In recent decades, a number of fantastically successful, mainly American, multinational entities (MNEs) – led and epitomized by the “Four Horsemen,” Apple, Amazon, Facebook, and Google – have risen to global economic hyper-prominence. While their market capitalizations and profits are high, reflecting that they earn substantial rents or quasi-rents, their aggregate global taxes are generally quite low, reflecting their ability to create stateless income. Often, these MNEs are technology companies, like the Four Horsemen – but not always. Starbucks, for example, enjoys high global profits and low taxes despite its following a classic brick-and-mortar retail business model. This reflects that, like its more obviously high-tech peers, it relies on valuable intellectual property that helps it in creating both global pretax profitability and stateless income. Such MNEs’ rise has placed substantial pressure on existing corporate income tax models. While the existing models might perhaps be significantly improved, this would still leave market countries (where the MNEs’ consumers are located) well short of being able to tax, as fully as they might like, the location-specific rents that these companies earn by interacting with their residents. Market countries that use novel tax instruments, such as properly designed digital services taxes (DSTs) to expand their capacity to reach such location-specific rents, are not acting unreasonably, as judged within existing (and fairly lax) norms for constraining and channeling countries’ self-interested behavior. DSTs also have the potential (although whether it will be realized is uncertain) to improve, rather than worsen, global efficiency and distribution. Whether they prove permanent or merely transitional, DSTs look like harbingers of a new era in which entity-level corporate taxation rightly focuses more on locational rents, and less on decades-old doctrinal and semantic debates concerning the supposedly “true” source of economic income and value creation.
{"title":"Digital Services Taxes and the Broader Shift From Determining the Source of Income to Taxing Location-Specific Rents","authors":"Daniel N. Shaviro","doi":"10.2139/ssrn.3448070","DOIUrl":"https://doi.org/10.2139/ssrn.3448070","url":null,"abstract":"In recent decades, a number of fantastically successful, mainly American, multinational entities (MNEs) – led and epitomized by the “Four Horsemen,” Apple, Amazon, Facebook, and Google – have risen to global economic hyper-prominence. While their market capitalizations and profits are high, reflecting that they earn substantial rents or quasi-rents, their aggregate global taxes are generally quite low, reflecting their ability to create stateless income. \u0000 \u0000Often, these MNEs are technology companies, like the Four Horsemen – but not always. Starbucks, for example, enjoys high global profits and low taxes despite its following a classic brick-and-mortar retail business model. This reflects that, like its more obviously high-tech peers, it relies on valuable intellectual property that helps it in creating both global pretax profitability and stateless income. \u0000 \u0000Such MNEs’ rise has placed substantial pressure on existing corporate income tax models. While the existing models might perhaps be significantly improved, this would still leave market countries (where the MNEs’ consumers are located) well short of being able to tax, as fully as they might like, the location-specific rents that these companies earn by interacting with their residents. \u0000Market countries that use novel tax instruments, such as properly designed digital services taxes (DSTs) to expand their capacity to reach such location-specific rents, are not acting unreasonably, as judged within existing (and fairly lax) norms for constraining and channeling countries’ self-interested behavior. DSTs also have the potential (although whether it will be realized is uncertain) to improve, rather than worsen, global efficiency and distribution. Whether they prove permanent or merely transitional, DSTs look like harbingers of a new era in which entity-level corporate taxation rightly focuses more on locational rents, and less on decades-old doctrinal and semantic debates concerning the supposedly “true” source of economic income and value creation.","PeriodicalId":54058,"journal":{"name":"EJournal of Tax Research","volume":null,"pages":null},"PeriodicalIF":0.3,"publicationDate":"2019-09-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"87431579","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This article examines some aspects of the European Union’s corporate tax set-up which correspond to aspects of a country’s corporate tax regime. The overarching question is whether there is such a thing as EU corporate tax law. This article seeks to address this in the context of the following issues: the existence of a uniform tax base and tax rates;the existence of anti-abuse rules and a transfer pricing regime; and, finally, the existence of a common tax administration and its powers. The article questions whether the peripatetic development of EU corporate tax law is suitable for the EU or whether it undermines its long-term objectives. The potential impact of Brexit in the development of EU corporate tax law is also addressed.
{"title":"The Peripatetic Nature of EU Corporate Tax Law","authors":"Christiana HJI Panayi","doi":"10.2139/ssrn.3446623","DOIUrl":"https://doi.org/10.2139/ssrn.3446623","url":null,"abstract":"This article examines some aspects of the European Union’s corporate tax set-up which correspond to aspects of a country’s corporate tax regime. The overarching question is whether there is such a thing as EU corporate tax law. This article seeks to address this in the context of the following issues: the existence of a uniform tax base and tax rates;the existence of anti-abuse rules and a transfer pricing regime; and, finally, the existence of a common tax administration and its powers. The article questions whether the peripatetic development of EU corporate tax law is suitable for the EU or whether it undermines its long-term objectives. The potential impact of Brexit in the development of EU corporate tax law is also addressed.","PeriodicalId":54058,"journal":{"name":"EJournal of Tax Research","volume":null,"pages":null},"PeriodicalIF":0.3,"publicationDate":"2019-09-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"78272622","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This article explores the history of charity law reform in Canada, focusing on calls for a legislative definition of charitable purposes and changes to the political activity rules. It traces the trajectory of three periods of charity law reform advocacy in Canada since 1978, during which advocates have called not only for reform to the political activity rules but also more broadly for the modernization of Canadian charity law. Despite decades of charity law reform proposals, most charity law reform in Canada to date has constituted a patchwork of administrative and legal changes. Canadian charity law is at a crossroads after the broad recommendations of the 2017 Report of the Consultation Panel on the Political Activities of Charities and the 2018 legislative changes eliminating certain restrictions on charities’ political activities. It is time for more substantive charity law reform, drawing from multiple law reform proposals presented over the last 40 years, and from charity law reform in other jurisdictions.
{"title":"Charity Law Reform in Canada: Moving from Patchwork to Substantive Reform","authors":"Samuel Singer","doi":"10.2139/ssrn.3474559","DOIUrl":"https://doi.org/10.2139/ssrn.3474559","url":null,"abstract":"This article explores the history of charity law reform in Canada, focusing on calls for a legislative definition of charitable purposes and changes to the political activity rules. It traces the trajectory of three periods of charity law reform advocacy in Canada since 1978, during which advocates have called not only for reform to the political activity rules but also more broadly for the modernization of Canadian charity law. Despite decades of charity law reform proposals, most charity law reform in Canada to date has constituted a patchwork of administrative and legal changes. Canadian charity law is at a crossroads after the broad recommendations of the 2017 Report of the Consultation Panel on the Political Activities of Charities and the 2018 legislative changes eliminating certain restrictions on charities’ political activities. It is time for more substantive charity law reform, drawing from multiple law reform proposals presented over the last 40 years, and from charity law reform in other jurisdictions.","PeriodicalId":54058,"journal":{"name":"EJournal of Tax Research","volume":null,"pages":null},"PeriodicalIF":0.3,"publicationDate":"2019-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"72902280","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
As a whole, the U.S. tax system (federal, state and local) since 1980 has served more and more to increase racialized wealth inequality. The tax system is today operating to entrench the system of advantage based on race that centuries of racial exploitation and unequal access to wealth created. As the future face of the nation becomes less White, the U.S. tax system as a whole and the anti-tax rhetoric that has fueled its shift from progressive to regressive are driving economic inequality and racial inequity. More deeply, the tax system is inhibiting broad-scale public investment in the primary resource of the future: human capital. This article presents a timely perspective of big-picture trends in federal and state taxation over the past 40 years — both a long-term sociological view (the why) of the historical racialization of wealth and a critical tax view (the how) of the shift from taxes on wealth to taxes on income to taxes on consumption. This shift from greater to less progressivity in taxes disproportionately benefits Whites while disproportionately burdening Blacks and other People of Color. Instead of focusing on the equity of a particular deduction or preferential tax rate, we view taxes holistically and systemically, with a focus on state and local taxes that is typically not addressed in critical tax literature. Before systematic changes can be made to tax systems to combat wealth inequality, an acknowledgement of the racialization of wealth inequality is a fundamental first step.
{"title":"Racialized Tax Inequity: Wealth, Racism, and The U.S. System of Taxation","authors":"P. Strand, Nicholas A. Mirkay","doi":"10.2139/ssrn.3442674","DOIUrl":"https://doi.org/10.2139/ssrn.3442674","url":null,"abstract":"As a whole, the U.S. tax system (federal, state and local) since 1980 has served more and more to increase racialized wealth inequality. The tax system is today operating to entrench the system of advantage based on race that centuries of racial exploitation and unequal access to wealth created. As the future face of the nation becomes less White, the U.S. tax system as a whole and the anti-tax rhetoric that has fueled its shift from progressive to regressive are driving economic inequality and racial inequity. More deeply, the tax system is inhibiting broad-scale public investment in the primary resource of the future: human capital. \u0000 \u0000This article presents a timely perspective of big-picture trends in federal and state taxation over the past 40 years — both a long-term sociological view (the why) of the historical racialization of wealth and a critical tax view (the how) of the shift from taxes on wealth to taxes on income to taxes on consumption. This shift from greater to less progressivity in taxes disproportionately benefits Whites while disproportionately burdening Blacks and other People of Color. Instead of focusing on the equity of a particular deduction or preferential tax rate, we view taxes holistically and systemically, with a focus on state and local taxes that is typically not addressed in critical tax literature. Before systematic changes can be made to tax systems to combat wealth inequality, an acknowledgement of the racialization of wealth inequality is a fundamental first step.","PeriodicalId":54058,"journal":{"name":"EJournal of Tax Research","volume":null,"pages":null},"PeriodicalIF":0.3,"publicationDate":"2019-08-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"89576881","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Portuguese Abstract: O presente artigo se propõe a analisar questões de base que podem ser endereçadas em um projeto de reforma da tributação da renda no Brasil. Para tanto, busca entender como o contencioso tributário pode revelar os pontos de ineficiência e instabilidade do sistema tributário brasileiro, bem como busca comparar práticas internas com internacionais (considerando especialmente a reforma dos Estados Unidos de 2017). Nesse sentido, seleciona e explora quatro temas de expressiva litigiosidade e com significativa materialidade em termos financeiros. Ao final, propõe reflexões sobre cada um deles.
English Abstract: This article aims to analyze tax issues that can be addressed in a Brazilian income tax reform project. For this purpose, it seeks to understand how tax litigation can reveal the points of inefficiency and instability of the Brazilian tax system, as well as to compare internal and international practices (especially the 2017 US tax reform). In this sense, it selects and explores four issues of significant litigation and with substantial materiality in financial terms. In the end, it proposes reflections on each one of them.
{"title":"Reforma Na Tributação Da Renda: Um Olhar Para O Contencioso E Para as Práticas Internacionais (Income Taxation Reform: A Glance on Tax Litigation and International Practices)","authors":"Frederico Bocchi Siqueira","doi":"10.2139/ssrn.3442282","DOIUrl":"https://doi.org/10.2139/ssrn.3442282","url":null,"abstract":"<b>Portuguese Abstract:</b> O presente artigo se propõe a analisar questões de base que podem ser endereçadas em um projeto de reforma da tributação da renda no Brasil. Para tanto, busca entender como o contencioso tributário pode revelar os pontos de ineficiência e instabilidade do sistema tributário brasileiro, bem como busca comparar práticas internas com internacionais (considerando especialmente a reforma dos Estados Unidos de 2017). Nesse sentido, seleciona e explora quatro temas de expressiva litigiosidade e com significativa materialidade em termos financeiros. Ao final, propõe reflexões sobre cada um deles.<br><br><b>English Abstract:</b> This article aims to analyze tax issues that can be addressed in a Brazilian income tax reform project. For this purpose, it seeks to understand how tax litigation can reveal the points of inefficiency and instability of the Brazilian tax system, as well as to compare internal and international practices (especially the 2017 US tax reform). In this sense, it selects and explores four issues of significant litigation and with substantial materiality in financial terms. In the end, it proposes reflections on each one of them.","PeriodicalId":54058,"journal":{"name":"EJournal of Tax Research","volume":null,"pages":null},"PeriodicalIF":0.3,"publicationDate":"2019-08-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"82493066","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
C. Abugre, Alex Cobham, Rachel Etter-Phoya, Alice Lépissier, M. Meinzer, N. Monkam, Alvin Mosioma
It is well established that illicit financial flows affect the economies, societies, public finances and governance of African countries - as they do all other countries. Following the ground-breaking work of the African Union and UN Economic Commission for Africa High Level Panel on Illicit Financial Flows out of Africa (2015), a consortium of stakeholders in Africa is working together to stem illicit financial flows and follow-up recommendations of the report. The consortium’s technical working group comprises the African Union Commission, the UN Economic Commission for Africa, the African Development Bank, the African Tax Administration Forum, Tax Justice Network Africa, and the African Capacity Building Foundation. A global target to reduce the volume of illicit flows was adopted in the UN Sustainable Development Goals. The UN process has struggled to reach consensus on indicators for the agreed target 16.4, since high-quality estimates of these deliberately hidden phenomena are inherently difficult to construct. And at the national level, even high-quality estimates of the total dollar value lost do not necessarily provide a full basis for policy decisions.
A particular issue is the difficulty of identifying the relative importance, in a given country context, of the many channels within which illicit financial flows may occur, and the multiple economic partner jurisdictions in each channel. We address this research gap by elaborating on an approach pioneered in the High Level Panel’s report which can be used to generate proxies for illicit financial flow risk by combining bilateral data on trade, investment and banking stocks and flows, with measures of financial secrecy in the partner jurisdiction.
Here we present the resulting risk profiles for individual African countries, based on a range of relative and absolute proxy measures of illicit financial flow vulnerability. This allows granular comparison of illicit financial flow risks across countries and by channel, in turn highlighting the most dangerous partner jurisdictions. In this way, the bespoke national risk profiles provide clear signposts to guide individual countries’ audit and monitoring activity, international tax and transparency policies and negotiation priorities. It also can assist regional and international organisations in directing their interventions and support in curbing the risks identified in this paper.
An important finding is that Africa is importing the overwhelming majority of its risks in illicit financial flows from outside the continent. This is hardly surprising given the relative importance of economic relationships African countries have with countries outside the African continent compared to intra-African intensity of economic relationships. Yet there are some noticeable differences in each of the economic channels. For example, the risks in trade appear to be concentrated with Europe and Asia, whereas the risks in direct investment
{"title":"Vulnerability and Exposure to Illicit Financial Flows Risk in Africa","authors":"C. Abugre, Alex Cobham, Rachel Etter-Phoya, Alice Lépissier, M. Meinzer, N. Monkam, Alvin Mosioma","doi":"10.2139/ssrn.3440066","DOIUrl":"https://doi.org/10.2139/ssrn.3440066","url":null,"abstract":"It is well established that illicit financial flows affect the economies, societies, public finances and governance of African countries - as they do all other countries. Following the ground-breaking work of the African Union and UN Economic Commission for Africa High Level Panel on Illicit Financial Flows out of Africa (2015), a consortium of stakeholders in Africa is working together to stem illicit financial flows and follow-up recommendations of the report. The consortium’s technical working group comprises the African Union Commission, the UN Economic Commission for Africa, the African Development Bank, the African Tax Administration Forum, Tax Justice Network Africa, and the African Capacity Building Foundation. A global target to reduce the volume of illicit flows was adopted in the UN Sustainable Development Goals. The UN process has struggled to reach consensus on indicators for the agreed target 16.4, since high-quality estimates of these deliberately hidden phenomena are inherently difficult to construct. And at the national level, even high-quality estimates of the total dollar value lost do not necessarily provide a full basis for policy decisions.<br><br>A particular issue is the difficulty of identifying the relative importance, in a given country context, of the many channels within which illicit financial flows may occur, and the multiple economic partner jurisdictions in each channel. We address this research gap by elaborating on an approach pioneered in the High Level Panel’s report which can be used to generate proxies for illicit financial flow risk by combining bilateral data on trade, investment and banking stocks and flows, with measures of financial secrecy in the partner jurisdiction.<br><br>Here we present the resulting risk profiles for individual African countries, based on a range of relative and absolute proxy measures of illicit financial flow vulnerability. This allows granular comparison of illicit financial flow risks across countries and by channel, in turn highlighting the most dangerous partner jurisdictions. In this way, the bespoke national risk profiles provide clear signposts to guide individual countries’ audit and monitoring activity, international tax and transparency policies and negotiation priorities. It also can assist regional and international organisations in directing their interventions and support in curbing the risks identified in this paper.<br><br>An important finding is that Africa is importing the overwhelming majority of its risks in illicit financial flows from outside the continent. This is hardly surprising given the relative importance of economic relationships African countries have with countries outside the African continent compared to intra-African intensity of economic relationships. Yet there are some noticeable differences in each of the economic channels. For example, the risks in trade appear to be concentrated with Europe and Asia, whereas the risks in direct investment","PeriodicalId":54058,"journal":{"name":"EJournal of Tax Research","volume":null,"pages":null},"PeriodicalIF":0.3,"publicationDate":"2019-08-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"74535007","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The ongoing digitalisation of the economy challenges the international tax system. Specifically, the current rules of source taxation do not fully reflect the paradigm of taxing where value is created. In digital business models, firms often do not need a physical presence to be economically active in a given jurisdiction and, thus, avoid being taxable in this jurisdiction. In this paper, we make three distinct contributions. First, we review all major digital trends and business models for their scope to create value in a given jurisdiction without a physical presence there. Second, we present a concept that integrates non-physical value creation into the current system. The concept is based on sustained user relationships (SURE) that may be operated from abroad and exploited for data collection, advertising and platform services. Third, we discuss the operational aspects of implementing the concept, both in economic and legal terms: nexus rules and profit allocation rules. We conclude that that SURE concept may have important advantages over its main alternatives: Other than proposals based on digital user contributions, it does not require ring-fencing of a small segment of the digital economy. And in contrast to the concept of “marketing intangibles” (and more radical concepts like DBCFT or CCCTB), it does not advocate a general shift towards taxation in the market jurisdiction, which is difficult to justify under the logic of the current system of source taxation.
{"title":"Re-Allocation of Taxing Rights for Big Data Business Models","authors":"J. Becker, J. Englisch, Deborah Schanz","doi":"10.2139/ssrn.3433715","DOIUrl":"https://doi.org/10.2139/ssrn.3433715","url":null,"abstract":"The ongoing digitalisation of the economy challenges the international tax system. Specifically, the current rules of source taxation do not fully reflect the paradigm of taxing where value is created. In digital business models, firms often do not need a physical presence to be economically active in a given jurisdiction and, thus, avoid being taxable in this jurisdiction. In this paper, we make three distinct contributions. First, we review all major digital trends and business models for their scope to create value in a given jurisdiction without a physical presence there. Second, we present a concept that integrates non-physical value creation into the current system. The concept is based on sustained user relationships (SURE) that may be operated from abroad and exploited for data collection, advertising and platform services. Third, we discuss the operational aspects of implementing the concept, both in economic and legal terms: nexus rules and profit allocation rules. We conclude that that SURE concept may have important advantages over its main alternatives: Other than proposals based on digital user contributions, it does not require ring-fencing of a small segment of the digital economy. And in contrast to the concept of “marketing intangibles” (and more radical concepts like DBCFT or CCCTB), it does not advocate a general shift towards taxation in the market jurisdiction, which is difficult to justify under the logic of the current system of source taxation.","PeriodicalId":54058,"journal":{"name":"EJournal of Tax Research","volume":null,"pages":null},"PeriodicalIF":0.3,"publicationDate":"2019-08-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83788226","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The article examines the relationship between the rules on State aid and the fundamental freedoms when ruling on the compatibility with EU law of domestic transfer pricing provisions, based on the arm’s length principle. It shows that the Commission’s recent practice concerning State aid on advance pricing agreements is difficult to reconcile with the ECJ’s case law when ruling on the arm’s length principle under the fundamental freedoms. On the one hand, the Member States should not be too restrictive when applying their transfer pricing rules, as stemming from the proportionality requirement under the fundamental freedoms,while on the other hand they must not be too lenient either, otherwise they risk a State aid investigation. Pressed at both ends by these opposing forces, the margin for error becomes narrow or, sometimes, non-existent.
{"title":"Between State Aid and the Fundamental Freedoms: The Arm’s Length Principle and EU Law","authors":"S. Buriak, I. Lazarov","doi":"10.54648/cola2019076","DOIUrl":"https://doi.org/10.54648/cola2019076","url":null,"abstract":"The article examines the relationship between the rules on State aid and the fundamental freedoms when ruling on the compatibility with EU law of domestic transfer pricing provisions, based on the arm’s length principle. It shows that the Commission’s recent practice concerning State aid on advance pricing agreements is difficult to reconcile with the ECJ’s case law when ruling on the arm’s length principle under the fundamental freedoms. On the one hand, the Member States should not be too restrictive when applying their transfer pricing rules, as stemming from the proportionality requirement under the fundamental freedoms,while on the other hand they must not be too lenient either, otherwise they risk a State aid investigation. Pressed at both ends by these opposing forces, the margin for error becomes narrow or, sometimes, non-existent.","PeriodicalId":54058,"journal":{"name":"EJournal of Tax Research","volume":null,"pages":null},"PeriodicalIF":0.3,"publicationDate":"2019-08-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"84616203","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Prior to the 2017 tax reform (TCJA), previously taxed income (PTI) was a necessary part of Subpart F, and ensured that U.S. shareholders, who paid tax currently on their controlled foreign corporation’s (CFC’s) Subpart F income, were not taxed again on the same earnings when distributed as dividends. Section 959 served this function by excluding distributions of PTI from the U.S. shareholder’s gross income. PTI implemented the policy goals of preventing double taxation of the same earnings and ensuring that credit for PTI occurred at the earliest time possible. When the TCJA enacted a territorial tax exemption system utilizing the section 245A deduction, the actual distribution of earnings from a CFC to its corporate U.S. shareholder was no longer a taxable event. It seemed that PTI would no longer be necessary. Yet PTI in conjunction with the global intangible low-taxed income (GILTI) are a powerful combination, which now dominate the United States international tax system. The PTI ordering rules have the effect of allowing the section 245A deduction only after all previously taxed earnings have been allocated. For multinational corporations with significant amounts of GILTI and other PTI, this effect potentially eliminates the availability of the section 245A deduction and, therefore, the exemption system established by the TCJA. This paper demonstrates how the post-TCJA laws may function to override the U.S. exemption tax system. Thus, instead of a move toward a territorial tax system, the TCJA may be characterized as a move toward a pure residence-based, worldwide tax system without deferral.
{"title":"More Anti-SimplificatIon: How PTI and GILTI Override the Section 245A Exemption and the U.S. Territorial Tax System","authors":"Christine J. Davis","doi":"10.2139/ssrn.3484899","DOIUrl":"https://doi.org/10.2139/ssrn.3484899","url":null,"abstract":"Prior to the 2017 tax reform (TCJA), previously taxed income (PTI) was a necessary part of Subpart F, and ensured that U.S. shareholders, who paid tax currently on their controlled foreign corporation’s (CFC’s) Subpart F income, were not taxed again on the same earnings when distributed as dividends. Section 959 served this function by excluding distributions of PTI from the U.S. shareholder’s gross income. PTI implemented the policy goals of preventing double taxation of the same earnings and ensuring that credit for PTI occurred at the earliest time possible. When the TCJA enacted a territorial tax exemption system utilizing the section 245A deduction, the actual distribution of earnings from a CFC to its corporate U.S. shareholder was no longer a taxable event. It seemed that PTI would no longer be necessary. Yet PTI in conjunction with the global intangible low-taxed income (GILTI) are a powerful combination, which now dominate the United States international tax system. The PTI ordering rules have the effect of allowing the section 245A deduction only after all previously taxed earnings have been allocated. For multinational corporations with significant amounts of GILTI and other PTI, this effect potentially eliminates the availability of the section 245A deduction and, therefore, the exemption system established by the TCJA. This paper demonstrates how the post-TCJA laws may function to override the U.S. exemption tax system. Thus, instead of a move toward a territorial tax system, the TCJA may be characterized as a move toward a pure residence-based, worldwide tax system without deferral.","PeriodicalId":54058,"journal":{"name":"EJournal of Tax Research","volume":null,"pages":null},"PeriodicalIF":0.3,"publicationDate":"2019-08-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"86256920","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This essay summarizes five key findings from the author’s in-progress research evaluating the potential of wealth tax reform proposals for taxing the super rich. These five key findings are as follows: -- First, the existing U.S. tax system does a very poor job of meaningfully taxing the super rich. -- Second, there are only two approaches for reform that could plausibly succeed in making it so that the U.S. tax system would meaningfully tax the super rich: wealth taxation and mark-to-market taxation (sometimes known as “accrual” taxation). -- Third, piecemeal reforms to the existing tax system that some have argued for as “progressive alternatives” to wealth tax reforms should be thought of as complements to wealth taxation rather than as competitors. -- Fourth, much of the public criticism of wealth tax reform proposals ignores recent legal scholarship on valuation methodologies and other implementation design options, to the extent that this criticism mostly only applies to outdated, “straw man” versions of how a modern wealth tax might be implemented. -- Fifth, concerns about the Supreme Court striking down wealth tax reforms as unconstitutional can be addressed by including fallback options in the wealth tax legislation.
{"title":"Five Key Research Findings on Wealth Taxation for the Super Rich","authors":"D. Gamage","doi":"10.2139/SSRN.3427827","DOIUrl":"https://doi.org/10.2139/SSRN.3427827","url":null,"abstract":"This essay summarizes five key findings from the author’s in-progress research evaluating the potential of wealth tax reform proposals for taxing the super rich. These five key findings are as follows: \u0000 \u0000-- First, the existing U.S. tax system does a very poor job of meaningfully taxing the super rich. \u0000 \u0000-- Second, there are only two approaches for reform that could plausibly succeed in making it so that the U.S. tax system would meaningfully tax the super rich: wealth taxation and mark-to-market taxation (sometimes known as “accrual” taxation). \u0000 \u0000-- Third, piecemeal reforms to the existing tax system that some have argued for as “progressive alternatives” to wealth tax reforms should be thought of as complements to wealth taxation rather than as competitors. \u0000 \u0000-- Fourth, much of the public criticism of wealth tax reform proposals ignores recent legal scholarship on valuation methodologies and other implementation design options, to the extent that this criticism mostly only applies to outdated, “straw man” versions of how a modern wealth tax might be implemented. \u0000 \u0000-- Fifth, concerns about the Supreme Court striking down wealth tax reforms as unconstitutional can be addressed by including fallback options in the wealth tax legislation.","PeriodicalId":54058,"journal":{"name":"EJournal of Tax Research","volume":null,"pages":null},"PeriodicalIF":0.3,"publicationDate":"2019-07-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"75895664","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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