Securities Law Commons^™

Transaction-Specific Tax Reform In Three Steps: The Case Of Constructive Ownership, Thomas J. Brennan, David M. Schizer

Faculty Scholarship

Similar investments are often taxed differently, rendering our system less efficient and fair. In principle, fundamental reforms could solve this problem, but they face familiar obstacles. So instead of major surgery, Congress usually responds with a Band-Aid, denying favorable treatment to some transactions, while preserving it for others. These loophole-plugging rules have become a staple of tax reform in recent years. But unfortunately, they often are ineffective or even counterproductive. How can Congress do better? As a case study, we analyze Section 1260, which targets a tax-advantaged way to invest in hedge funds. This analysis is especially timely because a …

Twenty Years After Krieger V Law Society Of Alberta: Law Society Discipline Of Crown Prosecutors And Government Lawyers, Andrew Flavelle Martin

Articles, Book Chapters, & Popular Press

Krieger v. Law Society of Alberta held that provincial and territorial law societies have disciplinary jurisdiction over Crown prosecutors for conduct outside of prosecutorial discretion. The reasoning in Krieger would also apply to government lawyers. The apparent consensus is that law societies rarely exercise that jurisdiction. But in those rare instances, what conduct do Canadian law societies discipline Crown prosecutors and government lawyers for? In this article, I canvass reported disciplinary decisions to demonstrate that, while law societies sometimes discipline Crown prosecutors for violations unique to those lawyers, they often do so for violations applicable to all lawyers — particularly …

Whose Debt Is It Anyway?, Luís Calderón Gómez

Articles

Every year, companies issue hundreds of billions of dollars of debt with a feature carrying unclear tax consequences. So do individuals, who frequently tie their most significant financial asset to this type of instrument. Yet this instrument is not an exotic or innovative financial derivative, but is simple vanilla debt with two or more borrowers, or “co-obligated debt”. Co-obligated debt poses a conceptual problem for the law because it does not fit neatly into the simple and dyadic legal framework underlying the law’s conception of debt, where one creditor lends money to one borrower in exchange for a direct promise …

Is Bitcoin Prudent? Is Art Diversified? Offering Alternative Investments To 401(K) Participants, Edward A. Zelinsky

Articles

Whether 401(k) plans’ investment menus should feature “alternative” investments is a fact-driven inquiry applying ERISA’s fiduciary standards of prudence, loyalty, and diversification. Central to this fact-driven inquiry is whether the alternative investment class in question is broadly accepted by investors in general and by professional defined benefit trustees in particular. A similarly salient concern when making this inquiry is the financial unsophistication of many, perhaps most, 401(k) participants. Accounting for these considerations, this Article concludes that REITs, private equity funds, and hedge funds can, with limits, today be offered as investment choices to 401(k) participants, but that cryptocurrencies (including Bitcoin), …

The Growth Of Vancouver As An Innovation Hub: Challenges And Opportunities, Camden Hutchison, Li-Wen Lin

All Faculty Publications

This article assesses the development of Vancouver as an entrepreneurial region. Using data collected from commercial startup databases, we find that Vancouver produces more startups and receives more venture capital financing per capita than any other major Canadian city. However, we also find that Vancouver lags many U.S. cities on these same metrics. In light of our empirical findings, we explore whether differences in entrepreneurial activity between Canada and the United States are due to differences in the countries’ legal environments. We conclude that legal differences do not explain observed economic disparities, and that differences in entrepreneurial activity are due …

Reversing The Fortunes Of Active Funds, Adi Libson, Gideon Parchomovsky

All Faculty Scholarship

In 2019, for the first time in the history of U.S. capital markets, passive funds surpassed active funds in terms of total assets under management. The continuous growth of passive funds at the expense of active funds is a genuine cause for concern. Active funds monitor the management and partake of decision-making in their portfolio companies. Furthermore, they improve price efficiency and managerial performance by engaging in informed trading. The buy/sell decisions of active funds provide other market participants reliable information about the quality of firms. The cost of active investing is significant and it is exclusively borne by active …

Dispute Settlement Under The African Continental Free Trade Area Agreement: A Preliminary Assessment, Olabisi D. Akinkugbe

Articles, Book Chapters, & Popular Press

The African Continental Free Trade Area Agreement (AfCFTA) will add a new dispute settlement system to the plethora of judicial mechanisms designed to resolve trade disputes in Africa. Against the discontent of Member States and limited impact the existing highly legalized trade dispute settlement mechanisms have had on regional economic integration in Africa, this paper undertakes a preliminary assessment of the AfCFTA Dispute Settlement Mechanism (DSM). In particular, the paper situates the AfCFTA-DSM in the overall discontent and unsupportive practices of African States with highly legalized dispute settlement systems and similar WTO-Styled DSMs among other shortcomings. Notwithstanding the transplantation of …

Delaware's New Competition, William J. Moon

Faculty Scholarship

According to the standard account in American corporate law, states compete to supply corporate law to American corporations, with Delaware dominating the market. This “competition” metaphor in turn informs some of the most important policy debates in American corporate law.

This Article complicates the standard account, introducing foreign nations as emerging lawmakers that compete with American states in the increasingly globalized market for corporate law. In recent decades, entrepreneurial foreign nations in offshore islands have used permissive corporate governance rules and specialized business courts to attract publicly traded American corporations. Aided in part by a select group of private sector …

Remutualization, Erik F. Gerding

Publications

Policymakers need to rediscover the organizational form of business entity as a tool of financial regulation. Recent and classic scholarship has produced evidence that financial institutions organized as alternative entity forms – including investment bank partnerships and banks and insurance companies organized as mutual or cooperatives – tend to take less risk, exploit customers/consumer less, or commit less misconduct compared to counterparts organized as investor-owned corporations. This article builds off the work of Hill and Painter on investment banks organized as partnerships, Hansmann on the history and economics of banks and insurance companies organized as mutuals and cooperatives, and other …

Enhancing Efficiency At Nonprofits With Analysis And Disclosure, David M. Schizer

Faculty Scholarship

The U.S. nonprofit sector spends $2.54 trillion each year. If the sector were a country, it would have the eighth largest economy in the world, ahead of Brazil, Italy, Canada, and Russia. The government provides nonprofits with billions in tax subsidies, but instead of evaluating the quality of their work, it leaves this responsibility to nonprofit managers, boards, and donors. The best nonprofits are laboratories of innovation, but unfortunately some are stagnant backwaters, which waste money on out-of-date missions and inefficient programs. To promote more innovation and less stagnation, this Article makes two contributions to the literature.

First, this Article …

Zappers, Phantomware And Other Sales Suppression Software In The State Of Washington, Richard Thompson Ainsworth, Robert Chicoine

Faculty Scholarship

Electronic sales suppression (ESS) is a fraud that has been a (prominent) feature of the North American retail business since at least 1996. The first EES case in the US dates from 1981. ESS is a global problem. Depending on the jurisdiction, and the research study consulted, ESS is estimated to be present in 34% (of Canadian), 50% (of German – two studies), and 70% (of Swedish and Slovenian) businesses. It may be the case today, that “you cannot leave home without” encountering (or participating in) ESS.

The most common types of sales suppression technology are Zappers and Phantomware programming. …

The Up-C Revolution, Gregg D. Polsky, Adam H. Rosenzweig

Scholarly Works

Over the past few years, a revolutionary new tax structure, known as the Up-C, has become increasingly popular, particularly in instances where an LLC is being taken public. In such an Up-C IPO, a newly formed C corporation is placed on top of the existing LLC, which continues to operate the business. Shares of the C corporation are sold to new investors, and the proceeds are used by the C corporation to buy an interest in the LLC. Meanwhile, the legacy owners of the LLC (typically, founders and private investment funds) retain their interests in the LLC, while receiving exchange …

Designing A Legal Regime To Capture Capital Gains Tax On Indirect Transfers Of Mineral And Petroleum Rights: A Practical Guide, Perrine Toledano, John Bush, Jacky Mandelbaum

Columbia Center on Sustainable Investment Staff Publications

When a local asset (or a right relating to such asset) is sold, a country will generally have jurisdiction to levy a capital gains tax on the sale, both under domestic law and international treaty. This is called taxation of a “direct” transfer of a local asset. However, taxation becomes increasingly complicated when a company located offshore owns the local asset. Further difficulties arise when the local asset is held by a chain of corporations located in tax havens. An “indirect” transfer occurs when the shares of the domestic subsidiary, the shares of the foreign company with a branch in …

The Great Etf Tax Swindle: The Taxation Of In-Kind Redemptions, Jeffrey M. Colon

Faculty Scholarship

Since the repeal of the General Utilities doctrine over 30 years ago, corporations must recognize gain when distributing appreciated property to their shareholders. Regulated investment companies (RICs), which generally must be organized as domestic corporations, are exempt from this rule when distributing property in kind to a redeeming shareholder.

In-kind redemptions, while rare for mutual funds, are a fundamental feature of exchange-traded funds (ETFs). Because fund managers decide which securities to distribute, they distribute assets with unrealized gains and thereby significantly reduce the future tax burdens of their current and future shareholders. Many ETFs have morphed into investment vehicles that …

Human Equity? Regulating The New Income Share Agreements, Shu-Yi Oei, Diane Ring

Faculty Scholarship

A controversial new financing phenomenon has recently emerged. New "income share agreements" (''ISAs'') enable an individual to raise funds by pledging a percentage of her future earnings to investors for a certain number of years. These contracts, which have been offered by entities such as Fantex, Upstart, Pave, and Lumni, raise important questions for the legal system: Are they a form of modern-day indentured servitude or an innovative breakthrough in human financing? How should they be treated under the law?

This Article comprehensively addresses the public policy and legal issues raised by ISAs and articulates an analytical approach to evaluating …

Reconciling Tax Law And Securities Regulation, Omri Y. Marian

UF Law Faculty Publications

Issuers in registered securities offerings must disclose the expected tax consequences to investors investing in the offered securities (“nonfinancial tax disclosure”). This Article advances three arguments regarding nonfinancial tax disclosures. First, nonfinancial tax disclosure practice, as the Securities and Exchange Commission (the SEC) has sanctioned it, does not fulfill its intended regulatory purposes. Currently, nonfinancial tax disclosures provide irrelevant information, sometimes fail to provide material information, create unnecessary transaction costs, and divert valuable administrative resources to the enforcement of largely-meaningless requirements. Second, the practical reason for this failure is the SEC and tax practitioners’ unsuccessful attempt to address investors’ heterogeneous …

Investment Treaties And Industrial Policy: Select Case Studies On State Liability For Efforts To Encourage, Shape And Regulate Economic Activities In Extractive Industries And Infrastructure, Lise Johnson

Columbia Center on Sustainable Investment Staff Publications

This paper, prepared in connection with a February 2014 conference organized by the UN Economic Commission for Africa, discusses some of the implications that investment treaties have for investments in infrastructure and the extractive industries. It focuses on liability for government conduct (1) in connection with tenders and negotiations; (2) when responding to questions regarding the legality of the investment; (3) in using performance requirements to leverage benefits and capture spillovers from the investment; (4) changing the legal framework governing an investment in response to evolving needs, circumstances, and interests; (5) administering the investment; and (6) requesting, and responding to …

Nullifying The Debt Ceiling Threat Once And For All: Why The President Should Embrace The Least Unconstitutional Option, Neil H. Buchanan, Michael C. Dorf

Cornell Law Faculty Publications

In August 2011, Congress and the President narrowly averted economic and political catastrophe, agreeing at the last possible moment to authorize a series of increases in the national debt ceiling. This respite, unfortunately, was merely temporary. The amounts of the increases in the debt ceiling that Congress authorized in 2011 were only sufficient to accommodate the additional borrowing that would be necessary through the end of 2012. In an economy that continued to show chronic weakness -- weakness that continues to this day -- the federal government would predictably continue to collect lower-than-normal tax revenues and to make higher-than-normal expenditures, …

Paper On The Business Case For Transparency, Perrine Toledano

Columbia Center on Sustainable Investment Staff Publications

CCSI strongly supports the transparency of contracts and tax flows. CCSI shares the belief of many stakeholders that transparency is essential to leverage extractive industries for sustainable development and is in the mutual interest of all stakeholders. However, some industry players continue to voice the concern that increased transparency would be harmful for their business. Therefore, CCSI is working to also establish the business case for transparency.

In one such case, some industry players have been lobbying against the regulations developed by the Security and Exchange Commission to implement the mandatory disclosure provisions of the Dodd Frank Wall Street Reform …

The Redemption Puzzle, Reuven S. Avi-Yonah

Articles

After the adoption of partial integration in 2003, there has been only a modest rise in dividends, but a sixfold increase in redemptions. This article argues that the explanation for that lies in the different treatment of dividends and capital gains to foreign shareholders and that Congress should respond by making sections 302 and 304 inapplicable to foreign shareholders.

Enforcing Dividend Withholding On Derivatives, Reuven S. Avi-Yonah

Articles

The United States imposes a 30 percent withholding tax on dividends paid to nonresident aliens. However, this tax is rarely paid by portfolio investors because they can swap into U.S. securities, receiving payments to match both capital gain and dividends. Treasury has ruled that swap payments have an origin in the taxpayer’s residence so there is no withholding obligation on payments that match dividends. The proposal would impose withholding tax on dividend equivalents on the ground that there is no policy justification for a distinction between dividends, substitute dividends under securities lending transaction (which are treated as dividends and are …

Corporate Taxation And International Charter Competition, Mitchell Kane, Edward B. Rock

All Faculty Scholarship

Corporate Charter competition has become an increasingly international phenomenon. The thesis of this article is that this development in the corporate law requires a greater focus on the corporate tax law. We first demonstrate how a tax system’s capacity to distort the international charter market depends both upon its approach to determining corporate location and the extent to which it taxes foreign source corporate profits. We also show, however, that it is not possible to remove all distortions through modifications to the tax system alone. We present instead two alternative methods for preserving an international charter market. The first best …

What's Good For The Goose Is Not Good For The Gander: Sarbanes-Oxley-Style Nonprofit Reforms, Lumen N. Mulligan

Faculty Works

In this article, I contend that these Sarbanes-Oxley-inspired, state, nonprofit reforms, particularly the costly disclosure requirements, will be of little value in the effort to improve ethical nonprofit board governance. The article proceeds as follows. Part II provides a primer on the oversight of nonprofit organizations. Part III reviews the recent Sarbanes-Oxley-like nonprofit reforms introduced in seven states. Part IV contends that the disclosure-focused reforms, which form the bulwark of these acts, will not foster ethical nonprofit board governance. Part V argues that this failure stems from the inappropriate application of a stockholder-based, normative perspective in the nonprofit sector. The …

Stapled Securities--"The Next Big Thing" For Income Trusts? Useful Lessons From The Us Experience With Stapled Shares, Reuven S. Avi-Yonah, Tim Edgar, Fadi Shaheen

Articles

The Department of Finance has introduced two separate sets of legislation that together attempt to limit demand in the income trust market (though with very different revenue consequences). However, neither the proposed legislation nor the existing Income Tax Act contains an equity recharacterization rule. Consequently, the tax results associated with the standard income trust and royalty trust structures can still be realized with direct holding structures, in which the use of a trust as a pooling mechanism is eliminated and investors hold directly a combination of high-yield junk debt and a specified number of shares of the issuer. Until now, …

Financial Accounting And Corporate Behavior, David I. Walker

Faculty Scholarship

The power of financial accounting to shape corporate behavior is underappreciated. Positive accounting theory teaches that even cosmetic changes in reported earnings can affect share value, not because market participants are unable to see through such changes to the underlying fundamentals, but because of implicit or explicit contracts that are based on reported earnings and transaction costs. However, agency theory suggests that accounting choices and corporate responses to accounting standard changes will not necessarily be those that maximize share value. For a number of reasons, including the fact that executive compensation often is tied to reported earnings, managerial preferences for …

Remapping The Charitable Deduction, David Pozen

Faculty Scholarship

If charity begins at home, scholarship on the charitable deduction has stayed at home. In the vast legal literature, few authors have engaged the distinction between charitable contributions that are meant to be used within the United States and charitable contributions that are meant to be used abroad. Yet these two types of contributions are treated very differently in the Code and raise very different policy issues. As Americans' giving patterns and the U.S. nonprofit sector grow increasingly international, the distinction will only become more salient.

This Article offers the first exploration of how theories of the charitable deduction apply …

The New Dividend Puzzle, William W. Bratton

All Faculty Scholarship

No abstract provided.

Frictions And Tax-Motivated Hedging: An Empirical Exploration Of Publicly-Traded Exchangeable Securities, William M. Gentry, David M. Schizer

Faculty Scholarship

As financial engineering becomes more sophisticated, taxing income from capital becomes increasingly difficult. We offer the first empirical study of a high profile strategy known as "taxfree hedging," which offers economic benefits of a sale without tnggering tax. We explore nontax costs that taxpayers face when hedging by issuing so-called "DECS," "PHONES," and other publicly-traded exchangeable securities. Focusing on 61 transactions between 1993 and 2001, we shed light on why taxpayers might prefer to hedge through private "over-the-counter" transactions: An offering of exchangeable securities is announced in advance and implemented all at once, triggering an almost 4 percent decline in …

Back To The 1930s? The Shaky Case For Exempting Dividends, Reuven S. Avi-Yonah

Articles

This article is based in part on the author’s U.S. Branch Report for Subject I of the 2003 Annual Congress of the International Fiscal Association, to be held next year in Sydney, Australia (forthcoming in Cahiers de droit fiscal international, 2003). He would like to thank Emil Sunley for his helpful comments on that earlier version, and Steve Bank, Michael Barr, David Bradford, Michael Graetz, and David Hasen for comments on this version. Special thanks are due to Yoram Keinan for his meticulous work on the EU regimes (see Appendix). All errors are the author’s. In this report, Prof. Avi-Yonah …

Hester Prynne, Lydia Bennet, And Section 306 Stock: The Concept Of Tainting In The American Novel, The British Novel, And The Internal Revenue Code, Stephen B. Cohen, Stephen B. Cohen

Georgetown Law Faculty Publications and Other Works

Did Nathaniel Hawthorne's novel, The Scarlet Letter, inspire Section 306 of the Internal Revenue Code? This code provision adopts a peculiarly Hawthorne-like solution to a tax avoidance scheme known as the "preferred stock bailout." Section 306 taints the stock used in the scheme as "Section 306 stock." Special rules then govern all subsequent dispositions of the tainted stock. With its concept of a taint that can dog a stock from acquisition to disposition, Section 306 might have been designed by a novelist rather than a tax technician.