Taxation-Transnational Commons^™

The Effective Tax Rate Of The Largest Us And Eu Multinationals, Reuven S. Avi-Yonah, Yaron Lahav

Law & Economics Working Papers

This paper compares the effective tax rates of the 100 largest US multinationals to the 100 largest EU multinationals for the period 2001-2010, based on financial disclosures. The paper finds that despite the higher US statutory rate the effective tax rates are comparable and that EU multinationals tend to have a higher effective tax rate. The likely explanation is that EU corporate taxes have a broader base. The paper concludes that current US tax law does not subject US based multinationals to a competitive disadvantage against their EU based competitors.

Formulary Apportionment – Myths And Prospects, Reuven S. Avi-Yonah, Ilan Benshalom

Law & Economics Working Papers

This paper 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 born 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 …

Tax Convergence And Globalization, Reuven S. Avi-Yonah

Law & Economics Working Papers

This paper addresses three questions: 1. Is there evidence that the tax systems of different countries have converged (i.e., become more similar) in the period 1980-2010? 2. If so, what is the explanation for this convergence? 3. Is convergence a positive or negative development?

The Case Against Taxing Citizens, Reuven S. Avi-Yonah

Law & Economics Working Papers

The US is the only developed country to tax citizens living permanently overseas on their worldwide income. This rule was created at a time when the income tax applied only to the rich and when some of the rich moved overseas to avoid the draft. We do not have a draft any more, the income tax applies to the middle class, and many more US citizens live permanently overseas for non-tax reasons. In a globalized world, citizenship-based taxation is an anachronism which should be abandoned.

Corporate And International Tax Reform: Long-, Medium-, And Short Term Proposals, Reuven S. Avi-Yonah

Law & Economics Working Papers Archive: 2003-2009

The current controversy surrounding President Obama’s international tax proposals seems like an opportune moment to try to consider them in context. How do these proposals fit in with an agenda for US corporate and international tax reform?

Few observers doubt that such reforms are sorely needed, for several reasons. First, the long-term budgetary outlook is unsustainable. Second, the US corporate tax rate is among the highest in the OECD. Third, the current system raises relatively little revenue and large amounts of corporate income go untaxed. Finally, the system is horrendously convoluted and imposes high transaction costs.

This paper will attempt …

The Obama International Tax Plan: A Major Step Forward, Reuven S. Avi-Yonah

Law & Economics Working Papers Archive: 2003-2009

On May 4, 2009, President Obama in person 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 Subpart F by the Kennedy Administration in 1962. In essence, the Obama proposals (the “Obama Plan”) introduce a 21st Century 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 regime. As I have explained at …

Allocating Business Profits For Tax Purposes: A Proposal To Adopt A Formulary Profit Split, Reuven S. Avi-Yonah, Kimberly A. Clausing, Michael C. Durst

Law & Economics Working Papers Archive: 2003-2009

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 …

The Oecd Harmful Tax Competition Report: A 10th Anniversary Retrospective, Reuven S. Avi-Yonah

Law & Economics Working Papers Archive: 2003-2009

Ten years ago the OECD published its report on Harmful Tax Competition: An Emerging Global Issue. This was followed by a series of concrete measures designed to limit some forms of harmful tax competition, such as preferential regimes in OECD countries and offshore tax havens. The OECD initiative has met considerable resistance and in some ways has fallen short of its goals. Nevertheless, this paper will argue that it has been a worthwhile effort and has achieved some measure of success. The paper will then go on to outline some future directions for the project.

Back To The Future? The Potential Revival Of Territoriality, Reuven S. Avi-Yonah

Law & Economics Working Papers Archive: 2003-2009

Until 1993, the United States led the rest of the developed world in strengthening residence-based world-wide corporate and individual income taxation. However, since 1994 this trend seems to have been reversed, at least in part, and similar developments are taking place overseas (e.g., in France and the UK). Thus, there seems to be a trend to reduce the scope of residence jurisdiction, while increasing the emphasis on source jurisdiction. If this trend continues, it seems likely that both traditional territorial countries like France and traditional world-wide countries like to UK and the US would move toward territoriality and decrease emphasis …

The Rise And Fall Of Arm's Length: A Study In The Evolution Of U.S. International Taxation, Reuven S. Avi-Yonah

Law & Economics Working Papers Archive: 2003-2009

A revised and updated version of the 1995 article (Va. Tax Review) on the evolution of US transfer pricing rules.

The Application Of Tax Treaties To Investment Funds, Niccolo Pallesi

ExpressO

Among financial investors, investment funds are the ones that mostly have increased their importance in capital markets where the regulation on investment funds is still incipient. By using investment funds, individual investors can have the possibility to participate in various companies as well as in market places worldwide without the need of specific and elaborated knowledge of the same companies and markets. After an introductory chapter I start analyzing the definition and activity of an investment fund, attention is also paid to the UCITS regulation for European investment funds. In the next chapter I analyze how investment funds are taxed …

Tax Competition, Tax Arbitrage, And The Internation Tax Regime, Reuven S. Avi-Yonah

Law & Economics Working Papers Archive: 2003-2009

This paper argues that a coherent international tax regime exists, embodied in both the tax treaty network and in domestic laws, and that it forms a significant part of international law (both treaty-based and customary). The practical implication is that countries are not free to adopt any international tax rules they please, but rather operate in the context of the regime, which changes in the same ways international law changes over time. Thus, unilateral action is possible, but is also restricted, and countries are generally reluctant to take unilateral actions that violate the basic norms that underlie the regime. Those …

A Complete Property Right Amendment, John H. Ryskamp

ExpressO

The trend of the eminent domain reform and "Kelo plus" initiatives is toward a comprehensive Constitutional property right incorporating the elements of level of review, nature of government action, and extent of compensation. This article contains a draft amendment which reflects these concerns.

The Case For Residency-Based Taxation Of Financial Transactions In Developing Countries, Yoram Keinan

ExpressO

This paper will endorse adoption of residency-based taxation for financial transactions by developing countries. The paper will focus on the following three tax aspects of cross –border financial transactions: (i) taxation of interest, dividends and capital gains earned by nonresidents; (ii) taxation of cross-border derivatives; and (iii) taxation of non-residents trading in securities in the developing country. The paper will use models contained in several countries, including the United States and Israel, to illustrate and support the proposed regime. The conclusions advanced are that to sustain economic growth, developing countries should adopt residency-based taxation for financial transactions, which would allow …

Tribal-State Gaming Compacts And Revenue Sharing Provisions: Are The States Upping The Ante? , Richard L. Skeen

ExpressO

In the ten years following, the Supreme Court’s ruling in the Seminole Tribe v. Florida, Indian Gaming has grown to over a $19 billion a year industry, in 26 States, involving over 241 Approved Class III Tribal Gaming Ordinances. States have been eager to get a piece of this ever-increasing pie. Some commentators have predicted that States will be reluctant to enter into new compacts or renew existing compacts, however, other’s have indicated that States will continue to demand a percentages of Gaming revenues.

This comment addresses the central issue of whether the Tribal-State compacts entered into subsequent to the …

Harnessing The Costs Of International Tax Arbitrage, Adam H. Rosenzweig

ExpressO

The issue of international tax arbitrage has proven a difficult and at times intractable one. Rather than try to minimize costs of the arbitrage or prevent “abuse” of the laws of a particular regime, the United States should also consider affirmatively bearing some of the costs of international tax arbitrage to further the policy of international vertical equity and transform the incentives that led to the current worldwide non-cooperative equilibrium, and thus the rise of international tax arbitrage, in the first place.

Harnessing the costs of international tax arbitrage transactions will not always be the appropriate response to each particular …

Five Recommendations To Law Schools Offering Legal Instruction Over The Internet, Daniel C. Powell

ExpressO

This article addresses the emerging market for legal distance education. The market is being driven by recent changes in ABA regulations, as well as specialization in the curriculum, and expanding costs of traditional education. We are seeing the emergence of legal distance education consortiums, which offer a platform for the trading or selling of courses and programs.

However, much skepticism remains about the ability of distance education technology to offer law schools and law students a sufficiently interactive pedagogy. In the words of Supreme Court Justice Ruth Bader Ginsburg legal education is a “shared enterprise, a genuine interactive endeavor” that …

Finding New Constitutional Rights Through The Supreme Court’S Evolving “Government Purpose” Test Under Minimum Scrutiny, John H. Ryskamp

ExpressO

By now we all are familiar with the litany of cases which refused to find elevated scrutiny for so-called “affirmative” or “social” rights such as education, welfare or housing: Lindsey v. Normet, San Antonio School District v. Rodriguez, Dandridge v. Williams, DeShaney v. Winnebago County. There didn’t seem to be anything in minimum scrutiny which could protect such facts as education or housing, from government action. However, unobtrusively and over the years, the Supreme Court has clarified and articulated one aspect of minimum scrutiny which holds promise for vindicating facts. You will recall that under minimum scrutiny government’s action is …

Finding The Constitutional Right To Education In San Antonio School District V. Rodriguez, John H. Ryskamp

ExpressO

In Lawrence v. Texas, the Supreme Court abolished the scrutiny regime because it impermissibly interfered with an important fact, liberty. And yet, even in earlier cases which ostensibly upheld the scrutiny regime, it is difficult to see that the Court ever did so to the detriment of facts it considered important. In short, the Court often (always?) found itself raising the level of scrutiny for a fact in the same case it upheld the regime, leaving us to wonder if the scrutiny regime ever actually had any effect at all, or even whether the Court felt it was relevant. As …

The Transfer Pricing Problem: A Proposal For Simplification., Eduardo A. Baistrocchi

ExpressO

This Article focuses on the problem of transfer pricing from an international taxation perspective. It elaborates two major points using game theory as a theoretical framework. First, it argues that both developed and developing countries are facing the same fundamental problem in the transfer pricing arena; the meaning of the arm’s length standard (ALS) is increasingly unknowable because of the absence of transfer pricing case law with public good features. Second, this Article proposes a solution to the transfer pricing problem within the ALS framework. The proposal consists of a procedural, rather than a substantive, system in which multilateral advance …

Constitutional Limits On State Taxation Of Nonresident Trusts: Gavin Misinterprets And Misapplies Both Quill And Mcculloch, Joseph W. Blackburn

ExpressO

No abstract provided.

The Option Conundrum In Tax Law: After All These Years, What Exactly Is An Option?, Kevin J. Liss

ExpressO

Some of the latest financial products that have become prevalent on Wall Street defy easy categorization for tax purposes. Certain products, such as economic derivatives or weather derivatives, bear the trappings of options, but lack an underlying property component. Other products, such as credit default swaps, have option-type payouts, but are cast in the form of financial swaps. Which of these products are truly options and why? When and how to tax these instruments depends on proper resolution of this fundamental classification issue. With respect to credit default swaps, arguably the single most important product innovation on Wall Street in …

The Dual Purpose Of The American Jobs Creation Act Of 2004, Dennis J. Kokenos

ExpressO

The American Jobs Creation Act of 2004 claims to help bring offshore investments back to the United States. In reality, the AJCA does much more. The AJCA of 2004 makes adjustments to the U.S. tax code which helps bring the U.S. in line with existing international trade obligations as well as stimulating the U.S economy.

Breaking The Bank: Revisiting Central Bank Of Denver After Enron And Sarbanes-Oxley, Celia Taylor

ExpressO

No abstract provided.

A Foundation For International Taxation: The Institutional Competence Of Nations, Eric T. Laity

ExpressO

This Article proposes a conceptual foundation for the field of international tax law. The Article refers to this foundation as the institutional competence of nations in global economic development. A nation’s institutional competence is its discretion to make decisions in pursuit of our collective goal of global economic development, discretion that is subject to a number of standards and limitations.

The Article constructs the institutional competence of nations in global economic development from institutional economics, simple game theory, and the literature on social norms. The Article expresses the institutional competence of nations through standards and limitations that reduce the abuse …

The Abolition Of Wealth Transfer Taxes: Lessons From Canada, Australia, And New Zealand, David G. Duff

ExpressO

When the United States acted to phase-out its estate tax by 2010, it joined a small but growing group of countries which have also repealed their wealth transfer taxes. In Canada, federal gift and estate taxes were repealed in 1972 and provincial wealth transfer taxes were abolished in the 1970s and 1980s. In Australia, State and Commonwealth wealth transfer taxes were repealed in the late 1970s and early 1980s. New Zealand followed suit in the 1990s, reducing estate tax rates to zero in 1992 and repealing the tax in 1999.

This paper reviews the abolition of wealth transfer taxes in …

Tax Havens And Public International Law: The Case Of The Netherlands Antilles, Georges A. Cavalier

ExpressO

This paper identifies changes to tax havens’ legislation as a result of pressure from rich countries exercised through the OECD. It focuses on the specific situation of the Netherlands Antilles. The paper analyzes the response given by the Netherlands Antilles to the international community through the modification of its tax agreement with the mother country in Europe, and considers whether this is a solution for adoption by other tax havens. The paper then argues that such a model is not appropriate for use in a small economy which cannot rely on a supportive mother country nor on tourism as an …

Taxation Of Spin-Off – U.S. And German Corporate Tax Law, Stefan W. Suchan

Cornell Law School J.D. Student Research Papers

Corporate law provides for a transaction commonly referred to as “spin-off”. The corporate enterprise is divided in (at least) two corporations. The stock of a controlled subsidiary will be distributed pro rata by a parent corporation to its shareholders which end up owning a brother/sister pair of corporate enterprises.

The Internal Revenue Code (IRC) in § 355 provides special rules for the distribution of stock and securities of a controlled corporation. The transaction is known as a “D reorganization”, if such a distribution follows the transfer by a corporation of all or a part of its assets to another corporation, …

International Tax As International Law, Reuven S. Avi-Yonah

Law & Economics Working Papers Archive: 2003-2009

The purpose of this article is to introduce to the international lawyer the somewhat different set of categories (e.g., residence and source rather than nationality and territoriality) employed by international tax lawyers, and explain the reasons for some of the differences. At the same time, it attempts to persuade practicing international tax lawyers and international tax academics that their field is indeed part of international law, and that it would help them to think of it this way. For example, knowledge of the Vienna Convention on the Law of Treaties would help international tax lawyers in interpreting tax treaties, and …

A Broader View Of Corporate Inversions: The Interplay Of Tax, Corporate And Economic Implications, Orsolya Kun

ExpressO

Multinational corporations have, in substantial numbers, moved their corporate residence from the U.S. to Bermuda, for the purpuse of minimizing U.S. taxation on their worldwide income. This study reviews the forms of these "corporate inversion transactions," and explores their tax implications, as well as their corporate governance implications and motivations. It is the first scholarly study to examine the corporate governance implications of inversions, and it concludes that previously unexplored aspects of the change of corporate domicile result in substantial reduction of accountability of directors and officers and significant impediments to enforcement of shareholder rights.