Papers & Reports

US criticizes Pillar 2 of the OECD project, particularly the impact of the UTPR on tax credits such as the ones included in the Inflation Reduction Act and the CHIPS Act. The author believes that those credits are unlikely to be affected because they are refundable. However, the articles raises the broader question of why the line between qualifying and non-qualifying credits should be drawn at refundability. The paper addresses this issue and argues that while refundability is a reasonable proxy, the line is intended to distinguish between tax expenditures that merely shift the location of investments that would be made somewhere and tax expenditures that address a market failure and, therefore would not be made but for the subsidy.

This article analyzes the legitimacy of the OECD’s work on Pillar Two. The starting point is the effectiveness of the new global minimum tax which is based on a so-called ‘devilish logic’. As such the project relies heavily on expert knowledge that is supposed to guarantee output legitimacy. At the same time, the consensus reached in the Inclusive Framework (IF) is supposed to bless the global minimum tax with a form of input legitimacy.  However, the author is of the view that that the legitimacy of the OECD’s work on Pillar Two is falling short. The central point is that the governance process of the OECD should meet burdensome standards of ‘good’ governance including accountability i.e. throughput legitimacy.

This article investigates the effects of a qualitative tax disclosure mandate aimed at improving the availability of tax information and tax compliance by imposing reputational costs for firms. The authors used a 2016 UK reform that required the disclosure of tax strategy details by large businesses. The authors find that firms that publish a tax strategy report significantly increase the volume of tax strategy disclosure in their annual reports. The article also highlights the important role that public pressure plays in facilitating the increase in disclosure volume.

This article addresses the effect of the closure of the Double Irish, a tax structure used by US multinational corporations to minimize tax. The author analyzes US corporate tax data and estimates that about  $59 billion in royalty payments has been shifted back to the US in 2020 after the closure of the Double Irish. The author further estimates that more than $609 million in royalty payments have been earned by US corporations operating the Double Irish scheme after it was fully closed.

The paper provides a policy response to the UN Resolution on Promotion of Inclusive and Effective Tax Cooperation. The response focuses on the role of the OECD and the Inclusive Framework, particularly the OECD two pillar approach as well as other interconnected policy issues in the context of global tax cooperation. This paper is not a technical analysis of specific international tax policy measures but a review with the aim of making recommendations that can enrich the future debate on international tax cooperation. In this regard, the paper recommends that the international community should consider a more flexible global tax cooperation system in which the individual interests of countries are considered as much as the global aims and where transparency in the drafting and decision-making processes becomes a priority.

The purpose of this article is to address the question of whether the marketing and distribution safe harbor (MDSH) as designed in the Progress Report meets its objectives. The authors analyze whether MDSH achieves that by testing it against two commonly found MNE business models i.e. a licensed manufacturer (LM) in the market and a centralized business model with limited risk distributors (LRD) in the market. A technical analysis undertaken leads to the conclusion that the MDSH as designed in the Progress Report does not meet its policy objective of preventing double counting under both the LM and the centralized business models. The article identifies as policy options to first redraft the MDSH as originally conceived and second to reflect on some of the MDSH components, in particular, the manner in which jurisdictional routine and residual profits are calculated with the overall aim of achieving simplicity as well as accuracy.

In this article, the author reacts to a recent publication in the Canadian Tax Journal where the author argued that a country that applies pillar 2 could trigger an investment arbitration under a bilateral investment treaty. The author believes that theoretically, this may be true but on the whole, the Canadian Tax Journal article ignores the effect of not raising the tax on the investment, which is to trigger the application of tax by another country not party to the BIT. He argued that from the investor`s perspective, since it will be paying the tax in both cases, it is not clear that it is worth suing the host country because a successful suit that results in a payment could be treated as a further tax reduction that triggers additional tax elsewhere.

The benefits principle (that the source jurisdiction should tax active (business) income and the residence jurisdiction should tax passive (investment) income) is fundamental to the international tax regime. The four economists in 1923 based it on economic theory but also on the pre-1914 treaties. But where did the pre-1914 treaties derive the benefits principle from? The answer is not the theoretical considerations that influenced the four economists. In this case a page of history is worth a volume of economics. In the medieval and early modern tradition, a distinction was made between in personam and in rem taxes. In personam taxes could only be levied by the sovereign that an individual was subject to. The implication was that an individual could only be subject to in personam taxation by his country of citizenship, but that unlike modern residence-based taxation this tax could be applied wherever the citizen resided (like the modern US rule). In rem taxes, on the other hand, were imposed on the property itself, not on the individual, and therefore could be levied by the source jurisdiction.

This article discusses what options countries have to tax large multinationals without Pillar One, and then addresses the US response. The article argues that the best US response would be to adopt unitary taxation unilaterally along the lines long espoused by Sol Picciotto. The authors are of the view that pillar one is unlikely to succeed for three reasons. First is the requirement for a multilateral tax convention (MTC) to implement Amount A but negotiating an MTC is very challenging, especially when over 100 countries are involved and there are fundamental disagreements among them. Second, pillar one is aimed primarily at taxing US digital corporations and it is hard to implement it without the US particularly, when the Republicans are opposed to it. Third, is the fact that countries that have adopted digital services taxes (DSTs) are required by pillar one to repealed them but given that the US may not ratify the MTC, countries may be unwilling to repeal their DSTs.

In this article, the authors examine the application of section 367 to section 351 exchanges and the income inclusion issues that may arise upon a contribution made by a US person to a foreign entity. Essentially, the Article focuses on the contribution of property by a US person to a foreign corporation that would not disqualify the transaction’s favorable tax treatment and would not trigger an immediate taxable event. The authors believe that allowing favorable tax treatment in cross-border transactions where a person contributes appreciated unrealized property may lead to tax revenue losses and such transactions should be re-examined under sections 351 and 367.