Does a country's willingness to exchange tax info alter the character of its trade in services?

Delimatsis and Hoekman have posted National Tax Regulation, International Standards and the GATS: Argentina—Financial Services, of interest especially in light of ongoing discourse about what kinds of tax competition are approved versus harmful in OECD terms. Here is the abstract:

Can a WTO Member discriminate against foreign suppliers of services located in jurisdictions that refuse to share information with a government to permit it to determine if its nationals engage in tax evasion? Does it matter if the Member uses standards developed by an international body as the criterion for deciding whether to impose measures? In Argentina—Financial Services the WTO Appellate Body held that services from jurisdictions that share financial tax information may be different from services provided by jurisdictions that do not cooperate in supplying such information. It overruled a Panel finding that measures to increase taxes on financial transactions with non-cooperative jurisdictions were discriminatory. We argue that the AB reached the right conclusion but that an important opportunity was missed to clarify what WTO Members are permitted to do to enforce their domestic regulatory regimes, and how international standards could have a bearing on this question. By giving consideration to arguments that the likeness of services and service suppliers may be a function of prevailing domestic regulatory regimes, the AB increased the scope for confusion and future litigation.

Idiot's Guide to DBCFT, Ryan Style

I've been fielding several "what is is this DBCFT idea" kinds of questions so I thought it might be helpful to present the six basic features of the DBCFT as proposed (in very general form) by Paul Ryan and a very simple chart to explain how the DBCFT would "work" if it was enacted as described in Ryan's "Better Way" plan.*

Accordingly, based on that proposal, the six main features of the DBCFT would be:

1. domestic sales are included
2. foreign sales are excluded
3. dividends from foreign subsidiaries are exempt
4. all foreign costs are non-deductible
5. net interest is non-deductible
6. allowable domestic costs are immediately deductible (expensed)

Obviously these are oversimplifications and I'm ignoring transition rules and so on, but these are the basic building blocks. The Ryan plan proposes a tax rate of 20%. 

So what happens if these building blocks are put in place via legislation, assuming away all transition issues etc., and that a tax imposed is a tax collected?** If we imagine a product that will sell for $125, and costs $100 to produce (in materials and labour), this is what happens:

Box 1: MAGA ideal: made in America, by Americans, for Americans. Tax will be collected on profits earned by selling goods produced & sold domestically. The DBCFT most resembles an income tax in this scenario (though expensing and non-deductibility of interest still moves it toward a consumption base); it will also be the easiest to collect.

Box 2: Exports. Tax exemption for sales abroad will create (possibly permanent) NOLs to carry forward indefinitely. This will require deciding on loss-shifting policy. This is obviously not an income tax but it not a VAT either.

Box 3: Imports. Sales in the US of goods produced abroad are taxed on a gross basis, more like an excise tax (or yes, a tariff). With an estimated $1.2 trillion trade deficit, this part of the DBCFT is expected to raise the most revenue but the success of that strategy depends to some degree (maybe a large degree) on remote sellers collecting tax (that’s complicated--see Europe).

Box 4: Foreign Sales of Foreign Products. Neither costs nor revenues are counted for goods produced and sold abroad, even if produced and sold by a US-based company. This part of the DBCFT would be more or less consistent with either a VAT or territorial income tax.

That, in a nutshell, is the basic skeleton of the DBCFT as proposed in the Ryan plan. It will be interesting to see what, if any, of this ends up enacted IRL.

* There is absolutely zero chance that the proposal will be enacted as described. Still, it is helpful to understand the basic vision. I do not claim to be an expert on the DBCFT and offer here no analysis or predictions about the incidence of the tax, or the impact such a tax would have on US or world capital flows, investment, consumption, economic growth, or international relations. This paper by Wei Cui, or this one by Wolfgang Schoen are helpful in addressing many of these issues.

** A tax imposed is never a tax collected. There is always a gap between a great idea (or for that matter a not so great idea) and something that can actually be carried out: tax administration is tax policy.

Rosenzweig: An Antigua Gambling Model for the International Tax Regime

Adam Rosenzweig recently posted An Antigua Gambling Model for the International Tax Regime. Here is the abstract:

The international tax world is facing a defining moment. While there is little agreement on anything within the field, there appears to be a growing consensus that the modern international tax regime — the so-called flawed miracle emerging from World War II — is irrevocably broken. As the countries of the world confront the challenges facing the international tax regime in the next century, new models for an institutional framework for international tax become increasingly crucial to its success. While significant progress has been made in developing underlying norms to serve as the basis for a modern international tax regime, less focus has been paid to building the institutions and structures necessary to implement these norms. To this end, this Essay proposes looking to the recent experience of the WTO in the Antigua Gambling case as a model for a new institutional framework for the new international tax regime. The Essay then proposes three potential ways to do so: (1) the creditable gross-withholding tax method, (2) the extraterritorial excise tax method, and (3) the WTO cross-retaliation method. 

By serving as an example of how to balance the needs of larger, wealthier countries and smaller, poorer ones, the Antigua Gambling model could help overcome one of the largest obstacles confronting the development of a modern international tax regime. Perhaps an Antigua Gambling model could serve as the basis for a new institutional framework for international tax.

Ambitious, and on my to-read list.

WTO Trade disputes "from the inside"

This will be an interesting talk:

Appellate Body Member Tom Graham will be giving a talk at Hofstra on Feb. 6 entitled "It Sure Looks Different From the Inside: Deciding International Trade Disputes at the WTO". The title sounds promising, and from what I understand he will talk a bit about the use of the Vienna Convention by the AB in its decision-making.  He is not likely to be as forthcoming as, say, Justice Scalia, but he may say some interesting things nonetheless.

I don't see anything about live feed, too bad. I would have like to hear what he had to say--WTO decision-making is of interest to those of us keeping an eye on arbitration in tax treaties.  

WTO overwhelmed with disputes

Simon Lester notes a deluge of cases: "they keep coming, and it may be starting to strain the WTO's resources." He cites this report from Reuters:

The WTO's 157 members have launched 26 trade disputes so far in 2012, the most since 2003 and three times more than the eight new complaints filed in 2011. 

According to an internal WTO document seen by Reuters, the WTO decided to reallocate staff to the disputes team to deal with the increasing number and complexity of legal cases....

As well as moving staff, the trade body also advertised for a senior dispute settlement lawyer, at a starting salary of around 161,900 Swiss francs ($175,300), and is seeking short term candidates to help deal with the caseload.

Interesting development, especially against the backdrop of increased scrutiny and questions about the legal nature of these decisions.