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Full-Text Articles in Law
International Capital Taxation., Rachel Griffith, James R. Hines Jr., Peter Birch Sørensen
International Capital Taxation., Rachel Griffith, James R. Hines Jr., Peter Birch Sørensen
Book Chapters
Globalization carries profound implications for tax systems, yet most tax systems, including that of the UK, still retain many features more suited to closed economies. The purpose of this chapter is to assess how tax policy should reflect the changing international economic environment. Institutional barriers to the movement of goods, services, capital, and (to a lesser extent) labour have fallen dramatically since the Meade Report (Meade, 1978) was published. So have the costs of moving both real activity and taxable profits between tax jurisdictions. These changes mean that capital and taxable profits in particular are more mobile between jurisdictions than …
Between Formulary Apportionment And The Oecd Guidelines: A Proposal For Reconciliation, Reuven S. Avi-Yonah
Between Formulary Apportionment And The Oecd Guidelines: A Proposal For Reconciliation, Reuven S. Avi-Yonah
Articles
In the last 30 years, a debate has been raging in international tax circles between advocates of the OECD Transfer Pricing Guidelines and the arm’s length standard (ALS) they embody, on the one hand, and advocates of formulary apportionment (FA) on the other. After the adoption of the 1995 regulations and the new OECD Guidelines, the debate became quieter for a while, because everyone was waiting to see whether the issue had been resolved. However, while there have been few decided cases, it is clear by now that the transfer pricing problem is as bad as it ever was. That …
Xilinx And The Arm's-Length Standard, Reuven S. Avi-Yonah
Xilinx And The Arm's-Length Standard, Reuven S. Avi-Yonah
Articles
On May 7 the Ninth Circuit decided Xilinx v. Commissioner. By a 2-1 majority, the panel reversed the Tax Court and held that costs of employee stock options must be included in the pool of costs subject to a tax-sharing agreement. The Xilinx decision is important for three reasons. First, cost sharing is probably the key element in current transfer pricing law because it is the principal way in which profits from intangibles get shifted from the United States to low-tax jurisdictions. Moreover, informed observers agree that the allocation of income from intangibles is the most important problem in transfer …
Obama's International Tax Plan: A Major Step Forward, Reuven S. Avi-Yonah
Obama's International Tax Plan: A Major Step Forward, Reuven S. Avi-Yonah
Articles
President Barack Obama last week personally 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 the subpart F rules by the Kennedy administration in 1962. (For prior coverage, see Doc 2009-10047 or 2009 TNT 84-1.) In essence, the Obama proposals introduce a 21stcentury 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 …
How Globalization Affects Tax Design, James R. Hines Jr., Lawrence H. Summers
How Globalization Affects Tax Design, James R. Hines Jr., Lawrence H. Summers
Articles
The economic changes associated with globalization tighten financial pressures on governments of high-income countries by increasing the demand for government spending while making it more costly to raise tax revenue. Greater international mobility of economic activity, and associated responsiveness of the tax base to tax rates, increases the economic distortions created by taxation. Countries with small open economies have relatively mobile tax bases; as a result, they rely much less heavily on corporate and personal income taxes than do other countries. The evidence indicates that a ten percent smaller population in 1999 is associated with a one percent smaller ratio …
Closing The International Tax Gap Via Cooperations, Not Competition, Reuven S. Avi-Yonah
Closing The International Tax Gap Via Cooperations, Not Competition, Reuven S. Avi-Yonah
Book Chapters
All three major goals of the Volcker task force — reducing tax evasion and loopholes, simplifying the code, and reducing corporate welfare — can be advanced by focusing on the international aspects of the tax gap. These aspects include both enforcement of existing U.S. law on U.S. residents earning income overseas (the evasion issue) and reforming deferral for U.S.-based multinational enterprises (the avoidance issue). To best advance the task force’s three goals, I would propose a change in each of these two major international areas.
Allocating Business Profits For Tax Purposes: A Proposal To Adopt A Formulary Profit Split, Reuven S. Avi-Yonah, Kimberly A. Clausing, Michael C. Durst
Allocating Business Profits For Tax Purposes: A Proposal To Adopt A Formulary Profit Split, Reuven S. Avi-Yonah, Kimberly A. Clausing, Michael C. Durst
Articles
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 …
Corporate Taxation And International Charter Competition, Mitchell A. Kane, Edward B. Rock
Corporate Taxation And International Charter Competition, Mitchell A. Kane, Edward B. Rock
Michigan Law Review
Corporate charter competition has become an increasingly international phenomenon. The thesis of this Article is that this development in corporate law requires a greater focus on 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 upon 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 solution involves …
Back To The Future? The Potential Revival Of Territoriality, Reuven S. Avi-Yonah
Back To The Future? The Potential Revival Of Territoriality, Reuven S. Avi-Yonah
Articles
Since 1994, the trend in the United States and other developed countries appears to be to reduce the scope of residence jurisdiction and increase the emphasis on source jurisdiction. If this trend continues, these countries are likely to move toward territoriality and decrease the emphasis on their CFC rules. In the author’s opinion, the reason for this trend is political and economic, not legal. It is part of tax competition, specifically the competition to be the headquarters jurisdiction for multinationals. The author also thinks, however, that it is not necessary to go down this road because the solution to the …
Corporate Taxation And International Competition, James R. Hines Jr.
Corporate Taxation And International Competition, James R. Hines Jr.
Book Chapters
Many countries tax corporate income heavily despite the incentives that they face to reduce tax rates in order to attract greater investment, particularly investment from foreign sources. The volume of world foreign direct investment (FDI) has grown enormously since 1980, thereby increasing a country's ability to attract significant levels of new investment by reducing corporate taxation. The evidence indicates, however, that corporate tax collections are remarkably persistent relative to gross domestic product ( GDP), government revenues, or other indicators of underlying economic activity or government need. If this were not true- if corporate income taxation were rapidly disappearing around the …
Dividend Policy Inside The Multinational Firm, Mihir A. Desai, C. Fritz Foley, James R. Hines Jr.
Dividend Policy Inside The Multinational Firm, Mihir A. Desai, C. Fritz Foley, James R. Hines Jr.
Articles
This paper examines the determinants of profit repatriation policies for US multinational firms. Dividend repatriations are surprisingly persistent and resemble dividend payments to external shareholders. Tax considerations influence dividend repatriations, but not decisively, as differentially-taxed entities feature similar policies and some firms incur avoidable tax penalties. Parent companies requiring cash to fund domestic investments, or to pay dividends to common shareholders, draw on the resources of their foreign affiliates through repatriations. Incompletely controlled affiliates are more likely than others to make regular dividend payments and to trigger avoidable tax costs through repatriations. The results indicate that traditional corporate finance concerns …
Commentary, Reuven S. Avi-Yonah
Commentary, Reuven S. Avi-Yonah
Book Chapters
David Rosenbloom has delivered an important lecture on an important topic: whether exploiting differences between the tax system of two different jurisdictions to minimize the taxes paid to either or both ("international tax arbitrage") is a problem, and if so, whether anything can be done about it in a world without a "world tax organization." As Rosenbloom states, international tax arbitrage is "the planning focus of the future," and recently has been the focus of considerable discussion and debate (for example, upon the promulgation and subsequent withdrawal under fire of Notice 98-11). Rosenbloom's lecture is one of the first attempts …
Federalism And The Commerce Clause: A Comparative Perspective, Reuven S. Avi-Yonah
Federalism And The Commerce Clause: A Comparative Perspective, Reuven S. Avi-Yonah
Articles
The U.S. Supreme Court has on numerous occasions addressed the constitutionality of state taxes under the U.S. Constitution (most often under the Commerce Clause, but sometimes under the Equal Protection and Due Process Clauses). In general, the Supreme Court has granted wide leeway to the states to adopt any tax system they wish, only striking down the most egregious cases of discrimination against out-of-state residents. Thus, for example, the Court has generally refused to intervene against state tax competition to attract business into the state. It has twice upheld a method of calculating how much income of a multinational enterprise …
Taxation In Developing Countries: Some Recent Support And Challenges To The Conventional View, Reuven S. Avi-Yonah, Yoram Margolioth
Taxation In Developing Countries: Some Recent Support And Challenges To The Conventional View, Reuven S. Avi-Yonah, Yoram Margolioth
Articles
The general advice given by international institutions such as the International Monetary Fund (IMF) and the World Bank to developing countries over the past few decades has been to replace trade taxes with domestic consumption taxes, particularly value-added taxes (VAT), and to maintain relatively high corporate income tax rates. This article reviews recent literature that supports and challenges this conventional view.
Harmful Tax Competition And Its Harmful Remedies, James R. Hines Jr.
Harmful Tax Competition And Its Harmful Remedies, James R. Hines Jr.
Reviews
There is, among some of your reviewer's friends, an abhorrence of tax competition, and a fascination with tax harmonization, that defies simple understanding. The way that the case is typically presented, European tax harmonization is desirable because eliminating tax differences between European nations would promote economic efficiency. With greater economic efficiency, there is more of everything to go around, so it becomes possible to maintain life exactly as it currently is, except that now, instead of every family having one toaster, they can have two. A wise goal, a worthy goal, this economic efficiency-though the drive to eke more out …
Taxation And Multinational Activity: New Evidence, New Interpretations, Mihir A. Desai, C. Fritz Foley, James R. Hines Jr.
Taxation And Multinational Activity: New Evidence, New Interpretations, Mihir A. Desai, C. Fritz Foley, James R. Hines Jr.
Articles
In the midst of rapid integration and globalization, multinational firms still face tax systems that differ among countries, and these differences have the potential to affect major investment and financing decisions. This research covers a wide range of topics, including the impact of indirect taxes as well as of corporate income taxes, the sensitivity of financing decisions to tax rates, the effects of taxes on repatriation policies, the demand for, and impact of, tax havens, and the use of indirect ownership as a means of avoiding taxes. The behavior of US multinational firms as revealed by the evidence collected by …
Passport To Toledo: Cuno, The World Trade Organization, And The European Court Of Justice, Reuven S. Avi-Yonah
Passport To Toledo: Cuno, The World Trade Organization, And The European Court Of Justice, Reuven S. Avi-Yonah
Articles
The purpose of this article is to try to place the debate about Cuno v. DaimlerChrysler in a broader perspective by connecting it with the overall discussion of harmful tax competition. It discusses two hypothetical scenarios under which the city of Toledo, Ohio, is (a) a separate country and (b) a member state of the European Union. If the first hypothetical were true, the tax incentives offered by Toledo would violate the rules of the World Trade Organization; if the second hypothetical were true, the tax incentives would also violate the Treaty of Rome, as interpreted by the European Court …
International Tax Law As International Law, Reuven S. Avi-Yonah
International Tax Law As International Law, Reuven S. Avi-Yonah
Articles
Is international tax law part of international law? To an international lawyer, the question posed probably seems ridiculous. Of course international tax law is part of international law, just like tax treaties are treaties. But to an international tax lawyer, the question probably seems less obvious, because most international tax lawyers do not think of themselves primarily as international lawyers (public or private), but rather as tax lawyers who happen to deal with crossborder transactions. And indeed, once one delves into the details, it becomes clear that in some ways international tax law is different from "regular" international law. For …
Tax Competition: Harmful To Whom?, Michael Littlewood
Tax Competition: Harmful To Whom?, Michael Littlewood
Michigan Journal of International Law
The aim of this paper is to examine the theory that it is both desirable and feasible to prevent less-developed countries from operating preferential tax regimes (that is, offering tax incentives) as a means of attracting foreign investment.
For Haven's Sake: Reflections On Inversion Transactions, Reuven S. Avi-Yonah
For Haven's Sake: Reflections On Inversion Transactions, Reuven S. Avi-Yonah
Articles
This article discusses “inversion” transactions, in which a publicly traded U.S. corporation becomes a subsidiary of a newly established tax haven parent corporation. In the last three years, an increasing number of these transactions have been taking place, undeterred by the shareholderlevel tax imposed by the IRS on them in 1994. The article first discusses the reasons for the increasing popularity of the transactions and the tax goals they aim at achieving (primarily avoiding subpart F and U.S. earnings stripping). The article then discusses the tax policy implications of these transactions. In the short run, the article suggests that the …
Tax Competition And E-Commerce, Reuven S. Avi-Yonah
Tax Competition And E-Commerce, Reuven S. Avi-Yonah
Articles
In the last four years, there has been increasing concern by developed countries about the potential erosion of the corporate income tax base by "harmful tax competition" (in the European Union since 1997, in the OECD since 1998). However, the data on tax competition available to date present a mixed and somewhat puzzling picture. On the one hand, there is considerable evidence that effective corporate income tax rates in many countries have been declining, and that the worldwide effective tax rates on multinational enterprises (MNEs) have been going down as well. On the other hand, macroeconomic data from developed countries …
Globalization And Tax Competition: Implications For Developing Countries, Reuven S. Avi-Yonah
Globalization And Tax Competition: Implications For Developing Countries, Reuven S. Avi-Yonah
Articles
This article analyses the effects of tax competition on developing countries. Since the 1980s, globalization and greater capital mobility have led many developing countries to adopt the policy of competing with one another to attract capital investment. One of the main forms taken by this competition has been the granting of tax holidays and other tax reductions to investing multinationals. This paper reviews the normative arguments for and against this type of tax competition, from a global perspective. It then examines these arguments in depth from the point of view of developing countries. The conclusion in general is that, since …
Globalization And Tax Competition: Implications For Developing Countries, Reuven S. Avi-Yonah
Globalization And Tax Competition: Implications For Developing Countries, Reuven S. Avi-Yonah
Articles
The current age of globalization can be distinguished from the previous one (from 1870 to 1914) by the much higher mobility of capital than labor (in the previous age, before immigration restrictions, labor was at least as mobile as capital). This increased mobility has been the result of technological changes (the ability to move funds electronically), and the relaxation of exchange controls. The mobility of capital has led to tax competition, in which sovereign countries lower their tax rates on income earned by foreigners within their borders in order to attract both portfolio and direct investment. Tax competition, in turn, …
A New Export Policy: The Foreign Sales Corporation And State Unitary Taxation Of Foreign Source Income, Reed D. Rubinstein
A New Export Policy: The Foreign Sales Corporation And State Unitary Taxation Of Foreign Source Income, Reed D. Rubinstein
Michigan Journal of International Law
Part I of this note will examine the structure of the FSC, and analyze its potential benefits in light of the Domestic International Sales Corporation (DISC) tax incentive. Part II discusses the use of the unitary tax as a disincentive to direct foreign investment by U.S. corporations. Finally, Part III outlines the new export policy based upon a combination of the FSC export incentive and state unitary taxation of foreign-source income. If implemented, this policy would increase export production and discourage direct foreign investment, thereby making a substantial contribution to U.S. economic well-being.