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Covid-19 And Us Tax Policy: What Needs To Change?, Reuven Avi-Yonah
Covid-19 And Us Tax Policy: What Needs To Change?, Reuven Avi-Yonah
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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.
Does Capital Bear The U.S. Corporate Tax After All? New Evidence From Corporate Tax Returns, Edward Fox
Does Capital Bear The U.S. Corporate Tax After All? New Evidence From Corporate Tax Returns, Edward Fox
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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 …
The Games They Will Play: Tax Games, Roadblocks, And Glitches Under The 2017 Tax Legislation, David Kamin, David Gamage, Ari Glogower, Rebecca Kysar, Darien Shanske, Reuven S. Avi-Yonah, Lily Batchelder, J. Clifton Fleming, Daniel Hemel, Mitchell Kane, David Miller, Daniel Shaviro, Manoj Viswanathan
The Games They Will Play: Tax Games, Roadblocks, And Glitches Under The 2017 Tax Legislation, David Kamin, David Gamage, Ari Glogower, Rebecca Kysar, Darien Shanske, Reuven S. Avi-Yonah, Lily Batchelder, J. Clifton Fleming, Daniel Hemel, Mitchell Kane, David Miller, Daniel Shaviro, Manoj Viswanathan
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The 2017 tax legislation brought sweeping changes to the rules for taxing individuals and business, the deductibility of state and local taxes, and the international tax regime. The complex legislation was drafted and passed through a rushed and secretive process intended to limit public comment on one of the most consequential pieces of domestic policy enacted in recent history. This Article is an effort to supply the analysis and deliberation that should have accompanied the bill’s consideration and passage, and describes key problem areas in the new legislation. Many of the new changes fundamentally undermine the integrity of the tax …
Beps, Atap, And The New Tax Dialogue: "A Transatlantic Competition?", Reuven Avi-Yonah, Gianluca Mazzoni
Beps, Atap, And The New Tax Dialogue: "A Transatlantic Competition?", Reuven Avi-Yonah, Gianluca Mazzoni
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Since its launch in 2013, the US actively participated in all aspects of the BEPS project. However, until recently, the general view was that following the conclusion of the BEPS negotiations and the change of Administration the US is stepping back from the BEPS process. While the EU was charging ahead with implementing BEPS through the Anti-Tax Avoidance Directive (ATAD), the US stated that it was already in compliance with all BEPS minimum standards and therefore other than Country-by-Country Reporting (CbCR) it had no further BEPS obligations. The US decided not to sign the Multilateral Instrument (MLI) to implement BEPS …
Does The United States Still Care About Complying With Its Wto Obligations?, Reuven S. Avi-Yonah
Does The United States Still Care About Complying With Its Wto Obligations?, Reuven S. Avi-Yonah
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The Tax Cuts and Jobs Act of 2017 (“TCJA”) contains a provision that on its face appears to be a blatant violation of the WTO’s Subsidies and Countervailing Measures (SCM) rules. New IRC section 250 applies a reduced 13.125% tax rate to “foreign derived intangible income” (FDII), which is defined as income derived in connection with (1) property that is sold by the taxpayer to any foreign person for a foreign use or (2) services to any foreign person or with respect to foreign property. In other words, this category comprises exports for property and services, including royalties from the …
Problems With Destination-Based Corporate Taxes And The Ryan Blueprint, Reuven S. Avi-Yonah, Kimberly Clausing
Problems With Destination-Based Corporate Taxes And The Ryan Blueprint, Reuven S. Avi-Yonah, Kimberly Clausing
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With the election of Donald Trump and the Republican Party’s domination of Congress, House Speaker Paul Ryan’s blueprint for fundamental tax reform requires more careful analysis. The Ryan blueprint combines reduced individual rates with a destination-based cash flow type business tax applicable to all businesses. The destination-based business tax at the center of the blueprint has several major problems: It is incompatible with our WTO obligations, it is incompatible with our tax treaties, and it will not eliminate the problems of income shifting and inversions it is designed to address. In addition, these proposals generate vexing technical problems that are …
Tax Treatment Of A Marijuana Business, Douglas A. Kahn, Howard Bromberg
Tax Treatment Of A Marijuana Business, Douglas A. Kahn, Howard Bromberg
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Currently, twenty-eight states and the District of Columbia allow the use of marijuana for medical purposes and permit the conduct of a business marketing of marijuana for that purpose. Eight of those states and the District of Columbia permit the recreational use of marijuana. There is reason to believe that more states will decriminalize the marketing of marijuana. However, marijuana is listed in Schedule 1 of the federal Controlled Substances Act of 1970 (CSA) which makes it illegal under federal law to manufacture or distribute marijuana even when it is legal to do so under local state law. In a …
Cancellation Of Debt And Related Transactions, Douglas A. Kahn, Jeffrey H. Kahn
Cancellation Of Debt And Related Transactions, Douglas A. Kahn, Jeffrey H. Kahn
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If a taxpayer borrows money, the borrowed funds are not included in the taxpayer's gross income. That treatment is proper even though the taxpayer has increased his assets by the amount he borrowed because he also has created a corresponding liability to pay back the loan. The taxpayer's net: wealth has not increased. 'The more difficult and interesting questions arise when the taxpayer fails to repay the loan. At first blush, it would appear that upon cancellation of a loan, the taxpayer should have income for the amount that was cancelled. However, the current tax treatment is not that simple. …
The Devil In The Details: Reflections On The Camp Draft, Reuven S. Avi-Yonah
The Devil In The Details: Reflections On The Camp Draft, Reuven S. Avi-Yonah
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The discussion draft of the Tax Reform Act of 2014 (TRA 14) released by House Ways and Means Committee Chair Dave Camp, R-Mich., on February 26 represents a major effort for fundamental and far-reaching reform of U.S. tax law. Unfortunately, while many parts of the proposal seem sensible as an effort to bring back the spirit of 1986, the international tax reform proposals are deeply flawed and based on obsolete assumptions of the world that faces U.S. multinationals in 2014.
The 1 Percent Solution: Corporate Tax Returns Should Be Public (And How To Get There), Reuven S. Avi-Yonah, Ariel Siman
The 1 Percent Solution: Corporate Tax Returns Should Be Public (And How To Get There), Reuven S. Avi-Yonah, Ariel Siman
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The justification for publishing corporate tax returns is that corporations are given immense benefits by the state that bestows upon them unlimited life and limited liability, and therefore they owe the public the information of how they treat the state that created them. Tax returns, like the financial disclosures that publicly traded corporations must file with the SEC, also provide useful information to shareholders, creditors, and the investing public.
Back From The Dead: Reviving Transfer Pricing Enforcement, Reuven S. Avi-Yonah
Back From The Dead: Reviving Transfer Pricing Enforcement, Reuven S. Avi-Yonah
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The OECD has recently come to recognize that the transfer pricing system does not work as intended. In its report on base erosion and profit shifting 2013 WTD 140-17: Other Administrative Documents, the OECD recognizes that BEPS results in revenue losses that affect all states, especially poorer ones; that systematic tax avoidance by the richest and most powerful companies in the world undermines the general legitimacy of taxation; that it gives MNEs significant competitive advantages over purely domestic firms, resulting in inefficient allocations of investment and major distortions to economic activity; and that it skews the decisions of the MNEs …
Corporate Taxation And Corporate Social Responsibility, Reuven S. Avi-Yonah
Corporate Taxation And Corporate Social Responsibility, Reuven S. Avi-Yonah
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This Article will address the question of whether publicly traded U.S. corporations owe a duty to their shareholders to minimize their corporate tax burden through any legal means, or if instead, strategic behaviors like aggressive tax-motivated transactions are inconsistent with corporate social responsibility (“CSR”). I believe the latter holds true, regardless of one’s view of the corporation. Under the “artificial entity” view, such behavior undermines the constitutive relationship between the corporation and the state. Under the “real view,” such behavior runs contrary to the normal obligation of citizens to comply with the law (even absent effective enforcement). And under the …
How Serious Is The Problem Of Base Erosion And Profit Shifting?, James R. Hines Jr.
How Serious Is The Problem Of Base Erosion And Profit Shifting?, James R. Hines Jr.
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In recent years, the problem of base erosion and profit shifting (BEPS) by multinational corporations has entered the public consciousness as a potentially important impediment to tax collections. The purpose of this article is to identify the nature of BEPS, consider empirical evidence of its magnitude, and evaluate proposed policy responses. There is considerable evidence that multinational firms arrange their affairs in a tax-sensitive manner, from which it is easy—indeed, perhaps a little too easy—to infer that beps is a serious problem. There are journalistic accounts of apparently spectacular international tax-avoidance schemes used by multinational corporations, though these stories commonly …
Why Y? Reflections On The Baucus Proposal, Reuven S. Avi-Yonah
Why Y? Reflections On The Baucus Proposal, Reuven S. Avi-Yonah
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The international tax reform proposal introduced by Sen. Max Baucus, D-Mont., on November 19 contains several significant innovations that promise to define the terms of the debate for the foreseeable political future. (Prior coverage: Tax Notes Int’l, Nov. 25, 2013, p. 691.) It is therefore worth examining in detail even if it seems unlikely that progress toward meaningful reform can be achieved very soon.
What We Talk About When We Talk About Tax Exemption, Philip Hackney
What We Talk About When We Talk About Tax Exemption, Philip Hackney
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Under the Internal Revenue Code, certain nonprofit organizations are granted exemption from federal income tax (“tax-exemption”). Most tax-exemption rationales assume tax-exemption is a subsidy for organizations such as charities that provide some underprovided good or service. These theories assume there should be a tax on the income of nonprofit organizations but provide no justification for this assumption. This article contributes to the literature by examining the corporate income tax rationales as a proxy for why we might tax nonprofit organizations. The primary two theories hold that the corporate tax is imposed to: (1) tax shareholders (“shareholder theory”), and (2) regulate …
Corporate And International Tax Reform: Proposals For The Second Obama Administration (And Beyond), Reuven S. Avi-Yonah
Corporate And International Tax Reform: Proposals For The Second Obama Administration (And Beyond), Reuven S. Avi-Yonah
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The passage of the American Taxpayer Relief Act of 2012 (ATRA) offers an opportune moment to consider proposals for corporate and international tax reform. With the debate over individual tax rates for the income and estate tax settled for the present, the President and Congress are free to consider broader reforms. Few observers doubt that such reforms are sorely needed, for several reasons. First, the long-term budgetary outlook is unsustainable. Second, the U.S. corporate tax rate is the highest in the Organisation for Economic Co-Operation and Development (OECD). Third, the current system raises relatively little revenue and large amounts of …
Slicing The Shadow: A Proposal For Updating U.S. International Taxation, Reuven S. Avi-Yonah
Slicing The Shadow: A Proposal For Updating U.S. International Taxation, Reuven S. Avi-Yonah
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In the article Avi-Yonah proposed that the United States tax multinational corporations using a formulary apportionment system based solely on income derived from sales. The background for the article was drawn principally from Robert Reich’s The Work of Nations (1991), and the analysis was inspired by Stanley I. Langbein’s work on transfer pricing, especially his seminal article "The Unitary Method and the Myth of Arm’s Length," Tax Notes, Feb. 17, 1986, p. 625; see also Louis Kauder, "Intercompany Pricing and Section 482: A Proposal to Shift From Uncontrolled Comparables to Formulary Apportionment Now," Tax Notes, Jan. 25, 1993, p. 485.
Vive La Petite Difference: Camp, Obama, And Territoriality Reconsidered, Reuven S. Avi-Yonah
Vive La Petite Difference: Camp, Obama, And Territoriality Reconsidered, Reuven S. Avi-Yonah
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The recent tax reform proposals by House Ways and Means Committee Chair David Camp, R-Mich., and by President Obama seem to offer starkly contrasting visions of how to reform the taxation of foreign-source income earned by U.S.-based multinational enterprises.1 Both acknowledge the problem, which is that U.S.-based MNEs currently have more than $1 trillion of ‘‘permanently reinvested’’ income offshore, which they cannot bring back to the U.S. without incurring a 35 percent tax penalty. However, they seem to offer radically different solutions: Under the Camp proposal, a participation exemption will enable U.S.-based MNEs to bring back the income without paying …
The Effective Tax Rate Of The Largest Us And Eu Multinationals, Reuven S. Avi-Yonah, Yaron Lahav
The Effective Tax Rate Of The Largest Us And Eu Multinationals, Reuven S. Avi-Yonah, Yaron Lahav
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The United States has the second highest statutory corporate tax rate in the Organization for Economic Co-Operation and Development (OECD) (after Japan).1 This has not always been the case. After the Tax Reform Act of 1986 lowered the U.S. rate from 46% to 34%,2 the United States had one of the lowest statutory corporate tax rates in the OECD.3 In the past twenty-five years, however, the U.S. rate has remained essentially unchanged (it was raised to 35% in 1993),4 while most other OECD countries reduced their statutory rate so that the OECD average statutory corporate tax rate is 25.1%.
Symposium On International Taxation And Competitiveness: Introduction And Overview, Reuven S. Avi-Yonah, Nicola Sartori
Symposium On International Taxation And Competitiveness: Introduction And Overview, Reuven S. Avi-Yonah, Nicola Sartori
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In February, 2012, the Treasury and White House unveiled President Obama's Framework for Business Tax Reform. A major proposal was to abolish the deferral on income earned by foreign subsidiaries of U.S. corporations ("CFCs").
Beyond Territoriality And Deferral: The Promise Of "Managed And Controlled", Reuven S. Avi-Yonah
Beyond Territoriality And Deferral: The Promise Of "Managed And Controlled", Reuven S. Avi-Yonah
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In the new version of his Stop Tax Haven Abuse Act, Sen. Carl Levin, D-Mich., once again proposed to modify the definition of residence for domestic corporations (IRC section 7701). Section 103 of the act seeks to: stop companies run from the United States claiming foreign status by treating foreign corporations that are publicly traded or have gross assets of $50 million or more and whose management and control occur primarily in the United States as U.S. domestic corporations for income tax purposes. [Emphasis in original.] This is not a new suggestion. In response to the inversions of the early …
The Case For Dividend Deduction, Reuven S. Avi-Yonah, Amir C. Chenchinski
The Case For Dividend Deduction, Reuven S. Avi-Yonah, Amir C. Chenchinski
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The December 2010 compromise between President Barack Obama and the Republicans extended the 15% tax rate on dividends through the end of 2012. At that point, however, the rate may revert to the Clinton administration rate-39.6%-or be raised to 20%-as proposed by the Obama Administration. Thus, the United States may either abandon corporate-shareholder integration, maintain partial integration, or perhaps even adopt the George W Bush administration's 2003 proposal to exempt dividends altogether-as advocated by some Republicans in Congress. Given this uncertainty and the likelihood of additional Congressional action, now may be a good time to revisit the integration issue. Another …
Formulary Apportionment: Myths And Prospects - Promoting Better International Policy And Utilizing The Misunderstood And Under-Theorized Formulary Alternative, Reuven S. Avi-Yonah, Ilan Benshalom
Formulary Apportionment: Myths And Prospects - Promoting Better International Policy And Utilizing The Misunderstood And Under-Theorized Formulary Alternative, Reuven S. Avi-Yonah, Ilan Benshalom
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This article 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 borne 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 …
The Redemption Puzzle, Reuven S. Avi-Yonah
The Redemption Puzzle, Reuven S. Avi-Yonah
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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.
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
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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 …
The Attack On Nonprofit Status: A Charitable Assessment, James R. Hines Jr., Jill R. Horwitz, Austin Nichols
The Attack On Nonprofit Status: A Charitable Assessment, James R. Hines Jr., Jill R. Horwitz, Austin Nichols
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American nonprofit organizations receive favorable tax treatment, including tax exemptions and tax-deductibility of contributions, in return for their devotion to charitable purposes and restrictions not to distribute profits. Recent efforts to extend some or all of these tax benefits to for-profit companies making social investments, including the creation of the new hybrid nonprofit/for-profit company form known as the Low-Profit Limited Liability Company, threaten to undermine the vitality of the nonprofit sector and the integrity of the tax system. Reform advocates maintain that the ability to compensate executives based on performance and to distribute profits when attractive investment opportunities are scarce …
Xilinx And The Arm's-Length Standard, Reuven S. Avi-Yonah
Xilinx And The Arm's-Length Standard, Reuven S. Avi-Yonah
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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
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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
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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 …
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
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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 …