Tax Law Commons^™

The Quest To Tax Interest Income: Stages In The Development Of International Taxation, Ilan Benshalom

Faculty Working Papers

The Article offers a new perspective on the way international income tax has developed from its nascency, 85 years ago, to the present day. Its main claim is that, due to the lack of a clear normative tax agenda, trade considerations unduly eroded the income tax base. Such trade considerations highlight the importance of reducing tax obstacles on trade and investment to liberalize and integrate international markets. These considerations penetrated international income tax discourse during the Cold War period, when liberalizing trade was part of a broader western agenda to establish dominance through the liberalization of international markets. The Article …

A Comprehensive Solution For A Targeted Problem: A Critique Of The Eu’S Home State Taxation And Ccctb Initiatives, Ilan Benshalom

Faculty Working Papers

This Article examines the European Commission's Home State Taxation and CCCTB initiatives. It argues that both proposals undermine the long-term objective of attaining a consolidated European corporate tax regime. It suggests an alternative strategy, which offers a comprehensive formulary-tax-allocation-solution in one of the hard to tax sectors, such as the financial sector. This strategy requires more efforts and political risk-taking, but would better promote the long-term objective of a consolidated EU corporate tax regime.

An edited version of this article is scheduled to be published in a future issue of European Taxation (an IBFD publication).

Fifteen And Thirty Five--Class Warfare In Subchapter K Of The Internal Revenue Code: The Taxation Of Human Capital Upon The Receipt Of A Proprietary Interest In A Business Enterprise, Philip F. Postlewaite

Faculty Working Papers

Service providers (aka executives) to partnerships and to corporations confront a number of choices as to how their compensatory arrangement may be structured and the tax consequences thereof. In the simplest case, an individual may render services to an enterprise in return for cash payments over the period of service. In this non-equity setting, the issue is straightforward and non-controversial. The service provider is treated as receiving ordinary income for services rendered. The return on his or her expenditure of human capital is taxed at progressive rates.

Once the relationship between the service provider and the enterprise becomes more complicated …

The Quest To Tax Financial Income In A Global Economy: Emerging To An Allocation Phase, Ilan Benshalom

Faculty Working Papers

The taxation of the income derived from financial assets and transactions was always a daunting black hole in the income tax regime. In an integrated global market, tax authorities find it hard to tax financial income because of the high demand for financial investments and the mobility, fungibility, and tax-sensitivity of financial assets. Many of the current approaches to solving international tax allocation problems fail to see that financial transactions present special challenges and therefore their allocation treatment requires a special solution. The Article focuses on the most conceptually intriguing and significant problem associated with the allocation of financial income: …

The $4 Billion Question: An Analysis Of Congressional Responses To The Fsc/Eti Dispute Under Wto Export Subsidy Standards, William Chou

Northwestern Journal of International Law & Business

During the decade-long relationship between the United States and the World Trade Organization (WTO), perhaps no controversy has fomented as long and bitterly as the dispute over the U.S. tax benefits for exporters. This article analyzes two competing bills before the House of Representatives, both devised to bring the United States in compliance with the WTO's ruling against the U.S. Foreign Sale Corporation (FSC) and Exterritorial Income (ETI) tax regimes as prohibited export subsidies. Hit with a $4 billion retaliatory tariff by the European Union, the House sought new tax legislation that would preserve at least some of the tax …

Optimal International Taxation And Tax Competition: Overcoming The Contradictions, William B. Barker

Northwestern Journal of International Law & Business

This paper presents a theory of international taxation based on a new approach to source taxation that reflects world development and synthesizes the objectives of economic efficiency, fairness to taxpayers, and fairness to governments. Adoption of this model results in the preservation of comprehensive income taxation to capital-exporting nations and an expenditure tax base for capital-importing nations. The system would reduce much of the distortion caused by tax competition, eliminating the tax incentive for businesses to use productive assets and technologies outside the country of their development and saving the jobs of many workers.

The Proposed E.U. Vat On Electronically Transmitted Services: Enforcement And Compliance Issues, Thomas Fawkes

Northwestern Journal of International Law & Business

This paper will begin by discussing the current VAT system in the E.U. It will also describe in detail the provisions of the proposed VAT amendments as they affect electronic commerce transactions with respect to both B2B and B2C transactions. Next, the practical effects of the VAT amendments in terms of increased VAT revenue for the E.U. and its mem-ber states will be discussed. Following will be a discussion on the past and present failures of the E.U. and its Member States in encouraging and en-forcing compliance under the current VAT Directive, and the implication of such failures on the …

China's Tax Preferences To Foreign Investment: Policy, Culture And Modern Concepts, Zhaodong Jiang

Northwestern Journal of International Law & Business

In conclusion, policy-making in China is subject to the leadership's perception of problems and solutions. Taxation must reflect political and economic concerns and closely follow policy choice. For the Chinese, the objective, economic value to foreign businesses should not be as important as the Chinese sincerity and friendly sentiments that the preferential meas- ures symbolize. While the Chinese do refer to modern concepts such as ef- ficiency or equity, they tend to apply their own interpretation and understanding.

The United States' Response To Tax Havens: The Foreign Base Company Services Income Of Controlled Foreign Corporations, Eric T. Laity

Northwestern Journal of International Law & Business

This article is a detailed study of the taxation by the United States of foreign base company services income. Foreign base company services in- come is defined generally as the income derived by a controlled foreign corporation from the performance of services for a related person.2 Con- trolled foreign corporations, in turn, generally are the foreign subsidiaries of U.S. parent corporations.3 A controlled foreign corporation's foreign base company services income is taxed to its U.S. parent corporation, subject to various exclusions and qualifications. This article defines the class of sus- pect relationships between the controlled foreign corporation and its related …

Anti-Deferral Deferred: A Proposal For The Reform Of International Tax Law, John Mcdonald

Northwestern Journal of International Law & Business

Nowhere is the complexity of the Code more apparent than in the income tax provisions relating to U.S. ownership of foreign corporations.' In fact, the operation of the tax law in this area has become so incredibly complex that many calculations required by the Code can no longer be performed effectively without the use of sophisticated computer software.4 The cost of complying with these Code provisions has started to affect the competitiveness of the corporations to which they apply.5 In fact, there is a definite possibility that our tax laws in this area have become so complex that tax professionals …

Foreign Taxation: The Section 367(E) Regulations -- No Place To Hide, Walter D. Schwidetzky

Northwestern Journal of International Law & Business

Foreign taxpayers have long been a thorn in the side of Congress. Not only is the proper incidence of tax a far greater issue than in the domestic context, so is whether that tax will ever be collected. The average foreign taxpayer, with little the IRS can readily attach, is not overly concerned with whether the United States tax bill has been paid. Consequently, the Internal Revenue Code of 1986 (the Code) has a number of provisions designed to overcome the reluctance of foreign taxpayers to pay United States tax.

Taxes, Market Structure, And International Price Discrimination, Richard C. Henderson

Northwestern Journal of International Law & Business

The Department of Commerce's current cost-based calculation methods cannot measure tax pass-through. In one case, however, Commerce has employed a sophisticated econometric model of supply (cost) and demand elasticities to estimate tax pass-through. Because econometric models can do more than simply measure pass-through, the U.S. Government should adopt an econometric approach in all antidumping cases. Econometric models recognize the dependence of prices on market structure. These models thereby allow the U.S. Government to segregate pricing behavior consistent with different market structures from behavior that injures a balanced set of U.S. interests, which includes producers, consumers, and downstream industries.

Treatment Of Border Tax Rebates Of Consumption Taxes Under The Antidumping Law, John D. Mcinerney

Northwestern Journal of International Law & Business

This Article describes how Zenith Electronics Corp. v. United States ("Zenith") made the treatment of export rebates of consumption taxes an issue under the U.S. antidumping law. It explains the position of the Department of Commerce ("Commerce") that dumping margins should be calculated on a tax net basis (so that they equal the margins that would be found in the absence of taxes), and offers a general criticism of the argument in Zenith.

Taxation Of Foreign Business And Investment In The People's Republic Of China, Alex Easson, Li Jinyan

Northwestern Journal of International Law & Business

Up until the last six or seven years, very little attention has been paid in the West to the tax system of the People's Republic of China ("PRC" or "China"). This is understandable since, in the immediate post-liberation years, many countries in the Western Hemisphere tried hard to pretend that the PRC did not exist at all. Following its break with the Soviet Union in 1960, China adhered firmly to a policy of self-reliance. China's opening to the West, in economic terms, did not really begin until approximately 1978. Given the type of economic system which had evolved in China …

In Search Of Effective Policies For Foreign Direct Investment: Alternatives To Tax Incentive Policies, Kojo Yelpaala

Northwestern Journal of International Law & Business

It is now largely recognized that the multinational enterprise ("MNE") can play a significant role in the industrialization of a number of different countries. The major way in which the MNE can contribute toward the industrialization of a country is through foreign direct investment ("FDI"). To induce such MNE investment, several host countries have relied significantly on fiscal incentives in general and tax incentives in particular for over half a century. However, after several decades, the effects of these tax incentives on the motivation of MNEs to invest in incentive granting countries continues to be the focus of a heated …

Is The Connection Effective? Through The Maze Of Section 864, Alan B. Stevenson

Northwestern Journal of International Law & Business

This article discusses certain of the rules under which foreign corporations and nonresident alien individuals may be subjected to United States federal income tax. It may at first be surprising that there are any situations in which the United States would attempt to tax the income of a nonresident alien or a foreign corporation. A moment's reflection, however, will reveal that in some situations it is quite logical that the United States should tax at least a portion of the income of such persons. For example, it seems reasonable that a corporation which conducts some minimum level of business in …

Income Tax Treaty Shopping: An Overview Of Prevention Techniques, Kenneth A. Grady

Northwestern Journal of International Law & Business

The Internal Revenue Service in recent years has been particularly concerned about third-country residents use of bilateral income tax treaties to avoid paying tax on United States source income. Although third-country residents have benefitted from United States bilateral income tax treaties for more than twenty years, the loss of tax revenue from such unintended use was not considered a major problem. The recent proliferation of tax treaties between the United States and tax havens which resulted in an increased loss of tax revenues, however, has caused the Internal Revenue Service (IRS) to change its evaluation of the treaty shopping problem. …

Mca, Inc. V. United States: Judicial Recognition Of The Separate Interests Theory, Daniel N. Zucker

Northwestern Journal of International Law & Business

For United States federal tax purposes, the classificaiton of an entity as a partnership or a corporation has significant ramifications, particularly with respect to entities in foreign countries. Classification is especially important to the owners - whether shareholders or partners - of the entity because the question of whether they are taxed on their share of the profits or only upon repartriation will often depend on how the entity, set up under foreign law, is recognized by the Internal Revenue Service (Service). While entity classification in the domestic area has always been vulnerable to challenge, foreign entities face an additional …

Zenith Radio Corp V. United States: The Demise Of Congressionally Mandated Countervailing Duties, Robert Dziubla

Northwestern Journal of International Law & Business

The countervailing duty has long been a favorite tool of the Congress to achieve what it considers to be fair trade between the United States and her trading partners. Countervailing duties are extra duties imposed upon goods that enjoy subsidies, in whatever form, from a foreign government. In Zenith Radio Corp. v. United States, the Supreme Court agreed with the Department of Treasury that a remission by the Government of Japan of a domestic indirect commodity tax upon electronic goods was not a subsidy requiring a countervailing duty. This Note will suggest that the Court's dependence upon the legislative history …