Law of Treaties would help international tax lawyers in interpreting tax treaties, and …