Papers & Reports

According to Wilkie and Eden, there are three underlying reasons for the current lack of confidence in the international rules for taxing the global profits of multinational enterprises (MNEs), to wit: (1) tax rules are not universal or natural; (2) taxes must be practical, administrable, and collectible; and (3) tax policy is a domain where national sovereignty and multilateralism are both important and conflictual. The authors use Transfer Pricing as a case study because it affects how an MNEs global profits are allocated among countries. Wilkie and Eden then make proposals for an alternative to the arm’s length principle with inspiration from the distinction made by the International Centre for Settlement of Investment Disputes between investment and trade that underlies the four-factor Salini test: contribution, assets, risk, and duration. They argue that the Salini test provides useful insights into the conundrum of “source” and a way out of the current lack of confidence in the international tax system.

Hanna and Wilson’s paper seeks to address a gap in existing proposals for U.S. international tax reform by discussing Corporate America’s focus on the interaction between financial accounting and tax accounting. The authors propose a U.S. international tax system that could have the support of tax scholars, policymakers, and Corporate America, all without sacrificing revenue. This paper is written on the backdrop of recent proposals by the Biden administration to raise revenue by bringing the United States closer to a worldwide no deferral system and raising the corporate tax rate from 21 percent to 28 percent. The authors argue that these changes are unlikely to become law and that the administration simply does not have the support of moderate Democrats, Republicans, and, especially, Corporate America. The Article aims to resolve the Biden Administration’s conundrum by proposing a worldwide no deferral system with a corporate tax rate in the mid to high teens, and argues that the proposal already exists in the 15 percent corporate alternative minimum tax, but few recognize this new tax system as a worldwide no deferral system because it is imposed on financial accounting income and applies only to the largest corporations.

Inefficiencies from tax competition may result in governments seeking to limit fiscal competition via tax treaties, harmonization, minimum tax rates, or interjurisdictional cooperation. This paper proposes a general model applicable to studying many types of taxing instruments, which allows for the comparison of various policy responses to promote jurisdictional cooperation. Comparing across policies, the model suggests a clear revenue dominance of partial harmonization among a subset of jurisdictions. Minimum tax rates revenue-dominate complete harmonization but fail to raise revenues as much as partial harmonization.

This paper uses micro data from country-by-country reporting of more than 3600 large multinational companies operating in 238 jurisdictions to analyze global profit shifting to avoid taxes. These companies report 7% of their global profits in jurisdictions with effective average tax rates below 5%, but only 0.4% of their employees and 3% of their tangible assets are located there. The paper also found that globally, these companies reduce their tax burden by EUR 53 billion (15% of their overall tax payments) by shifting profits to low-tax countries. The paper further investigated profit shifting channels and provided evidence suggesting that the location of IP and equity in low tax countries as well as the provision of loans to entities in high tax countries play a key role for tax planning.

The paper builds a model of tax policy and investment that incorporates unobserved heterogeneity in MNEs’ profit shifting capability and different costs of setting up a tax minimization network. The model matches the distribution of taxable profit and investment in detailed UK tax returns data. The authors use the model to quantify the policy tradeoff between raising tax revenue by combating tax avoidance via a Global Minimum Tax and attracting investment.

According to Mohan and Gupta, IP assets enjoy a unique advantage in tax planning because of their intangible nature and the lack of physical substance thus making them susceptible to transfer across tax jurisdictions. The authors review the decision of the New Delhi High Court in a dispute in which IP assets registered in India were transferred between the Australian and English company through their subsidiary in Mauritius, and where the court relied on the doctrine of mobilia sequuntur personam to fill the lacuna in the Indian Income Tax Act 1961 and thus held that if a foreign corporation owns an IP asset, regardless of its registration and use in India, it would be taxed by the jurisdiction of the owner’s residence.  Mohan and Gupta in this article examine the relevance of the doctrine in line with precedential guidelines and the international treaty framework and posit that either inadvertently or by design, the Indo–Mauritian Double Taxation Avoidance Agreement creates an instance of double tax exemption of Mauritian-owned, Indian-registered IP assets.

To Brauner, one cannot escape the data revolution; it is all around us. Advancements in information collection, collation, and analysis are fundamentally altering our world. They are transforming the economy, society, and even ourselves. In view of the debate that these dramatic, fast-paced changes has triggered from the legal perspective, Brauner argues that existing and universal income tax rules are inherently incompatible with an economy in which information plays a significant and growing role, and that income taxation is incapable of effectively taxing information. Brauner thus posits that this inability necessitates immediate reform, and offers three viable paths to such reform: consumption taxation, data taxes, and formulary taxation. According to Brauner, formulary taxation is currently the most desirable and plausible path to effective reform, owing to its promise to best stabilize and maintain the legitimacy of the international tax regime. He believes that formulary taxation can be incorporated into the existing regime most naturally, and its use of multi-factor formulae gives it the best chances of legitimacy because such reform does not pre-determine winners and losers.

Eden considers the UN Resolution 77/244, adopted by the General Assembly on 30 December 2022 which reaffirms earlier commitments by the United Nations to improve international tax cooperation, fight illicit financial flows, and combat aggressive tax avoidance and evasion. The resolution requires the Secretary General to prepare a report on the ways to strengthen the inclusiveness and effectiveness of international tax cooperation with consultation with member states and other states actors (civil society inclusive). It is in furtherance of this that Eden offers comments on different ways to frame the issue of international tax cooperation. This opinion piece provides a brief history of international tax cooperation, it analyzes the three streams of research that may inform UN policymaking, to wit: the literatures on wicked problems, prescriptive public finance, and international regimes and global governance; and concludes with some suggestions for the way forward.

“Zero-price” transactions—in which goods or services are provided at a cash price of zero—are an increasingly important feature of economic life. Consumers can search the web, use email, listen to music, and even trade stocks, all without paying anything out of pocket. But zero-price transactions are not free: for-profit businesses provide products at zero-price because they get something valuable from consumers in return. Consumers pay with their time, attention, or private information. Zero-price transactions are not giveaways; they are a form of barter exchange. Under federal income tax principals, barter exchanges are taxable: both parties to the transaction are taxed on the value they receive. This Article considers the treatment of zero-price transactions from an income tax perspective. Should zero-price transactions be taxed like barter exchanges? If so, how should the amount received in a zero-price transaction be valued? And how can the federal government practically collect tax owed on zero-price transactions?

This article analyses the testimony submitted to the US Senate Finance Committee on this very topic and explores the ways in which the 2017 Tax Act (TCJA) contributed to the ongoing offshoring of profits by major pharmaceutical companies that generate significant portions of their revenues from the US market. The Article’s analysis are in three broad perspectives: It reviews the pre-2018 US international tax and profit shifting; the impact of TCJA; and finally, the implications of the OECD pillar two for the US and the taxation of US multinational corporations. The article concludes that the combination of dramatic profit shifting by many US multinationals, the global adoption of pillar two and the US commitment to a minimum tax call for reforms of US international tax policy.