VOLUME 11 • COLUMNS
RETHINKING TAX FOR THE DIGITAL ECONOMY AFTER COVID-19
Tarcísio Diniz Magalhães and Allison Christians1Dr. Tarcísio Diniz Magalhães, Professor of Tax Law, University of Antwerp Faculty of Law; Allison Christians, H. Heward Stikeman Chair in the Law of Taxation, McGill University Faculty of Law. Thanks to Jodie Côté-Marshall for research assistance, to the participants in the “Indiana/Leeds Summer Tax Workshop Series” (July 2, 2020) at Indiana University Bloomington Maurer School of Law/University of Leeds School of Law, the Brazilian Study Group on International Tax (GETI) (July 16, 2020), the “Purdy Crawford Business Law Workshop: Business Regulation and the Digital Economy” (Sep. 25–26, 2020) at Dalhousie University Schulich School of Law, the Brazilian Institute of Tax Law (IBDT) (Apr. 15, 2021), as well as to Stephen Shay and Christine Kim for reviewing a prior draft and this journal’s editors. This research is supported by grants from the Ford Foundation and the Social Sciences and Humanities Research Council (SSHRC) of Canada.
Before COVID-19 arrived, policymakers from around the world were busy working on the makings of a new global tax consensus to reflect structural changes in the world economy as a result of the rise of digitalization. The pandemic disrupted this process by delivering a shock that resulted in major contractions for most firms even as it created enormous windfalls for others, prompting some to call for excess profits taxes, usually associated with wartime economies, as a corrective. But an excess profit or windfall tax designed during the world war period is not effective in today’s globalized and digitalized economy. To address effectively the fiscal crisis and tackle the challenges of the digital economy in a sustainable way, the world needs a “global excess profits tax”—a GEP tax. This article demonstrates that the vocabulary, the technical tools, and the political determination that were being built for the digital economy can and should be adapted to formulate a GEP tax. We establish the core elements of such a tax and demonstrate its compatibility with currently evolving thinking about how to tax highly digitalized firms.
VOLUME 7 • ISSUE 1 • PRINT
THE STATE ADMINISTRATION OF INTERNATIONAL TAX AVOIDANCE
Omri Marian
This Article documents a process in which a national tax administration in one jurisdiction is consciously and systematically assisting taxpayers to avoid taxes in other jurisdictions. The aiding tax administration collects a small amount of tax from the aided taxpayers. Such tax is functionally structured as a fee paid for government-provided tax avoidance services. Such behavior can be, and probably is, easily copied by other tax administrations. The implications are profound. On the normative front, the findings should fundamentally change our conceptual understanding of international tax competition. Tax competition is generally understood to be the adoption of low tax rates in order to attract investments into the jurisdiction. Instead, this Article identifies an intentional “beggar thy neighbor” behavior, aimed at attracting revenue generated by successful investments in other jurisdictions, without attracting actual investments. The result is a distorted competitive environment in which revenue is denied from jurisdictions the infrastructure and workforce of which support economically productive activity. On the practical front, the findings suggest that internationally coordinated efforts to combat tax avoidance are missing an important part of the tax avoidance landscape. Current efforts are largely aimed at curtailing aggressive taxpayer behavior. Instead, this Article proposes that the focus of such efforts should be on curtailing certain rogue practices adopted by national tax administrations.
VOLUME 7 • COLUMNS
WHEN THE IRS PREFERS NOT TO: WHY DISPARATE REGULATORY APPROACHES TO SIMILAR DERIVATIVE TRANSACTIONS HURTS TAX LAW
Leon Dalezman and Philip Lenertz (June 3, 2017)
This Article examines decisions made by the Internal Revenue Service on whether to promulgate regulations pursuant to three different but related provisions of the Internal Revenue Code: sections 1259, 1260, and 871(m). This Article concludes that when there is a statutory imperative to regulate, the use of softer methods—methods other than issuing new regulations, such as creating listed transactions—has a negative effect on tax law, slowing its evolution. While clear regulatory lines almost always invite new forms of tax planning, this Article argues that this is better than a regime where legitimate tax planners are unfairly faced with uncertainty and where enforcement against egregious abuse is often less than forthcoming.
VOLUME 6 • ISSUE 2 • PRINT
EVALUATION BEPS: A RECONSIDERATION OF THE BENEFITS PRINCIPLE AND PROPOSAL FOR UN OVERSIGHT
Reuven S. Avi-Yonah & Haiyan Xu
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 reduce tax evasion and tax avoidance globally. Although these efforts were well-intended, this Article argues that the tax policy response to the Financial Crisis and Great Recession has ultimately been inadequate. The problem, which is discussed in-depth in the sections that follow, is the benefits principle.
VOLUME 6 • ISSUE 2 • PRINT
TAMING THE DRAGON: DRAWING LINES — A CASE STUDY ON FOREIGN HEDGE FUND LENDING TO U.S BORROWERS AND TRANSACTING IN U.S. DEBT SECURITIES
Julie A.D. Manasfi
Legislators, judges, and administrative agencies often have to distinguish between similar transactions for tax purposes. To help, Congress has drawn some lines via certain categories. These categories, or “cubbyholes,” raise “line drawing” issues of whether seemingly similar benefits qualify as taxable under specific categories. One line drawing area where the stakes are high is in the taxation of foreign persons lending money to U.S. borrowers and transacting in U.S. debt securities. The relevant category that determines federal income tax consequences to those transactions is whether persons are “engaged in a U.S. trade or business.” The stakes are high in these situations because of the legal uncertainty in these transactions, which may create interconnectedness and credit channels, increase systemic risk, and make our system more fragile.
VOLUME 3 • COLUMNS
TOWARD AN ECONOMIC MODEL FOR THE TAXATION OF DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS
David S. Miller
On January 24, the Chairman of the House Ways and Means Committee, released the discussion draft of a bill that would tax derivatives under a mark-to-market system of taxation. This proposal would replace our entire federal system of taxing derivatives with a radically different but infinitely simpler model that would finally correspond to economic reality.
VOLUME 1 • COLUMNS
IS THE “TAX POISON PILL” THE LAST STAND FOR PROTECTING NOLS AFTER HEALTH CARE REFORM?
Michael R. Patrone
The Delaware Court of Chancery’s recent Selectica opinion garnered substantial attention, but the court’s decision upholding the tax poison pill may be of even greater importance with the passage of the Health Care and Education Reconciliation Act of 2010 (H.R. 4872)—less than a month after Vice-Chancellor Noble issued his opinion. During the global economic recession, many companies accrued substantial tax losses that can be carried forward for up to twenty years and used to offset future income for federal tax purposes, called net operating loss carryforwards (“NOLs”). These valuable tax assets will provide substantial financial benefits for companies down the road but are vulnerable to spoilage from significant changes in company ownership.