Prof. Laurens van Apeldoorn of the University of Leiden will present a working paper at McGill, hosted by the Centre for Human Rights and Legal Pluralism at McGill Law and the Stikeman Chair in Tax Law (me). Here is the abstract:
Exploitation in global supply chains impacts prices that in turn bear on the allocation of corporate income tax revenue to jurisdictions where multinational enterprises transact. This presentation will develop a concept of exploitation based on the violation of the right to a living wage, put this in the context of discussions of transfer mispricing in multinational enterprises, and consider the economic dimension of the allocation of corporate income tax revenue in relation to public goods provisions in low-income countries where exploitation occurs.Prof. Van Apeldoorn is currently visiting McGill’s Centre for Human Rights and Legal Pluralism as an O’Brien Fellow in Residence (Sept-Dec 2017). He is Assistant Professor of Philosophy and a member of the Centre for Political Philosophy at Leiden University, where his research broadly focuses on the nature and prospects of the sovereign state and more recently considers the principles of international taxation in relation to global justice. As some readers will no doubt be aware, Laurens' presentation connects to collaborative work he and I are undertaking that probes the meaning and significance of taxing income "where value is created," working paper forthcoming.
The talk will be held from 1pm to 12:30 with lunch being served beginning at 12:30, in Chancellor Day Hall, Stephen Scott Seminar Room (OCDH 16), 3644 rue Peel, Montreal, Quebec. This event is free and open to all.
Tagged as: justice McGill scholarship sovereignty tax policy transfer pricing
This event is free and open to the public.
Tagged as: conference history McGill Tax law
If you are an IFA member or are attending IFA this fall, you can now download the full IFA 2017 Cahiers. The general report for Subject 1 on BEPS is co-authored by myself and Stephen Shay and is also available on SSRN. Here is the abstract:
The G20/OECD’s multi-year campaign to combat base erosion and profit shifting (BEPS) marks a critical step in the evolution of the international tax regime and the roles of institutions that guide it. This General Report for Subject 1, IFA Congress 2017, provides a snapshot of the outcomes of the BEPS project by comparing national responses to key mandates, recommendations and best practices through the end of October, 2016 based on National Reports representing the perspectives of 48 countries. These National Reports reveal that the impact of the BEPS initiative on a particular country corresponds to at least three key factors, namely: (1) the extent to which domestic law is already in substantial compliance with BEPS outcomes; (2) the degree to which implementation of BEPS outcomes appears capable of delivering positive revenue or economic results, or both, relative to a country’s experiences and perceptions prior to BEPS; and (3) the type and degree of involvement of a country in the formative stages of the initiative preceding the release of the final BEPS action plans. As BEPS continues to unfold, it is difficult to gauge the full extent to which countries in fact will adhere or defect from the rules. However, the BEPS project has witnessed the transition of global tax governance from the OECD countries exclusively to global fora. This leaves open questions regarding agenda-setting for international tax policy going forward. As we conclude this interim snapshot of the origins, standards, and responses to BEPS to date, we look to future IFA congresses for answers to these questions and a final assessment of the BEPS project.
Tagged as: BEPS OECD research scholarship tax policy
Kluwer law has recently published Tax Sovereignty in the BEPS Era, a collection of contributions I co-edited with Sergio Rocha, in which we and a slate of authors from a range of countries explore the impact of the BEPS initiative on "tax sovereignty"--which I take to mean the autonomy that nations seek to exercise over tax policy. Here is the description:
Tax Sovereignty in the BEPS Era focuses on how national tax sovereignty has been impacted by recent developments in international taxation, notably following the OECD/G-20 Base Erosion and Profit Shifting (BEPS) Project. The power of a country to freely design its tax system is generally understood to be an integral feature of sovereignty. However, as an inevitable result of globalization and income mobility, one country’s exercise of tax sovereignty often overlaps, interferes with or even impedes that of another. In this collection of chapters, internationally respected practitioners and academics reveal how the OECD’s BEPS initiative, although a major step in the right direction, is insufficient in resolving the tax sovereignty paradox. Each contribution deals with different facets of a single topic: How tax sovereignty is shaped in a post-BEPS world.And here is the table of contents:
Part I The Essential Paradox of Tax SovereigntyAnd finally, here is a brief description:
- CH 1: BEPS and the Power to Tax, Allison Christians
- CH 2: Tax Sovereignty and Digital Economy in Post-BEPS Times, Ramon Tomazela Santos & Sergio André Rocha
- CH 3: Justification and Implementation of the International Allocation of Taxing Rights: Can We Take One Thing at a Time?, Luís Eduardo Schoueri & Ricardo André Galendi Júnior
- CH 4: An Essay on BEPS, Sovereignty, and Taxation, Yariv Brauner
Part II Challenge to the Foundational Principles of Source and Residence
- CH 5: Evaluating BEPS, Reuven S. Avi-Yonah & Haiyan Xu
- CH 6: Jurisdictional Excesses in BEPS’ Times: National Appropriation of an Enhanced Global Tax Basis, Guillermo O. Teijeiro
- CH 7: Taxing the Consumption of Digital Goods, Aleksandra Bal
Part III Acceptance and Implementation of Consensus by Differently-Situated States
- CH 8: The Birth of a New International Tax Framework and the Role of Developing Countries, Natalia Quiñones
- CH 9: The Other Side of BEPS: “Imperial Taxation” and “International Tax Imperialism”, Sergio André Rocha
- CH 10: Country-by-Country Over-Reporting? National Sovereignty, International Tax Transparency, and the Inclusive Framework on BEPS, Romero J.S. Tavares
- CH 11; How Are We Doing with BEPS Recommendations in the EU?, Tomas Balco & Xeniya Yeroshenko
- CH 12: U.S. Tax Sovereignty and the BEPS Project, Tracy A. Kaye
The book unfolds in three parts. The first, The Essential Paradox of Tax Sovereignty, features four chapters.
- In chapter 1, Christians introduces the topic by demonstrating how BEPS arose from the paradox of tax sovereignty and analyzing why multilateral cooperation and soft law consensus became the preferred solutions to a loss of autonomy over national tax policy. The chapter concludes that without meaningful multilateralism in the development of global tax norms, the paradox of tax sovereignty will necessarily continue and worsen, preventing resolution of identified problems for the foreseeable future.
- Tomazela &; Rocha pick up this thread in chapter 2, where they demonstrate that BEPS addresses the symptoms, but not the problems, of the sovereignty paradox. In their view, the central defining problem of this paradox is an ill-defined jurisdiction concept. The chapter demonstrates why tax policymakers need to change the conventional wisdom on sovereignty in order to incorporate new nexus connections due to the changing nature of trade and commerce.
- In chapter 3, Schoueri & Galendi further the inquiry by providing a detailed analysis of the interaction of contemporary cooperation efforts with the sovereignty of states in light of historical claims in economic allegiance, economic neutrality and now cooperation against abusive behaviour.
- Brauner rounds out this first part in chapter 4, which establishes the evolution of the concept of tax sovereignty. The chapter proposes an instrumental role for sovereignty in the process of improving cooperation and coordination of tax policies among productive (non-tax haven) countries, to balance claims and serve as a safeguard against political (in this case international) chaos. Brauner concludes that such a change to the business of international tax law would ensure at least an opportunity for all participants to succeed on their own terms.
Part Two of the book, Challenge to the Foundational Principles of Source and Residence, takes an in depth look at why residence and source continue to be the two essential building blocks of tax sovereignty and the backbone of the international tax system, surviving BEPS but still subject to multiple challenges in theory and practice.
- In chapter 5, Avi-Yonah & Xu argue that BEPS simply cannot succeed in solving the sovereignty paradox because BEPS follows the flawed theory of the benefits principle in assigning the jurisdiction to tax. Avi-Yonah and Xu therefore make a compelling argument that for the international tax regime to flourish in the face of sovereign and autonomous states, countries must commit to full residence-based taxation of active income with a foreign tax credit granted for source-based taxation.
- In chapter 6, Tejeiro continues the analysis of the fundamental jurisdictional building blocks, demonstrating that by resorting to legal fictions within BEPS and beyond it, states are attempting to enlarge the scope of their personal or economic nexus, or to grasp taxable events and bases beyond their proper reach under well-settled international law rules and principles.
- Bal furthers the discussion in chapter 7, with an analysis of how digital commerce has upended traditional notions of source and residence. Bal advocates the consumer's usual residence as a good approximation of the place of actual consumption and therefore the best-justified place of taxation.
Part Three of the book, Acceptance and Implementation by Differently-Situated States, considers tax sovereignty after BEPS from a range of perspectives. Chapters 8 through 10 focus on perspectives from lower income or developing countries, while chapters 11 and 12 review the landscape from the perspective of Europe and the United States, respectively.
- In chapter 8, Quinones explores how developing countries might take advantage of the new international tax architecture, developed for purposes of coordinating the BEPS action plans, to ensure that their voices are truly shaping the standards. She argues that the knowledge gap between developing and developed is getting narrower instead of wider, with major negative impacts expected for the international tax order.
- Rocha continues this discussion in chapter 9, with a proposal: instead of simply accepting the BEPS Project’s recommendations and their reliance on historical decisions about what constitutes a country’s “fair share of tax”, developing countries should join in the formation of a Developing Countries’ International Tax Regime to focus discourse on the rightful limits of states’ taxing powers.
- Furthering the theme of autonomous priority-setting, in chapter 10 Tavares focuses in on a key part of the BEPS consensus, exploring whether implementing the CBCR standard, without a deeper transfer pricing reform, should be viewed as a priority in every country. He further questions whether this particular initiative, even if important, is worthy of mobilization of the scarce resources of developing countries. Tavares concludes with an incisive review of the role of the inclusive framework in prioritizing some needs over others.
- Balco & Yeroshenko then consider BEPS implementation from the very different perspective of the EU in chapter 11. The chapter demonstrates that even within the EU, BEPS implementation is not straightforward, as the interests of member states sometimes conflict and the basic notion of tax sovereignty remains fundamental even while tax coordination and harmonization across the EU expands. However, the authors note that the progress made in the last several years on key cooperation norms, which was largely inspired by BEPS, has been unprecedented.
- Finally, Kaye provides a capstone to the book in chapter 12, where she makes the convincing case that although some in the United States saw the BEPS Project as a threat to US tax sovereignty, this project was in fact necessary in order for the United States to effectively wield its tax sovereignty. Kaye’s chapter thus ends the book with a clear picture of the ongoing paradox of tax sovereignty in the world after BEPS.
Tagged as: BEPS scholarship sovereignty tax competition tax policy
This Article examines international law limitations on the ascription of citizenship in the context of U.S. taxation of non-resident citizens. U.S. citizenship practice is exceptionally generous, extending citizenship to almost all persons in its territory at the moment of birth. At the same time that it is generous at the front end, U.S. citizenship is sticky at the back. Termination of citizenship on the individual’s part involves substantial fees and tax compliance. It is difficult to shed a citizenship one may never have wanted in the first place.
This stickiness would be inconsequential if few costs were associated with the status. But the United States taxes its citizens on a worldwide basis. The 2010 enactment of the Foreign Account Tax Compliance Act has ramped up historically lax enforcement and imposes substantial administrative burdens on even middle-earner citizens abroad.
In this frame, U.S. birthright citizenship and expatriation regimes may violate international norms, especially with respect to those "accidental Americans" who departed the United States as children. Even in the context of extremely relaxed historical constraints on state nationality practice, there were acknowledged nineteenth century limitations on the extension of citizenship to individuals with insufficient connection to a state -- citizenship over-claiming, as it were. The article also describes the historical requirement that naturalization be volitional, a norm now appropriately applied in some cases in the context of birthright citizenship.
To the extent the ascription of U.S. citizenship compromises individual rights, there are tax fixes and there are citizenship fixes. Citizenship fixes include opt-in and opt-out mechanisms for birthright citizenship. The better solution may lie in frictionless exit for those with nominal ties to the national community. Though reform is more likely to be accomplished through the tax regime, the moment highlights the over-inclusiveness of U.S. citizenship and the growing salience of international law to citizenship practices.I'm less confident than Peter that reform will ever be delivered through the tax regime, but I am very glad to see this important contribution to the growing literature focusing on the citizenship/taxation link.
States have complex and often conflicted attitudes toward migration and citizenship. These attitudes are not always directly expressed by lawmakers, but they may be reflected quite explicitly in tax regimes: for the world’s most prosperous individuals and their families, multiple states extend a warm welcome. Sometimes prospective migrants are offered fast track to physical residence which can lead to citizenship if the migrant desires it. Others are offered a mere commercial transaction, with citizenship granted to applicants with the right credentials and a willingness to pay. Migrants might seek to obtain residency or citizenship for personal, family, economic, or tax reasons, or some combination of them. For the granting country, the tax significance of obtaining new residents or citizens will vary depending on domestic policy goals. However, the consequences of residence and citizenship by investment programs could be severe for the international tax regime: the jurisdiction to tax and the allocation of taxing rights among countries are commonly based on residence and citizenship factors. This article accordingly surveys contemporary residence and citizenship by investment programs on offer around the world and analyzes their potential impact on international tax policy.
* update: I've found a couple of additional programs (e.g. France has a lower cost program, making it less of an outlier)--thank you twitterverse) and I've corrected a few currency conversion errors. This is still a work in progress as previously noted, and I expect to be revising again in the coming weeks.
I've been working on residence and citizenship by investment programs, and thanks to some stellar research assistance by Jake Heyka, have developed a set of data comprising what I believe is a fairly thorough look at the residence and citizenship by investment programs currently on offer around the world. I made the above infographic to show the lowest cost program per country for all countries that offer either residence or citizenship by investment.
The lowest cost residence by investment programs are offered by Panama and Paraguay, each coming in at about USD$5,000, while the most expensive is
One of the things I wondered about in looking over the programs is the inequality factor at play--that is, how much can richer/larger countries demand in terms of higher prices and more stringent requirements (such as actual residence) for entry, and how much must poorer/smaller countries be satisfied with smaller investments and fewer commitments by the applicant? The answer seems to be that there appears definitely a "rich get richer" quality to the distinctions among programs, but there are lots of details in the programs that require further thought.
The paper itself is still in progress but here is an explanation of what I am looking at:
International law and political theory scholars have long wrestled with the normative implications of commodifying citizenship and access to immigration with pay-to-play visa programs, but the analysis does not typically consider the role the tax system plays or could play in these schemes, nor how such schemes might impact the tax regime in terms of gross revenue or distributional effect. Yet governments increasingly view their tax systems as a means of potentially increasing the value of residence and citizenship in their countries, whether intrinsically or in relation to the treatment of those who gain such status by other means. Given the cost involved in reducing revenue from those arguably most able to pay, whether the programs actually produce the predicted outcomes is one obvious question to be asked. Even if the programs in fact achieve their goals, a second question surely arises regarding the normative justification for using the tax system to lure the wealthy away from other countries in this manner. Does the normative case differ when applied to humans as opposed to companies? Does it differ when the luring state is richer or poorer relative to the countries of origin of prospective immigrants? To sketch out a framework for analyzing these questions requires a sense of the various competing programs on offer. This essay takes the first step by comparing national programs that use their taxing power in some manner in order to attract immigration, and highlights some of the factors that raise normative questions about the appropriate design and uses of a tax system.Comments welcome.
Tagged as: migration research tax policy
Last fall I via twitter I shouted out two of my students who won the Tax Analysts Student Writing Competition, in the international category:
I posted about the first paper long ago but I inadvertently neglected to post the second. Correcting that oversight, here it is, available at Tax Analysts: A World Tax Court: The Solution to Tax Treaty Arbitration, by Jake Heyka. Here is the brief abstract by TA:Very proud that two of my students @LAWMcGill won this year: @montano_cabezas (2015) and @Heyka14 (2017) https://t.co/XjWV2A66Cj— Allison Christians (@taxpolblog) July 11, 2016
Jake Heyka examines tax treaty arbitration standards while demonstrating that as a matter of fundamental justice, arbitration should be revamped. He proposes the creation of a world tax court.Heyka begins by observing that "[t]he institution of international tax treaty arbitration (ITTA) is hotly debated in international business and tax law. While the process is helpful because it pressures governments to resolve contested tax decisions, opponents have called it 'secret and evil.'"
He then makes the provocative observation that "the use of ITTA ultimately frustrates the resolution of tax disputes and should be supplanted by a world tax court." In support of his proposal, Heyka lays out the history and critique of tax treaty arbitration (including by me) and concludes:
Standardizing ITTA will create some procedural certainty but does not guarantee consistent use of those procedures, allow the public to see whether the process is fair, or establish reliable precedent. As Lindencrona and Mattson suggested over 30 years ago, ITTA should be a stepping stone to what the world ultimately needs: a world tax court.
As radical as it may seem, the idea is not far-fetched. World courts exist in many commercial and noncommercial contexts, and those that deal with money rather than crime are followed by many countries and used quite often. Moreover, state authority is regularly ceded to resolve disputes between commercial parties in arbitration courts such as the Permanent Court of Arbitration in The Hague, the London Court of International Arbitration, and many other arbitration institutes. A world tax court would merely serve as a place to resolve tax disputes in a similar manner while sustaining the public nature of tax law.While I am late to post it, Heyka's article remains timely as the inclusion of arbitration in the recently released MLI is sure to keep the issue front and center in international tax discourse. Congrats Jake, and sorry for the delay in posting your accomplishment.
My own view is that a switch to deductibility would increases pressure on capital importing countries to reduce their source-based taxes (a deduction does not fully offset the foreign tax, so it would make such taxes more costly to US firms as compared to fully creditable foreign taxes), and therefore transfer revenues from poor to rich countries. Deferral already places tremendous tax competition pressure on host countries, while ending it might enable some countries (to which US capital is a major source of inbound investment) to increase their source-based taxation (as explained in this paper). Therefore I was happy to see this FP&S paper give additional support to the beleaguered tax credit while still recognizing that there is such a thing as giving too much credit.
I was also intrigued to see FP&S begin their paper by picking up Reuven Avi-Yonah's premise that taxation on the basis of residence and source is customary international law. That is not only a relatively unusual argument to find in a US-authorized tax paper, but it is a potentially controversial perspective, which I am exploring in a paper of my own (making the international law case against citizenship based taxation). So, thank you Fleming, Peroni and Shay, for the additional citation support for my arguments.
It is also worth noting that FP&S include in this paper a defense of the corporate income tax in the form of footnote 200, which spans more than a page in tiny but useful print. It summarizes the main points regarding why corporate tax is necessary as a backstop to individual income taxation, citing to the main arguments for and against, thus serving as a valuable micro treatise on the subject.
Finally, I note that FP&S only give the FTC two cheers instead of three because they feel that it conflicts with the principle of ability to pay, an argument I have not seen before and that gives me pause. Their argument is that foreign taxes are a cost to individuals attendant to investing abroad, and that crediting these taxes is too generous from the perspective of fairness, that a deduction would sufficiently account for the cost in terms of measuring ability to pay. I can understand that argument where the FTC is itself too generous, allowing cross-crediting and not restricting its application to double taxation. But I do not understand that argument applied to an FTC that restricts itself to a dollar for dollar credit of actual taxes paid, which I believe is the argument being advanced here. That's something to think about a little more.
In any event, abstract below and paper at the link above. Well worth a read.
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; that is, a nondeferred U.S. tax is imposed on all foreign income of U.S. residents at the time the income is earned. However, this approach is not acceptable 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 the U.S. levy on the taxpayer’s foreign income. Indeed, the foreign tax credit is an essential element of the case for worldwide taxation. Moreover, territorial systems often apply worldwide taxation with a foreign tax credit to all income of resident individuals as well as the passive income and tax haven income of resident corporations. Thus, the foreign tax credit also is an important feature of many territorial systems. The foreign tax credit has been subjected to sharp criticisms though, and Professor Daniel Shaviro has recently proposed replacing the credit with a combination of a deduction for foreign taxes and a reduced U.S. tax rate on foreign income.
In this Article, we respond to the criticisms and argue that the foreign tax credit is a robust and effective device. Furthermore, we respectfully explain why Professor Shaviro’s proposal is not an adequate substitute. We also explore an overlooked aspect of the foreign tax credit—its role as an allocator of the international tax base between residence and source countries—and we explain the credit’s effectiveness in carrying out this role. Nevertheless, we point out that the credit merits only two cheers because it goes beyond the requirements of the ability-to-pay principle that underlies use of an income base for imposing tax (instead of a consumption base). Ultimately, the credit is the preferred approach for mitigating international double taxation of income.
Further to my last post on the newly released Tax Gap study by the Canada Revenue Agency, the following comes from guest blogger Iain Campbell (ARC, UK):
Tagged as: Canada tax gap tax policy
I'm in Oxford today for the Said Business School's annual summer conference, staying for the academic conference the remainder of the week. Here is today's program; see comments on twitter with #ct21
The need for reform, and current policy proposals
Michael Devereux, Oxford University Centre for Business Taxation
Welcome and introduction
Chair: John Vella, Oxford University Centre for Business Taxation
Michael Graetz, Columbia University and Yale University
The need for reform
Michael Devereux, Oxford University Centre for Business Taxation
Principles for reform
Wolfgang Schön, Max Planck Institute for Tax Law and Public Finance, Munich
Reforms on the current political agenda
Reuven Avi-Yonah, University of Michigan
Valeska Gronert, European Commission
Residual Profit Allocation Proposal
Chair: Wolfgang Schön, Max Planck Institute for Tax Law and Public Finance, Munich
Paul Oosterhuis, Skadden Arps LLP
Michael Keen, International Monetary Fund
Jennifer Blouin, Wharton Business School, University of Pennsylvania
Steve Edge, Slaughter and May
Destination Based Cash Flow Tax Proposal, and developing countries
Chair: Judith Freedman, University of Oxford
Michael Devereux, Oxford University Centre for Business Taxation
Rachel Griffith, Institute for Fiscal Studies and University of Manchester
Malcolm Gammie QC, One Essex Court
Chair: Michael Devereux, Oxford University Centre for Business Taxation (Chair)
Ian Brimicombe, AstraZeneca Plc
Alex Cobham, Tax Justice Network
Michael Graetz, Columbia University and Yale University
Rt Hon Dame Margaret Hodge MBE MP, House of Commons
Vanessa Houlder, Financial Times
John Kay, Financial Times