Law Commons^™

Two Cheers For The Foreign Tax Credit, Even In The Beps Era, J. Clifton Fleming Jr., Robert J. Peroni, Stephen E. Shay

Faculty Scholarship

Reform of the U.S. international income taxation system has been a hotly debated topic for many years. The principal competing alternatives are a territorial or exemption system and a worldwide system. For reasons summarized in this article, we favor worldwide taxation if it is real worldwide taxation – i.e., a non-deferred U.S. tax is imposed on all foreign income of U.S. residents at the time the income in earned. This approach is not acceptable, however, unless the resulting double taxation is alleviated. The longstanding U.S. approach for handling the international double taxation problem is a foreign tax credit limited to …

Country By Country Reporting And Corporate Privacy: Some Unanswered Questions, Reuven S. Avi-Yonah

Articles

Corporate privacy is an oxymoron. Individuals have a right to privacy, which the Supreme Court has recognized at least since Griswold v. Connecticut (1965). Warren and Brandeis’ famous defense of the right to privacy (1890) clearly applied only to individuals, because only individuals have the kind of feelings that are affected by invasions of privacy. Corporations are legal entities, and the concept of privacy does not apply to them, as the Supreme Court held in 1906. Thus, any objection to making corporate tax returns public cannot rest on the right to privacy. In fact, corporate returns were made public in …

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 …

Multinational Firms And Tax Havens, Anna Gumpert, James R. Hines Jr., Monika Schnitzer

Articles

Multinational firms with operations in high-tax countries can benefit the most from reallocating taxable income to tax havens, though this is sufficiently difficult and costly that only 20.4% of German multinational firms have any tax haven affiliates. Among German manufacturing firms, a 1 percentage point higher foreign tax rate is associated with a 2.3% greater likelihood of owning a tax haven affiliate. This is consistent with tax avoidance incentives and contrasts with earlier evidence for U.S. firms. The relationship is less strong for firms in service industries, possibly reflecting the difficulty of reallocating taxable service income.

Destination-Based Taxation In The House Republican Blueprint, Wei Cui

All Faculty Publications

The House Republican Task Force on Tax Reform released its Blueprint for tax reform in June 2016, at the center of which is a destination-based cash-flow tax (DBCFT) to replace the current federal income tax on corporations. The House GOP Blueprint represents the first time that the DBCFT has been promoted by political leaders. Initial commentators have stressed the capacity of such a tax (if adopted in the U.S.) to reduce U.S. companies’ incentives for international tax planning and profit shifting, and to allow the U.S. to “leapfrog to the front of the pack” in its tax competitiveness. This essay …

Trade Credit And Taxes, Mihir A. Desai, C. Fritz Foley, James R. Hines Jr.

Articles

This paper analyzes the extent to which tax differences affect the use of trade credit. U.S.-owned affiliates in low-tax countries use trade credit to lend, whereas those in high-tax countries use trade credit to borrow: 10% lower local tax rates are associated with net trade credit positions that are 1.4% higher as a fraction of sales. The use of trade credit to get capital out of low-tax, low-return environments is also illustrated by the temporary repatriation tax holiday in 2005, which was used most intensively by affiliates with positive net trade credit positions.

A Constructive U.S. Counter To Eu State Aid Cases, Itai Grinberg

Georgetown Law Faculty Publications and Other Works

U.S. Treasury officials and members of Congress from both parties have expressed concern that the European Commission’s current state aid investigations are disproportionately targeting U.S.-based multinational enterprises. At the same time, a Treasury official recently suggested in congressional testimony that there are limits to what Treasury can do beyond strongly expressing its concerns to the commission. In that testimony, Treasury’s representative hinted at two specific pressure points: whether the state aid investigations could undermine U.S. tax treaties with EU member states; and whether any assessments paid by the foreign subsidiaries of U.S. MNEs as a result of state aid investigations …

Transfer Pricing Challenges In The Cloud, Orly Mazur

Faculty Journal Articles and Book Chapters

Cloud computing - the provision of information technology resources in a virtual environment - has fundamentally changed how companies operate. Companies have quickly adapted by moving their businesses to the cloud, but international tax standards have failed to follow suit. As a result, taxpayers and tax administrations confront significant tax challenges in applying outdated tax principles to this new environment. One particular area that raises perplexing tax issues is the transfer pricing rules. The transfer pricing rules set forth the intercompany price a cloud service provider must charge an affiliate using its cloud services, which ultimately affects in which jurisdiction …

Reconsidering The Tax Treaty, Steven Dean, Rebecca M. Kysar

Faculty Scholarship

For nearly one hundred years, the international tax regime steadfastly pursued a single nemesis, double taxation. States armed themselves against this common enemy with their weapon of choice, the double tax treaty. Nearly uniform in language and approach, the treaties proliferated to more than three thousand in number,¹ resulting in a secure arrangement between and among states and taxpayers.

Yet in recent years, states have had to expand the war to multiple fronts in the face of globalization, technological changes, evolving taxpayer abuses, and shifts in both domestic and international political pressures. For instance, a growing recognition that the …

Implementation Of Arbitration Decisions In Domestic Law, J. Scott Wilkie

Articles & Book Chapters

Arbitration, even if it seems simply providing for the possibility of arbitration, is increasingly attracting attention as a possible means to discipline the resolution of otherwise potentially intractable international tax controversies concerning the allocation of taxing rights under tax treaties.While perceived, though not without reservation, to be a potential welcome addition to a typical mutual agreement procedure (MAP) patterned on article 25 (“the MAP article”) of the OECD Model Tax Convention on Income and Capital(“the OECD Model”) in the form of article 25(5), other provisions of article 25, notably its “interpretive” and “application,”and “legislative”,aspects and contemplated recourse to a “joint …

Taxing Remote Sales In The Digital Age: A Global Perspective, Walter Hellerstein

Scholarly Works

This Article addresses three fundamental questions raised by the taxation of remote sales in the digital age from a global perspective, but focuses on the implications, if any, of the answers to these questions in the global context for the U.S. subnational retail sales tax. First, should remote sales be taxed under a consumption tax? Second, if the answer to the first question is “yes,” where should such sales be taxed? Third, how can remote sales be taxed effectively under a consumption tax in the digital age?4

An Introduction To The Oecd’S International Vat/Gst Guidelines, Walter Hellerstein

Scholarly Works

U.S. tax professionals can bene/it by becoming acquainted with the OECD’s new guidelines for the design and implementation of value added tax (VAT) regimes

Unilateral Responses To Tax Treaty Abuse: A Functional Approach, Omri Y. Marian

UF Law Faculty Publications

Recent years have seen a dramatic increase in the attention given to abusive tax schemes that take advantage of bilateral tax treaties. The ensuing discourse tends to view potential responses to treaty abuses as a hierarchical set of options, gradually escalating, in which treaty termination is a last resort option. This article argues that the hierarchical view of unilateral responses to treaty abuse is misguided. Unilateral responses to treaty-based abuse are not hierarchically ordered. Rather, the approach to treaty abuse is (and should be) functional, adopting specific types of unilateral responses based on the type of treaty abuse at issue. …

Treaties In The Aftermath Of Beps, Yariv Brauner

UF Law Faculty Publications

The article argues that, despite the fanfare around it, the outcome of the BEPS project is unlikely to be dramatic, at least in the short term. Beyond a period of increased legal uncertainty and aggressive enforcement by some countries, it expects little substantive change in tax treaties. The challenges to the dominance of the OECD and the richest countries would likely be assuaged with marginal concessions, most or all of which not be affecting tax treaties. Yet, the article sees a silver lining in the non-substantive, structural, and instrumental outcomes of the BEPS project. It argues that even if unintended, …

A Hitchhiker’S Guide To The Oecd’S International Vat/Gst Guidelines, Walter Hellerstein

Scholarly Works

The OECD’s International VAT/GST Guidelines, which were released in their consolidated form at the OECD’s Global Forum on VAT in Paris in late 2015, are the culmination of nearly two decades of efforts to provide internationally accepted standards for consumption taxation of cross-border trade, particularly trade in services and intangibles. This article provides a roadmap to the Guidelines, especially for readers who may be unfamiliar with consumption tax principles, in general, or VATs in particular. Part II of the article provides the background to the Guidelines, describing the basic features of a VAT, the problems with which the Guidelines are …

Evaluating Beps: A Reconsideration Of The Benefits Principle And Proposal For Un Oversight, Reuven Avi-Yonah, Haiyan Xu

Articles

The Financial Crisis of 2008 and Great Recession that followed have exacerbated income inequality within and between countries. In the aftermath of the economic turbulence, politicians have turned their attention to the twin problems of individual tax evasion and corporate tax avoidance. U.S. legislators enacted the Foreign Account Tax Compliance Act (FACTA), leading to the United States signing a series of Intergovernmental Agreements (IGAs) for the exchange of tax information. The Organization for Economic Co-operation and Development (OECD) developed the Multilateral Agreement for Administrative Assistance in Tax Matters (MAATM) and initiated the Base Erosion and Profit Shifting (BEPS) project to …

Why U.S. States Need Pension Waiver Credits, Randall K. Johnson

Faculty Works

This article identifies a novel approach to public pension reform, which takes into account existing political and legal constraints. It does its work in four key ways. First, the article encourages better use of public sector resources by calling for the elimination of public pension inefficiencies. Next, it explains how to reduce public pension inefficiencies, on a prospective basis, by moving away from defined-benefit pension plans. Third, the article describes one way to move beyond defined-benefit pension plans through the creation of a new tax expenditure program (specifically, a Pension Waiver Credits Program). Finally, it explains how to implement this …

Hillenmeyer, "Convenience Of The Employer," And The Taxation Of Nonresidents' Incomes, Edward A. Zelinsky

Articles

In Hillenmeyer v. Cleveland Board of Review, Ohio’s Supreme Court unanimously declared that Cleveland’s municipal income tax violated the Due Process Clause of the U.S. Constitution by taxing a nonresident athlete under the “games-played” method rather than the “duty-days” method. According to the Ohio court, the games-played approach overtaxed Mr. Hillenmeyer by allocating to Cleveland Mr. Hillenmeyer’s compensation from the Chicago Bears using the percentage of the Bears’ games played in Cleveland. By this approach, Cleveland taxed Mr. Hillenmeyer extraterritorially, reaching income he earned from services he performed for the Bears outside of Cleveland’s borders. Due Process, the Ohio …

Bringing International Tax Policy Into The 21st Century, Michael J. Graetz

Faculty Scholarship

Michael J. Graetz delivered the following remarks at the Tax Policy Center's "A Corporate Tax for the 21st Century" conference on July 14 in Washington. These remarks are substantially taken from his April 2015 Ross Parsons Lecture at the University of Sydney Law School.

Follow The Money: Essays On International Taxation – Introduction, Michael J. Graetz

Faculty Scholarship

Publicity about tax avoidance techniques of multinational corporations and wealthy individuals has moved discussion of international income taxation from the backrooms of law and accounting firms to the front pages of news organizations around the world. In the words of a top Australian tax official, international tax law has now become a topic of barbeque conversations. Public anger has, in turn, brought previously arcane issues of international taxation onto the agenda of heads of government around the world.

Despite all the attention, however, issues of international income taxation are often not well understood. This Introduction outlines a collection of essays, …

Full Circle? The Single Tax Principle, Beps, And The New Us Model, Reuven S. Avi-Yonah

Articles

This paper will argue that while there is some innovation in BEPS, it is in fact more of a continuation that a sharp break with the past. Like Alexis de Tocqueville’s French Revolution, BEPS represents both continuity and change. In particular, the single tax principle has formed the theoretical basis of much of the international tax regime from the beginning. And it is in fact this continuity rather than any sharp change that gives the final BEPS package its promise to, as Secretary General Gurria also promised, “put an end to double non-taxation.”