From John Prebble : Teaching Tax in a Sculpture Park

John Prebble (customarily at Victoria University of Wellington, New Zealand) sends over this post from Austria, where he is currently teaching a course on “Jurisprudential Perspectives of Taxation Law” in WU (Vienna University)’s doctoral programme in international business taxation. As you can see from his remarks below, this would be a very fun place to do a doctorate.

John Prebble

In September 2013, the Institute for Austrian and International Tax Law, together with all the rest of Wirtschaftsuniversität Wien, moved to an entirely new campus, on land on the edge of the Prater, Vienna’s equivalent of Hyde Park in London or Central Park in New York, between the Danube and the Danube Canal. The campus design and the buildings were the product of international competitions.

For gastprofessors like myself, it’s like teaching in a sculpture park: I was the first occupant of the study that projects from the fourth floor of the orange and yellow Law School, designed by Sir Peter Cook, architect of the London Olympic Stadium. The exterior timbers are purely a “poetic fancy”; from the inside your eye scarcely registers them as you focus on the view beyond:

Next is the teaching building, by Carme Pinós, of Barcelona, where I had first use of one of the new lecture theatres. The rusty look of the cladding is indeed rust, but a special sort of rust that protects its steel, so there is no need for paint:

Finally, below are the exterior and interior of the library, by Zaha Hadid, from her Hamburg office. The elevated wedge is the main reading room. Readers’ desks are in tiers and point roughly south-west, giving everyone marvellous views across the woodlands of the Prater. The atrium is an excellent example of the famous sinuous lines of Ms Hadid’s work.

Must read: @Salon on Lobbyists Posing as Think Tanks

This is a must read. My first reaction was: this is not new, this is old hat. But the intentional misleading might be categorized as new. I have been doing some work on the problem of uneven political influence and how that fits in with the narrative of tax compliance (i.e., when the lobbyists write the rules, is it any wonder that GE, Apple, Google, Starbucks, etc, can say with pride that they dutifully comply with all applicable laws), and I have suggested that what is needed is more policy input from those who do not themselves stand to benefit directly from promoting a particular policy direction, namely, academics who research subjects for the purpose of increasing human knowledge. This means that in my view academics--which includes anyone who calls herself a researcher in any capacity--should always provide detailed disclosure of funding whenever publishing anything, so that the public can distinguish between advertising/advocacy and information.*

This is getting increasingly tough in our uber-consumer oriented society but we must stay vigilant about this, hence the dire need for organizations around the world doing things like the Center for Media and Democracy did here. In this story Salon hits the target directly on why disclosing pecuniary interests is critical to ensuring that public discourse does not fall to the fate of political representation in a nominally democratic but factually plutocratic society, namely, pay to play.

The concluding sentence says it all:

Certainly corporations have a right to have their voice heard, but that voice should be their own, not that of a phony expert on retainer.

* Note that this doesn't in any way mean that getting funding for engaging in research is inherently bad. It means that it is relevant to the conversation because some people find it politically expedient to provide funding in order to obtain specific findings and disseminate those findings as credible on the facts, and as an academic you ought not to want to be associated with that sort of propaganda, so you want to disclose your sources of support. In my view the research question should attract the funding and not the other way around. 

I'm talking FATCA: Listen tomorrow morning on CBC's the Current

Tomorrow I'll be talking about how the US crackdown on offshore tax cheats via FATCA impacts ordinary Canadians with US ties by virtue of citizenship based taxation, on Anna Marie Tremonti's the current (CBC radio). I'll do my best to explain the intent versus the reality of FATCA within the time allotted.

Update: here is the story from CBC with a link to the broadcast. Lots of things I wish I would have had time for, but hopefully this at least sparks a national conversation about this important topic.

Tomorrow at McGill: Tillotson on the historical use of morality in tax policy

The 4th Annual Tax Policy Colloquium at McGill Law continues Monday with a presentation by Professor Shirley Tillotson of Dalhousie University on her paper, The moral worlds of fair taxation: a perspective from 20th century Canadian history (draft not yet available). Professor Tillotson examines the use of political rhetoric to advance tax reform. Marco Garofalo posted some thoughts on the topic earlier today.

The McGill Tax Policy Colloquium features distinguished visiting academics and offers a forum for students, professors, and local practitioners to discuss issues of tax policy and theory, along with related issues of economics and social justice.

Professor Tillotson's talk is scheduled to commence at 2:30 pm tomorrow; members of the public are warmly welcomed.

 Location: McGill Faculty of Law, 3644 Peel Street, New Chancellor Day Hall, Room 203.
 Date and Time: Monday, 11 November, 14:30–16:30.

Rhetoric as Intellectual Anaesthetic in Tax Politics: Guest post by Marco Garofalo

Advocates of tax policy reform use common rhetorical themes to link their preferred policies to desired descriptors. The most common of these are fairness, efficiency, simplification, and competitiveness. Most of the time these terms are used without definition or explanation and they are used indiscriminately to support policy proposals across the political spectrum. This can have a tremendously destructive impact on public discourse over time, as people use these words to mean virtually anything, and then begin to believe these words have no meaning at all.

In his 1946 essay, Politics and the English language, on using "language as an instrument for expressing and not for concealing or preventing thought," George Orwell warned that using rhetoric in this sloppy manner ultimately destroys our ability to engage in critical thinking:

[A]n effect can become a cause, reinforcing the original cause and producing the same effect in an intensified form, and so on indefinitely. A man may take to drink because he feels himself to be a failure, and then fail all the more completely because he drinks. It is rather the same thing that is happening to the English language. It becomes ugly and inaccurate because our thoughts are foolish, but the slovenliness of our language makes it easier for us to have foolish thoughts.

 Orwell argued that political actors use language to deceive their audiences. He writes:

The words democracy, socialism, freedom, patriotic, realistic, justice have each of them several different meanings which cannot be reconciled with one another. In the case of a word like democracy, not only is there no agreed definition, but the attempt to make one is resisted from all sides. It is almost universally felt that when we call a country democratic we are praising it: consequently the defenders of every kind of regime claim that it is a democracy, and fear that they might have to stop using that word if it were tied down to any one meaning. 

Political actors can easily exploit the different meanings of words by using them in vague and imprecise ways. The audience then assumes the word to mean what they think the word means, rather than whatever meaning might have been intended by the speaker. The popular use of the term "a fair tax regime" serves as a ready example. Each person projects their own, everyday understanding of fair onto this word, giving the phrase any number of meanings, probably few of which would survive scrutiny under close examination. Consequently, a political actor announcing a new tax policy can deceive her audience by calling it “a step towards a fair tax regime” without in any way attempting to define what such a regime might require to fulfill principles of fairness.

In a paper presented last month at McGill, Professor Lynne Latulippe presented the use and misuse of the term "competitiveness" in contemporary tax policy. This term, usually bundled with efficiency, frames contemporary tax policy discussions and often hides the fact that generous benefits are intended to be granted to certain political constituents thereunder.

On Monday, Professor Shirley Tillotson from Dalhousie University will add to this discussion by presenting her text, “The moral worlds of fair taxation: a perspective from 20th century Canadian history” at the McGill Tax Policy Colloquium. In an echo of Orwell's warnings, Professor Tillotson presents a striking example of the use and misuse of rhetoric in furthering political goals by examining the use of "patriotism" in the development of Canadian taxation. Patriotism served as a ‘moral exhortation’ in the interwar period, as Professor Tilloston puts it, to do one’s part for the national purse.

Professor Tillotson employs as a telling example a noted failure of the federal tax authority to enforce compliance with the tax law on judges in Quebec, on the grounds that exposing judges as tax dodgers would undermine “absolute confidence” in the system just as the government badly needed cash to address the fiscal crisis of the 1930s. The rhetoric ran thus: if people do not have confidence that the judiciary is acting patriotically, then why would they aspire to patriotism? By sweeping non-compliance under the rug and linking taxation with war, the authorities were able to convince people in the 1920s through to the 1940s that paying taxes is patriotic.

These days, we tend not to use the term patriotism to convince the public to comply with tax law. Instead, Professor Tillotson argues, discourse in the late 1950s and early 1960s revolved around different questions: which features are of the tax system are fair, economic, or moral? Deductible mortgage interest payments, child care expense deductions, expense account deductions are examples of policies that were in play. All of these succeeded or failed because they were fair or unfair; economic or uneconomic; or moral or immoral.

Free-riders in action.

The idea of the free-rider is the common denominator in tax reform politics, throughout the time period examined by Professor Tillotson and extending to contemporary tax discourse. Free-riders always have been, and always will be, the object of fiery hate. Words like patriotism and fairness may have elastic definitions, but free-rider is clear: someone who does not pay their fair share. And for some reason, people get really get riled up over other people not paying their fair share.

But a definition of free-rider depends on one’s definition of fairness. Multinationals like GE, Starbucks, Google, or Apple were easily painted as free-riders after media reports that they apparently pay very little taxes anywhere. Many people think that the fair share for these multinationals should be higher. Yet each company points to the other ways in which each contributes to social goals, and each lobbies vigorously for ever more tax reductions by arguing that these reductions would help them contribute even more to society or by falling back on a rhetoric of competitiveness.

Consequently, we will continue to "lob moral molotovs" at each other until we come to some definition of fairness. Maybe, as Orwell suggests, we do not want to find a definition for fairness, because then we will be tied to that definition. Self-interested parties want to continue hijacking this word, and others like it, to their own advantage. A consensus on fairness would put an end to that.

Reading Orwell alerts us to how important it is to pay close attention to the words used in tax policy discourse, and parse through any tax talk that is mired in political spin.  Orwell warned that the "invasion of one's mind by ready-made phrases … can only be prevented if one is constantly on guard against them, and every such phrase anaesthetizes a portion of one's brain.” As Professor Tillotson puts it: “[w]e should be able to do better”.

Corporate Tax Breaks to Which No One in Gov Pays Any Attention

It is quite extraordinary how much taxpayer money can be spent through expenditures that face no systemic evaluation on the merits. The GAO released a report dated September entitled Corporate Tax Expenditures: Evaluations of Tax Deferrals and Graduated Tax Rates. The main findings are not exactly news: deferral reduces tax on U.S. multinationals by delaying tax until repatriation, and we don't really know whether graduated corporate tax rates are accomplishing whatever purpose we think they serve. For both cases, maybe the most alarming point is the last one on each topic: no agency has evaluating these expenditures as a mandate. Here are the summarized findings:

On deferral:
1. some experts say deferral promotes competitiveness of U.S. multinationals, but others say this ignores the effect on other corporations that can't use deferral, as well as broader economic impact.
2. deferral could distort corporate investment and location decisions and we don't necessarily know who benefits; meanwhile, deferral adds complexity to the tax code.
3. no other federal spending programs appear to subsidize U.S. MNCs in the same way
4. estimates suggest deferral doesn't cost much budget-wise
5. no federal agency has been tasked with evaluating deferral.

 On graduated corporate rates:
1. graduated rates are supposed to support small business, but we don't know if they do.
2. graduated rates present little complexity, but they probably induce planning and their impacts on decision-making aren't well understood.
3. graduated rates may be related to (a.k.a. duplicative of) other federal spending programs targeted to small businesses.
4. estimates suggest graduated rates don't cost much budget-wise
5. no federal agency has been tasked with evaluating the graduated rates.

More at the link, but not dramatically so.

Tomorrow at McGill Law: Sagit Leviner presents on the Three Goals of Taxation

The 4th Annual Tax Policy Colloquium at McGill Law continues Monday with a presentation by Professor Sagit Leviner of Ono Academic College, Israel, on her paper, co-authored with Tali Nir, Contemplating on the Meaning & Attainment of the Three Goals of Taxation, forthcoming in Honoring Arie Lapidot (Hebrew University Press, 2014). Here is the abstract:

Why do we need a tax system? Do we want the tax system to only finance public goods and services or do we also intend it to redistribute wealth and regulate human behavior?  What are the different means available to advance each goal and the likely (as well as unlikely) tension that might built up when utilizing these means and pursuing  the different goals? This chapter seeks to address these questions in order to present the building-blocks for a clear and accessible analysis of the goals of taxation. Specifically, the chapter addresses these goals in the context of the Israeli tax system while placing the analysis in a broader theoretical and empirical setting.

In connection with the above, Professor Leviner will discuss her 2003 Tannenwald prize-winning paper, From Deontology to Practical Application: the Vision of a Good Society and the Tax System, 24 Va. Tax Rev. 406 (2006) [draft here]. That paper laid out Leviner's vision for thinking abut tax policy from the perspective of a community-rather than individual-oriented view of society, "drawn from an analysis of the role that individual and collective rights and responsibilities ought to play in contemporary tax policy-making." This innovative work laid the groundwork for her current research and should make for a lively discussion.

The McGill Tax Policy Colloquium features distinguished visiting academics and offers a forum for students, professors, and local practitioners to discuss issues of tax policy and theory, along with related issues of economics and social justice.

Professor Leviner's talk is scheduled to commence at 2:30 pm tomorrow; members of the public are warmly welcomed.

 Location: McGill Faculty of Law, 3644 Peel Street, New Chancellor Day Hall, Room 203.
 Date and Time: Monday, 28 October, 14:30–16:30.

OECD public meeting on tax-base erosion project: US MNCs hope to 'participate'

Reuters reports that the OECD will have a "public meeting" in Paris on Nov 12-13, at which "companies will get to voice their concerns about the OECD's 'base erosion and profit shifting,' or BEPS, project":

The United States Council for International Business (USCIB), representing about 300 U.S. multinationals, has asked to participate at the hearing, said Carol Doran Klein, USCIB's tax counsel, on Monday.

And here comes a parade of lobbying that will be designed to protect all that is favorable to their clients in the status quo. These are the moments when I really appreciate the amount of transparency we have in US politics thanks to organizations like Open Secrets, the Sunlight Foundation and Muckrock:

A number of U.S. companies, including E. I. du Pont de Nemours and Co, (DD.N) and Starbucks Corp (SBUX.O), have raised questions about the BEPS project with members of Congress and the Obama administration, according to corporate lobbying disclosures filed earlier this year.

Remember "raising questions' is like "raising concerns": it doesn't mean the speaker has either a question or a concern; instead it means the speaker has an agenda. The Reuter's story continues:

Under existing international standards, the fees charged [on an inter-company basis] are supposed to be set using an "arm's length" approach, meaning one that replicates market-level values. In practice, fees are often skewed so that profits can be shifted into the low-tax country where the assets are located and out of higher tax countries. 

These practices are legal, but tax fairness activists and some less-developed countries are complaining about them.

Interesting subtext there. The story doesn't give any more detail about the public meeting but here is what the OECD says:

On 12-13 November a consultation, open to the public and press, will be held at the OECD in Paris. If you wish to attend, please contact TPConference@oecd.org.

Is not public and press redundant? No matter: the point is, this is part of the public consultation portion of the BEPS program.Here is a draft agenda in pdf, and it is fascinating in lineup of both topics and speakers--namely, only two are named right now and one of them has been a long time and trusted voice of business interests against corporate tax transparency, and purveyor of norm framing exercises at the OECD, namely, GE's Will Morris; the other is Michelle Levac, noted as one of the 50 biggest influences in tax by International Tax Review, owing to her role in leading Working Party 6 on transfer pricing. These two get bookend treatment, opening and closing the consultation. All the other speakers are TBD, so this is where the USCIB seeks to gain a foothold. Here is the outline so far:

Programme  Public Consultation on Transfer Pricing Matters  12-13 November 2013  OECD Conference Centre  2 Rue André Pascal, Paris 16th, France  Tuesday 12 November  08:30-09:30 Registration   09:30-09:50 Opening remarks and Ground Rules    Speakers:
Michelle LEVAC, Chair of Working Party No. 6
William MORRIS, BIAC   09:50-11:15 I:  Implementing country-by-country reporting  The BEPS Action Plan directs the OECD to develop and implement a system of country-by-country reporting to tax authorities of high level MNE group financial information.  A large number of questions arise in connection with implementing such a system.  These include:  (i) what information should be reported; (ii) at what time should that information be reported; (iii) to whom should such information be reported; and (iv) how should such information be shared among relevant governments, taking into consideration concerns regarding non-cooperative governments, incomplete treaty information exchange obligations, and the need to protect confidential taxpayer information.
Speakers: to be announced
1.  Information to be reported
2.  Information to be reported
3. Mechanisms for reporting / to whom to report / information sharing   11:15-11:45 Refreshment Break      11:45-13:15 II:  White Paper on Transfer Pricing Documentation  The BEPS Action Plan calls for the OECD to develop rules on transfer pricing documentation.  To initiate that process, the OECD published a White Paper on transfer pricing documentation on 30 July 2013.  The White Paper raises a number of issues on which business has provided comments.  These include: (i) the implementation of a standardised two tier documentation system; (ii) the use and content of a global master file; (iii) mechanisms for limiting early reporting to information useful in risk assessment with subsequent opportunity for governments to obtain detailed information necessary for audit; (iv) the development of materiality standards; (v) implementing consistent documentation formats across countries; and (vi) mechanisms for minimising unnecessary compliance burdens.    Speakers: to be announced  1.  Two tier approach
2.  Contents of global master file
3. Establishing materiality standards  4. Mechanisms for simplifying compliance (1)
5. Mechanisms for simplifying compliance (2).   13:15-14:30 Lunch break      14:30-16:00 III:  Revised Discussion Draft On Transfer Pricing Aspects Of Intangibles – Definitional Issues And Comparability Factors  On 30 July 2013 the OECD published a Revised Discussion Draft on Intangibles.  In the RDD, the definitional section was changed in some respects.  In addition, a new section of the RDD addresses comparability factors including location savings, features of local markets, assembled workforce, and corporate synergies.   Discussion in the afternoon session will be devoted to definitional issues and to the new section on comparability factors.
Speakers: to be announced
1. RDD changes to the definition of intangibles
2. Usefulness of the term “marketing intangibles”
3. Treatment of goodwill and on-going concern value / Examples 16 and 18   16:00-16:30 Refreshment Break      16:30-18:00 IV:  Revised Discussion Draft On Transfer Pricing Aspects Of Intangibles – Definitional Issues And Comparability Factors  (Continued)    Speakers: to be announced
4.Treatment of location savings and local market features
5. Treatment of Assembled Workforce
6. Treatment of group synergies
7. The financing and guarantee examples / Examples 1 and 2     Wednesday 13 November     09:30-11:00 V.  Revised Discussion Draft On Transfer Pricing Aspects Of Intangibles – Section B Of The RDD Section B of the June 2012 Discussion Draft attracted numerous written comments and was the subject of much discussion at the last business consultation. It has been substantially redrafted.  The approach in the RDD is more transactional in nature, while still emphasising the primary importance of functions performed, assets used and risks assumed.  The morning discussion will focus on the changes to Section B and the related examples     Speakers: to be announced
1. The general approach of new section B.
2. Examples 1 – 3
3. The treatment of outsourcing arrangements
4. The treatment of important functions   11:00-11:30  Refreshment Break      11:30-13:15 VI:  REVISED DISCUSSION DRAFT ON TRANSFER PRICING ASPECTS OF INTANGIBLES – SECTION B    Speakers: to be announced
5. Examples 11 – 14 and footnote 5 on page 63.
6. Treatment of funding for intangible development
7. Guidance on the use of corporate trade names   13:15-14:30 Lunch      14:30-15:15 VII: Other Discussion Draft Topics    Speakers: to be announced
1. Treatment of valuation techniques
2. Guidance on transfer pricing methods
3. Options realistically available / Example 24   15:15-16:00 VIII: Transfer Pricing Aspects Of The Beps Action Plan
The BEPS Action Plan published in July will guide much of the OECD transfer pricing work in the next two years.  The Action Plan contains four substantive transfer pricing areas of work in Actions 4, 8, 9, and 10.   This discussion will provide business an early opportunity to comment on the transfer pricing aspects of the Action Plan and the approach that Working Party No. 6 should take to fulfilling its mandate under the Action Plan.    Speakers: to be announced
1. How should the BEPS Project approach the question of hard to value intangibles / particularly transfers of partially developed intangibles?
2. How should the BEPS Project approach questions of risk allocations that may give rise to separation of income from relevant economic activity?
3. What role should there be for approaches outside the arm's length principle in addressing BEPS issues?        16:00-16:30 Refreshment Break      16:30-17:30 IX:  TRANSFER PRICING ASPECTS OF THE BEPS ACTION PLAN (CONTINUED)    Speakers: to be announced
4. How should the BEPS project approach the topic of recharacterisation of transactions?
5. What should the BEPS project consider in connection with global value chains and profit split approaches?
6.  What should the BEPS work on financial transactions address?    CONCLUDING REMARKS   17:30-18:00 Speakers:
Michelle LEVAC, Chair of Working Party No. 6
William MORRIS, BIAC   18:00 ADJOURN

Perhaps there will be additional public consultation meetings, I do not know. As Lynne LaTulippe taught my tax policy class recently, the consultation process is an often overlooked and in general understudied aspect of norm diffusion and lawmaking. This is one of the many times I wish that I was geographically situated to attend these things. I will be very interested to see how the speaker lineup evolves and would be very grateful to hear about the discussion from anyone who attends.

Rosenzweig on Corporate Tax Incidence

Last week I posted the JCT paper that outlines their approach to measuring the incidence of the corporate tax, in which  Further on the question of who bears the in which the JCT explained its decision to assume that in the short run the incidence of corporate tax is fully on capital owners but in the long run (assumed to be reached by the end of a ten year analysis period), owners can shift 25% of the tax to domestic labor. Adam Rosenzweig recently posted a paper on this topic, entitled A Corporate Tax for the Next One Hundred Years: Incorporating Macro-Economic Conditions and Fiscal Policy into the Corporate Income Tax, in which he argues that that incidence can shift more onto labor during periods of high unemployment, so corporate tax rates should float in response to prevent this shifting of incidence onto labor at the worst time. Here is the abstract:

The United States has included some form of income tax on corporations at least since the enactment of the Sixteenth Amendment one hundred years ago. Notwithstanding this long lineage, however, surprisingly little is known about who ultimately ends up bearing the cost of the tax, or whether it even matters. Perhaps in simpler economic times such as 1913, or 1932, or even 1980, this might have been acceptable. But as the world confronts vastly different economic conditions than the ones faced in the past, finding new ways to understand and implement the corporate tax will become crucial to its survival. This Article will introduce one way to do so by taking into account how macro-economic conditions, such as high unemployment, can impact who bears the incidence of the corporate income tax. The lesson that can be learned is that conditions such as high unemployment can cause the incidence of the corporate income tax to shift from capital onto labor, at least as compared to periods of full employment. This insight into who actually bears the cost of the corporate tax can fundamentally alter the landscape of the corporate tax policy debate, from using corporate taxes to increase progressivity to abolishing the corporate tax through integration. By explicitly incorporating both macro and micro-economic realities into fiscal policy, policymakers can transform the corporate income tax from a blunt and uncertain fiscal tool to a more precise instrument robust enough to survive the next one hundred years. 

This Article will consider one specific example, proposing a Dynamic Self-Adjusting Tax rate, or DST for short. The DST takes the incentive of employers to shift the cost of the corporate tax onto labor through lower wages, increased layoffs, or otherwise during periods of high unemployment as a given. The DST then offsets this by charging employers (through higher marginal tax rates) when they do shift the cost of the corporate tax onto labor while, at the same time, rewarding employers (through lower marginal tax rates) when they make new investments in labor. In this manner, the DST could help reduce existing tax-induced distortions while also potentially generating positive macro-economic feedback effects. By incorporating both macro and micro effects into the analysis, the DST could prove pro-growth, pro-employment, and self-financing all at the same time.

Global Tax Expert Database?

I've been slowly working through a couple of manuscript reviews and in one of them I started thinking about the problem of fly-in expert consultation, i.e., the traditional model of tax experts from rich countries flying in to developing countries to assess the situation and provide advice for tax reforms. This was connected to a conversation I had on twitter last week about how to get needed research on technical tax policy alternatives accomplished, when donors and tax policy institutions like the OECD tend to focus on tax assistance that furthers rather than challenges the status quo. The dangers inherent in these paradigms include policy ossification helped along by ideological entrenchment, as well as the privileging of historical ideas about who ought to be considered an expert. Also relatedly, in a paper I am working on about tax governance and the problem of special interest group influence, I am thinking about how to create more policy space for alternative tax policy views from academics and non-governmental, non-industry groups--i.e., those without direct (pecuniary or otherwise) stakes in tax policy outcomes.

This brought me to thinking again that lending expertise upon demand (rather than pushing expertise onto others) is an appealing idea and I would like to see some sort of a matching program, through which interested academics, NGOs, and other non-industry, non-government experts could make themselves available to revenue officials, especially in poorer countries, to collaborate on reforms desired by the officials, for instance by reading reforms proposed by industry or legislators or commenting on drafts of proposed tax guidance and the like. It would be an interesting project in and of itself, mapping out and connecting areas of interest and expertise that are currently excluded from the established network of government-run tax policy institutions and otherwise fragmented by geography, resources, and institutions.

Coincidentally, after I recently posted a comment on twitter about how the US could take unilateral measures to curb global tax avoidance if it chose to do so, fellow twitterer @hselftax wrote, "the #AdoptanMP campaign aims to give tech tax info to UK MPs. Perhaps you need #AdoptASenator in US?" Fascinating idea! Here is a website that talks about it.

How might such a program be built transnationally and tailored to tax collaboration on request? It would need to be voluntary on both sides--i.e., folks who self identify areas they would be willing to consult on, together with disclosure of credentials and affiliations, and revenue officials who identify areas in which they are seeking outside expertise. Does such a platform already exist, i..e, on LinkedIn or elsewhere? Is there an app for this? I know that the OECD has created tax inspectors without borders, but what I have in mind is a slightly different model than official-to-official consultation.

Measuring Corporate Tax Incidence: Update from the Joint Committee on Tax

The JCT released a report yesterday laying out its new method for measuring corporate tax incidence, Modeling The Distribution Of Taxes On Business Income (JCX-14-13).  The paper begins with a nice summary of the literature to date, and lays out the JCT's decision to assume that in the short run the incidence of corporate tax is fully on capital owners but in the long run (assumed to be reached by the end of a ten year analysis period), owners can shift 25% of the tax to domestic labor. Current Treasury practice assumes an 82/18 split. JCT explains its methodology and provides "illustrative examples", so the report is worth reading in full, but here are a few excerpts of note:

The Joint Committee staff has refrained from estimating the distribution of changes to the taxation of corporate income.... Past decisions not to estimate the distribution of taxes on corporations and passthrough entities were the result both of uncertainties among economists regarding the appropriate incidence of business taxes and to data limitations which made it impractical to distribute such taxes in the timeframe necessary to fit the legislative schedule. However, the economic literature has continued to advance. The Joint Committee staff believes that public finance economists now have a better understanding of, and can more appropriately measure, the incidence of taxes on business income. ... In addition, more detailed data and faster computing speeds help make timely completion of such distributional effects more feasible. 

...The debate over the incidence of corporate income taxes is ongoing, with a range of estimates on the precise breakdown depending on the assumptions of underlying models. Nevertheless, the existing research has arrived on two clear points of consensus. One is that the burden of the corporate income tax falls largely on domestic individuals, and therefore the corporate income tax does impact the well-being of these individuals. The second is that the burden of corporate income taxes is not borne entirely by capital owners, and is instead shared between capital owners and labor with the share borne by each being the subject of ongoing debate. 

...In the very short run, the incidence of business tax changes should fall entirely on the holders of the existing capital stock and bond holders. ... [I]n the long run owners of domestic capital are more easily able to escape some of the burden of the tax so business taxes are at least partially passed on to labor. ... 

The new methods ... reflect the current understanding in the economics profession that domestic individuals ultimately bear the majority of the burden of these taxes. Given the general economic consensus that these taxes should be distributed to individuals, the Joint Committee staff believes that estimating the distribution is appropriate. In the short run the new method distributes 100 percent of both types of taxes to owners of capital. In the long run it distributes 75 percent of corporate income taxes and 95 percent of the taxes attributable to passthrough business income to owners of capital. 

A portion of capital’s share of the corporate tax burden is borne by international capital owners, so in both the short run and the long run the distribution of tax burdens borne by domestic owners of capital is less than the burden borne by all capital owners. The portion of the corporate income tax burden borne by foreign capital owners is not distributed to domestic individuals on tax distribution tables. The remainder of the tax burden that is not distributed to foreign and domestic capital owners is distributed to labor, reflecting the compensation adjustment that results from corporate income taxes reducing the after-tax revenue that each worker generates for his firm. 

Given no definitive economic literature on the duration of the short run, the Joint Committee staff generally assumes that the long run is reached by the end of the 10-year budget window. These distributions between capital and labor reflect the middle of the range of estimates for distributing business taxes in the economic literature. The Joint Committee staff will use the updated distribution methods in this report to estimate tax distributions for all future estimates of the distribution of Federal income taxes. The Joint Committee staff will continue to evaluate and refine this approach to be consistent with new research findings as they arise. 

The Shutdown and a Tea Party Tax Paradigm Shift: Guest Post by Marco Garofalo

One of the many benefits of hosting a tax policy colloquium is that the students become deeply engaged in grappling with tax policy principles through contemporary scholarship, and they apply these ideas to the world in which they find themselves. After our recent presentations by Reuven Avi-Yonah on the shifting pressures of globalization on the tax base, by Clifton Fleming on the politics of tax expenditure analysis, and by Lyne LaTulippe on the topic of tax competition, in which she introduced us to work by the political scientist Mark Blyth, one of my students came back with the following analysis of tax politics in the US, and he agreed to share it here.

Government Shutdown and a Tea Party-Induced Tax Policy Paradigm Shift in the United States

A paradigm shift in tax policy may be unfolding in the United States, as the Tea Party positions itself differently than either the Democrats or the Republicans when it comes to important aspects of tax policy processes and practices.  In a recent article, "Paradigms and Paradox: The Politics of Economic Ideas in Two Moments of Crisis," Mark Blyth investigated why we did not see a paradigm shift in economic policy after the financial crisis of 2008. He argues that paradigm shifts are usually:

1. triggered by failures in the current paradigm; 
2. accompanied by a new paradigm that is waiting in the wings to replace the current one; and 
3. driven by a change in who can speak authoritatively on the subject.

He concluded that “it is politics, not economics, and it is authority, not facts, that matter for both paradigm maintenance and change.” Consequently, he argues that we did not see a paradigm shift after the financial crisis for a few reasons. First, even though there was a failure of the current paradigm, there was no challenger waiting to replace it. To illustrate his point, Blyth suggests that it was inconceivable that the Washington Consensus would be replaced by the Beijing Consensus, “so complete was its initial victory.” Second, the sudden policy failure did not result in a change of who speaks authoritatively on the subject, as protagonists did not change (individuals in the US Treasury, the ECB, and the IMF all retained their authority) and thus their solutions did not either. Blyth calls this ‘disciplinary incentive’; in other words, “too many careers and institutions are at stake!” Thus the financial crisis did not spur a paradigm shift.

But consider the Tea Party and its crusade. Since 2009, the Tea Party has been an unavoidable presence in US politics. While the Tea Party story has many permutations, causes, and manifestations, only the current government shutdown is important for the purposes of the current discussion. The current shutdown is not about Republicans versus Democrats; it is about the Tea Party versus Republicans. The Patient Protection and Affordable Care Act passed in Congress, was upheld by the Supreme Court of the United States, and its funding was not seriously contested by the Republican Party. This is an artificial crisis, a main architect of which appears to be Jim DeMint, former US Senator and current President of the Heritage Foundation.  If non-Tea Party GOP members do not want to play along, the implicit threat, according to Joshua Green of Bloomberg Businessweek, is that the Tea Party will turn on them, such as by launching “attack ads calling [Republican Senator Mitch] McConnell a ‘turncoat’ who ‘surrendered to Barack Obama’ in the healthcare fight."  So far, the Tea Party is pulling off this political coup: the government is shut down and positions are becoming entrenched.

Now consider this political impasse as a paradigm shift. First, we have a failure in the current paradigm (even though it is artificial). Joshua Green argues that “What’s causing the malfunction is a battle within the GOP.”  Second, we have a paradigm waiting in the wings to replace the current one. In fact, the Tea Party is not so much waiting to replace the Republicans as forcing that to happen. Third, the loci of authority in the Republican Party are shifting, either to Tea Party members or to the remaining GOP members who agree to change their tune. Hence we may see a paradigm shift, in which the Tea Party becomes the dominant faction in the Republican Party, resulting in a recalibration of the Democrat-Republican relationship.

Such a paradigm shift would have serious implications for tax policy. At least two would arise immediately, in the areas of tax expenditure analysis and tax consultations. First, tax expenditure analysis may begin to play a greater role. While the Republicans and Democrats function largely by dressing government spending as tax credits and deductions, the Tea Party is having none of that. The prime example would be the current crisis. The current government shutdown is itself a tax issue: the Patient Protection and Affordable Care Act, SCOTUS cogently reminds us, is a piece of tax policy. If the Tea Party does become the dominant Republican faction, then tax expenditure analysis may take center stage as a tool to sniff out government spending in all of its forms.

Second, the structure and content of tax consultations could change. Professor LaTulippe argues that international tax policy is beholden to a discourse of competitiveness (draft forthcoming). While part of the competitiveness discourse is about low rates, which the Tea Party presumably likes, part of the discourse is about tax expenditures, which the Tea Party would not like. Currently, tax consultations perpetuate this discourse by giving short time frames for the private sector to contribute to proposed tax reforms, with the result that a certain class of participants (accountants and lawyers) is greatly advantaged in giving feedback and achieving client-favored tax policy results. With the Tea Party paradigm, that policy loop could be disrupted, as this recent article suggests.

A paradigm shift in US politics is not certain. Any number of things could happen, including the Republican Party standing up to and beating the Tea Party. If that were to happen, then tax policy commentators should be concerned about the issues described above. Maybe once the dust settles we will meet the new boss, same as the old boss. But the current government shutdown (and impending sovereign debt default deadline) exhibits signs of a paradigm shift.  Something fundamental does seem to be changing on the small government side of political discourse. As such, we should stay tuned to the implications for tax policy.

Morriss and Freyer: Creating Cayman as an Offshore Financial Center

Andrew Morriss and Tony Freyer recently posted an article, "Creating Cayman as an Offshore Financial Center: Structure and Strategy Since 1960," in which they trace the development of the fiscal regime that made the Caymans the tax haven everyone loves to hate. The authors document the regime's roots in intense and purposeful transnational collaboration between British and Cayman government officials and private sector professionals. Like Morriss' previous work with Craig Boise on the Netherlands Antilles, this is a well-researched account of the political, institutional, social, and cultural factors at work in tax competition, and a must-read for everyone working on international tax policy issues.  From the abstract:

The Cayman Islands are one of the world's leading offshore financial centers (OFCs). Their development from a barter economy in 1960 to a leading OFC for the location of hedge funds, captive insurance companies, yacht registrations, special purpose vehicles, and international banking today was the result of a collaborative policy making process that involved local leaders, expatriate professionals, and British officials. Over several decades, Cayman created a political system that enabled it to successfully compete in world financial markets for transactions, participate in major international efforts to control financial crimes, and avoid the political, economic, racial, and social problems that plague many of its Caribbean neighbors. Using archival sources, participant interviews, and a wide range of other materials, this Article describes how the collaborative policy making process developed over time and discusses the implications of Cayman's success for financial reform efforts today.

There is so much in the paper it is difficult to extract effectively but he conclusion sums things up well:

Understanding how constitutional structure shaped the history of the Cayman financial center offers a response to critics’ preoccupation with actual or imagined abuses. OFC critics generally ignore the role of the United States and European nations in tax avoidance policies used by multinational corporations and wealthy individuals and those nations’ own roles as tax havens. ...  

The Cayman global competitive advantage thus did not originate in corrupt practices; it grew instead, from a history of social and constitutional stability sustaining collaborative policymaking among elected officials, legal professionals, and UK and Cayman civil service authorities like CIMA. 

... There is no question that the UK, the EU, and the United States have the power to [eliminate Cayman's tax policy autonomy] if they chose to do so. But if international relations are more than the exertion of brute force, there are important issues that need to be addressed in the development of international financial law with respect to OFCs. This requires broadly inclusive international consultations, not narrow efforts at defining best practices through rich nations’ clubs like the OECD or unilateral, asymmetric measures like the United States’ efforts through FATCA to force other countries to comply with U.S. regulatory measures. 

Tomorrow at McGill Law: Lyne LaTulippe presents on Tax Competition

The 4th Annual Tax Policy Colloquium at McGill Law continues Monday with a presentation by Professor Lyne LaTulippe of the Université de Sherbrooke, on a paper entitled "Public consultations framed within a competitiveness discourse." The paper examines the rhetorical and political power of the competitiveness motif in domestic tax policy-making processes, using two specific tax reform episodes in Canada and Australia as case studies of the institutional and political landscape. The author finds that competitiveness in taxation has become a dominant meme, crowding out alternative policy goals and narrowing democratic participation in the process.

The McGill Tax Policy Colloquium features distinguished visiting academics and offers a forum for students, professors, and local practitioners to discuss issues of tax policy and theory, along with related issues of economics and social justice.

Professor LaTulippe's talk is scheduled to commence at 2:30 pm tomorrow; members of the public are warmly welcomed.

 Location: McGill Faculty of Law, 3644 Peel Street, New Chancellor Day Hall, Room 203.
 Time: Monday, 7 October, 14:30–16:30.

Cliff Fleming presenting tomorrow at McGill Law

The 4th Annual Tax Policy Colloquium at McGill Law continues tomorrow with a presentation by Professor Clifton J. Fleming on the topic of the proper taxation of multinationals. The paper, coauthored by Prof. Fleming and Prof. Robert Peroni, is not yet available online but it is entitled Formulary Apportionment in the U.S. International Income Tax System: Putting Lipstick on a Pig? and in it the authors argue that formulary apportionment and the current standard, arm's length transfer pricing, are just two shades of lipstick on the pig that is the US international tax system, with its twin features of deferral and cross-crediting. They conclude that formulary apportionment might be the less offensive shade, but in effect the whole discussion is a diversion from a broad reform that is sorely needed on the pig itself.

The McGill Tax Policy Colloquium features distinguished visiting academics and offers a forum for students, professors, and local practitioners to discuss issues of tax policy and theory, along with related issues of economics and social justice. Professor Fleming's talk is scheduled to commence at 2:30 pm tomorrow; members of the public are warmly welcomed.

Location: McGill Faculty of Law, 3644 Peel Street, New Chancellor Day Hall, Room 203.

Time: Monday, 30 September, 14:30–16:30.

How to Buy a US Ambassadorship, and How Much to Pay

The recent news about the newly appointed US ambassador to Canada, Bruce Heyman--described as "A veteran Goldman Sachs & Co. executive and major fundraiser" for President Obama--reminded me of a paper I read some time ago in which the authors showed that ambassadorships are bought by contributing to the political coffers of the winning presidential candidate. All too unfortunately, this comes as no surprise. The more contributed, the more likely the desired post is obtained.  The paper is "What Price the Court of St. James? Political Influences on Ambassadorial Postings of the United States," by Johannes Fedderke and Dennis Jett, and here's a sample of the menu it describes, from a Table called "The Price of Some Lucrative Postings Implied by the Model":

The paper notes the low-end cost is usually for bundlers, while high-end cost is usually for individual donors, and "the greater pay-off attaches to bundled rather than personal contributions." The Center for Public Integrity's story about Bruce Heyman affirms the authors' predictions. Notice in the table above that the low-end price for the ambassadorship to Canada, most associated with the bundlers, is $740,418. From the CPI story:

Chicago-based Bruce Heyman raised more than $750,000 for Obama’s committees since 2007, along with his wife, according to a Center for Public Integrity review of records.

From a National Post story on the appointment, Bruce Heyman looks to be happy about the outcome:

Related findings from the Fedderke and Jett paper, some of which also affirmed by the latest appointment:

• the probability of a political appointment to a posting rises in the attractiveness of the posting as a tourist destination, and as the hardship allowance associated with a posting declines
• appointees that have personal political connections receive more lucrative postings in per capita GDP, tourist volume and hardship allowance terms. They are also more likely to receive postings in Upper Middle Income countries and in the Caribbean, North and Central America. 
• The greater the personal or bundled campaign contributions to a presidential campaign, the more lucrative the posting the contributor can expect in terms of per capita GDP, tourist volumes, hardship allowances, and the more likely the posting will be in High Income countries and Western Europe, and the less likely it will be in Central and South Asia or Sub-Saharan Africa.

And then there is this interactive from the CPI (below is a capture but you can click the link to roll over each country and see the details):

Notice how the bundlers and political appointees versus the "career diplomats" correspond to the observations above by Fedderke and Jett, and if you review the interactive's details about each of the ambassadors you get further affirmation of Fedderke & Jett's predictions about the costs of obtaining these posts based on their model. Incidentally, from the paper the price of the Court of St. James was "between $650,000 and $2.3 million": according to CPI, that appointment has been confirmed to Matthew Winthrop Barzun, National Finance Chair for Obama's 2012 campaign, who raised at least $1.2 million for the President. Fun fact: the first ambassador to represent the US there was John Adams, who, along with four others to hold that post, later became President themselves, thus completing the cycle. No idea how much each paid to get there, though.

Money might not buy happiness, but it appears that it might well get you to a nice diplomatic post in a tourist destination.

Reuven Avi-Yonah presenting tomorrow at McGill Law

The 4th Annual Tax Policy Colloquium at McGill Law commences tomorrow with a presentation by Professor Reuven-Avi Yonah on the topic of the relative mobility of labor and capital and the implications for tax policy. The Colloquium features distinguished visiting academics and offers a forum for students, professors, and local practitioners to discuss issues of tax policy and theory, along with related issues of economics and social justice. Professor Avi-Yonah's talk is scheduled to commence at 2pm; members of the public are warmly welcomed.

Location: McGill Faculty of Law, 3644 Peel Street, New Chancellor Day Hall, Room 203.

Time: Monday, 23 September, 14:00–16:00.

Chasing expatriate corporations not going so well, but raising interesting questions of residence

Lee Sheppard has an update in Tax Notes [gated] on the US "anti-inversion" rules--designed to treat corporations that in effect expatriate by reincorporating offshore--as if they were still US persons in some cases.

Reporting on a recent meeting hosted by the International Tax Institute on "Corporate Inversions - Will They Ever End?  Is There A Solution?," and featuring John Merrick (Special Counsel to the Associate Chief Counsel (International)); Lew Steinberg (Managing Director - Head of Strategic Advisory, Credit Suisse Securities (USA) LLC); and Willard Taylor (Adjunct Professor, NYU Law School), Lee says the consensus is that:

The anti-inversion statute, section 7874, doesn't work very well at its stated goals, and Congress hasn't bothered to fix section 163(j), the ineffectual interest-stripping rule. And there's not a whole lot the IRS can do about it, except treat the departed corporations the same way it treats real foreign parents.

For the uninitiated, in an inversion a U.S.-based multinational company restructures its corporate group so that after the transaction the ultimate parent is foreign. After this flip, shareholders of the former U.S. parent company now hold stock of the foreign parent company. Everything else stays the same, e.g. business as usual at the operations level. Here is a nice explanation from Mayer Brown.

This kind of expatriation is susceptible to a charge of being done for tax dodging purposes only, and Congress doesn't like it. Accordingly Congress enacted 7874 to throw various obstacles in the way of inversion and, most drastically, to ignore the expatriating attempt all together--i.e., to treat the foreign parent company as a US person--if U.S. shareholders retain 80% ownership. Lee says:

[N]o one is silly enough to allow them to retain more than 80 percent, in which case the surviving corporation would be re-domesticated. So most recent deals fall in the 75 percent range of retained U.S. ownership, Steinberg explained. 

...In June 2012 the IRS issued new proposed ... and temporary regulations... [which] require that the expatriated corporation have at least 25 percent assets, employees, and income in its new country of residence. Merrick admitted that the 25 percent threshold is "a bit on the high side" and "inflexible." The IRS is open to constructive comments but will not return to the easier tests of the 2006 proposed regulations, he said.

Lee asks, "Is the third try a charm?" She says practitioners complain that "no company can possibly meet the 25 percent test, particularly the income/sales factor," but:

Merrick demurred. The statute is not designed to allow each U.S. multinational to flee to some other country, he explained. "Our view is that it requires a concentrated center of gravity," he said.

Interesting remark: a concentrated center of gravity seems like a qualitative, rather than quantitative, measure, more akin to a mind/management standard for corporate residence than the formalistic place of incorporation rule the US currently uses. Perhaps in time the US will adopt the mind & management rule either in addition to or to replace the current regime. If mind & management plays a replacement role instead of a supplementary one, that opens the door for also considering what individual residence looks like if one employs "a concentrated center of gravity"as the organizing principle. It seems that looks a lot more like the residency tests used by 99% of the rest of the world's countries.

Leaving aside the concentrated center of gravity remark, the 25% test itself is an interesting turn toward formulary apportionment. There has been a lot of discussion in international circles about whether the current standard for allocating revenues among countries based on the arm's length transfer pricing standard, which involves a lot of shenanigans, could be profitably replaced with a more formulaic approach to revenue sharing.  As the two papers I linked to yesterday suggest, under formulary apportionment countries would look to assets, employees and sales revenues to devise a formula for allocation among countries. The OECD has in effect rejected even the discussion of formulary apportionment as a policy matter, but I have suggested that I do not think they can suppress this discussion much longer. If we have the US looking at these factors of income production for purposes of determining corporate residence, can formulary apportionment really be so far off the horizon?

Finally, noting that the ownership fraction seems to be the only factor the IRS wishes to consider in analyzing inversions at the moment, Lee states that the priority guidance in this area involves "regulations addressing dilution of shareholdings and manipulation of the ownership fraction. Future regulations will disregard certain shares of the new foreign corporation in determining the U.S. ownership fraction. The government had become aware of transactions designed to minimize U.S. ownership, such as issuance of 21 percent of the new foreign corporation to a friendly investor."

The obvious goal here is to continue to make it harder for US corporations to expatriate, on the theory that expatriation is highly suspect because tax avoidance is a main reason (and some believe the only reason) why a corporation would want to leave the US. This, I think, is consistent with the current US view toward expatriating individuals: their motives are also highly suspect, and so their exit may only be accomplished by means of complex and expensive administrative mechanisms. In the case of individuals, however, expatriation is a final act--once given up, US citizenship will be almost impossible to reacquire. Not so for corporations, at least, so far.

Recent Scholarship of Note on Normative and Practical Challenges in Corporate Taxation

Yariv Brauner recently posted "Whither Choice of Entity," in which he examines choice of entity and policy implications in support of the repeal of corporate taxation, or failing that, a redefining of corporate residence to move toward source-based taxation, preferably with formulary apportionment. He provides a comprehensive picture of the ongoing chaos created by entity classification and residence assignment rules. Brauner correctly mourns the lack of normative principles underlying the differential taxation of entities, which he attributes to the "unorganized thinking" that characterizes much of the discussion about how choice of entity rules impact people's business choices, and the general messiness of policy-making as it evolves haphazardly through lobbying and political posturing.  He concludes:

In light of the incredible variety of options beyond mere incorporation or non-incorporations, one must wonder why tax law uses corporate or private law as the baseline for the application of its rules. Most importantly, why do we attribute importance to the act of incorporation? ...[T]here is nothing particularly special about businesses that carry a piece of paper stating that they are incorporated. A legal response to that may not be very feasible. We do not have a satisfactory legal answer to the central question: why do we tax corporations separately when only humans bear the burden of such taxation.

...The most obvious lesson is that the potentially negative impact of the corporate income tax on our tax system goes beyond the complexity it imposes on our tax system, and even beyond its negative political implications. In that, it reinforces the conclusion that the first-best step in a reform must include the elimination of the corporate income tax as a firm-level tax, perhaps replacing it with a withholding mechanism to preserve the efficacy of corporations as revenue collecting devices, or with other proxy solutions, such as mark-to-market taxation of public corporations only. 

Another solution... may be to replace the current residence based taxation of entities that relies exclusively on corporate personhood with an alternative, more substantive tax regime. This could be an increasingly source-based rather than residence-based tax regime, yet such a reform faces several difficulties, including the need to retain residence as a primary determinant of taxation, the difficulty of identifying the source of income, the difficulty of asserting a fairness-based tax base division between source and residence once established, etc. A better solution would be to adopt formulary taxation that relies on agreement between competing jurisdictions rather than false pseudo-economic notions. 

Henry Ordower verifies Yariv's concerns and takes a related approach in Preserving the Corporate Tax Base Through TaxTransparency, in which he states:

When, where, and at what rate to tax the income of business entities are the fundamental questions for the corporate income tax. Answers to those questions should remain independent of the taxpayer’s choice of business form, because one may achieve identical revenue outcomes with entity opacity or transparency. When the answers to those questions vary with business form and tax system structure, opportunities to arbitrage those differences across national borders and diminish or avoid tax on the corporate in- come inevitably emerge.

Tax professionals, administrators, academics, economists, and business participants may and often do disagree on whether a corporation’s (or other business entity’s) income from the operation of its business should be taxable to the corporation itself or taxable to its owners. Opinions also may diverge on whether to tax investment income differently from income from the operation of a business. Despite those disagreements, as long as there is to be an income tax, all will agree that the choice of one business form over another should not result in income from business operations escaping income tax completely.

Similarly, income should be subject to tax primarily where the taxpayer produces income from the operation of a business. Taxing income where the taxpayer’s principal office or seat of management happens to be makes sense only under a system that taxes residents and citizens on their worldwide incomes (a global model of taxation like the United States has) and then only secondarily to the place of income production in order to prevent taxpayers from gaining an advantage by placing their income in low-tax jurisdictions. 

...[A] wholly transparent income tax system would improve existing corporate tax systems and establish tax neutrality between entities currently subject to the corporate income tax and those that are not. Full transparency is consistent with international treaty obligations and simultaneously eliminates many international tax arbitrage opportunities. Business needs rather than tax benefits would drive choice of business form. If accompanied by a robust system of international apportionment of business income, a fully transparent corporate income tax would eliminate most income allocation arbitrage as well as tax system structure arbitrage opportunities.

Read them both to get a good sense of the history, evolution, and ongoing challenges facing corporate income taxation.

Russell Brand on governance as theatre and why MNCs get all the tax breaks

Russell Brand got invited to the GQ awards, made a joke about Hugo Boss' history serving Nazi troops, and then got ejected. I would never have heard or cared about this except that then Russell Brand decided to write about the experience in the Guardian, and his comments ended up as an indictment of the relationship between elites and government with a nod to the problem of multinational influence on tax policy. Excerpts:

We witness that there is a relationship between government, media and industry that is evident even at this most spurious and superficial level. These three institutions support one another. We know that however cool a media outlet may purport to be, their primary loyalty is to their corporate backers. We know also that you cannot criticise the corporate backers openly without censorship and subsequent manipulation of this information.

Now I'm aware that this was really no big deal; I'm not saying I'm an estuary Che Guevara, it was a daft joke, by a daft comic at a daft event. It makes me wonder though how the relationships and power dynamics I witnessed on this relatively inconsequential context are replicated on a more significant scale. 

For example, if you can't criticise Hugo Boss at the GQ awards because they own the event do you think it is significant that energy companies donate to the Tory party? Will that affect government policy? Will the relationships that "politician of the year" Boris Johnson has with City bankers – he took many more meetings with them than public servants in his first term as mayor – influence the way he runs our capital? 

Is it any wonder that Amazon, Vodafone and Starbucks avoid paying tax when they enjoy such cosy relationships with members of our government? 

Ought we be concerned that our rights to protest are being continually eroded under the guise of enhancing our safety? Is there a relationship between proposed fracking in the UK, new laws that prohibit protest and the relationships between energy companies and our government? 

From the shallows of celebrity comings and goings, an all-too rare glimpse of perspective on the society we have built for ourselves.

Razin on Tax and Migration Competition

Assaf Razin and Efraim Sadka have a new paper up on NBER called Migration into the Welfare State, in which they survey the literature on the tax burden of migration and work with available migration and tax policy data to make some assertions about how taxation impacts inward and outward migration.  From the abstract in the paper:

We develop a stylised EU-type model of rich capital-abundant (and productive) countries and poor capital-scarce countries in order to explain a key feature of tax policies and inter- and intra-migration flows. We examine how this model can explain the differences in the tax rates and the generosity of the welfare state, on the one hand, and migration flows, on the other hand, between rich and poor countries, within a union and from the rest of the world. An upward-slopping supply of migrants from outside the union and the relatively low endowment of capital of these migrants gives rise to a fiscal externality.

The jargon-heavy style of this abstract continues through the paper and I cannot say that I really understand some of the arguments. Razin and Sadka seem to conclude that under conditions of tax competition (for example, involving migration from countries outside of the EU), rich countries let in too many immigrants, offer them too many social benefits, and levy too high a tax on capital (which immigrants don't typically pay) to pay for it all, while coordination fixes things (although confusingly the papers seems to suggest that coordination brings down capital gains taxes but intensifies migration flows, so I am not sure). Unfortunately this paper requires too much deciphering and parsing work by the reader (an all-too-common phenomenon with academic papers) and at this time of year there is little hope for that.

A plea to academic authors who write papers on tax topics especially (and a reminder to myself when I look at my own writing): readers need a clear and succinct summary, written in plain, jargon-free language, to help them summon the desire and the mental energy to work through a paper. The more complex and data-filled the paper, the more a return to Zinsser is to be recommended.

GAO to IRS: issue guidance on Bitcoin to safeguard tax compliance

Not too long ago, the US Government Accountability Office issued a report entitled "Virtual Economies and Currencies: Additional IRS Guidance Could Reduce Tax Compliance Risks," saying that the extent of tax evasion is unknown but might not be extensive if only virtual currencies stay in a "closed" system, as illustrated by this handy chart:

There you have it. Despite the chart (I'm pretty sure that horse left the barn a long time ago), the report is worth reading to get a sense of the direction of regulatory thinking.

McGill Tax Policy Colloquium 2013

This fall marks the fourth installment of the McGill University Faculty of Law Tax Policy Colloquium.  This year’s colloquium features a number of distinguished invited speakers who will contribute a rich variety of scholarly works in progress on cutting edge topics involving national and international tax law and policy.  If you will be in Montreal on any of these dates, I invite you to join the tax policy class to hear presentations by this illustrious group.  All presentations begin at 2:35 in New Chancellor Day Hall, Room 203, at the Faculty of Law, 3644 Rue Peel, Montreal, Quebec.

September 23: Reuven Avi-Yonah (University of Michigan Law School)

·         Professor Avi-Yonah is the Irwin I. Cohn Professor of Law and director of the International Tax LL.M. Program at the University of Michigan Law School, and specializes in corporate and international taxation. He has served as a consultant to the US Treasury Department and the Organisation for Economic Co-operation and Development (OECD) on tax competition, and is a member of the steering group for the OECD’s International Network for Tax Research.

September 30: J. Clifton Fleming (BYU J. Reuben Clark Law School)

·         Professor Fleming is the Ernest L. Wilkinson Chair and professor of law at BYU’s J. Reuben Clark Law School where he teaches courses on US and international tax law, European Union law, and public international law. Previously, he has been the Fulbright Distinguished Chair at the Vienna University of Economics and Business, the Fulbright visiting professor of law at the University of Nairobi, and the Professor-in-Residence for the IRS Chief Counsel’s Office.

October 7: Lyne Latulippe (Département de fiscalité Université de Sherbrooke)

·         Professor Latulippe currently teaches in the tax department at the University of Sherbrooke and was previously on the faculty at UQAM. She researches and publishes on topics of comparative and international taxation, international tax cooperation, and tax policy.

October 28: Sagit Leviner (SUNY Buffalo Law School & Ono Academic College Faculty of Law)

·         Professor Leviner is on faculty at SUNY Buffalo Law School and is also affiliated with Ono Academic College Faculty of Law in Israel. Her research explores the coming together of normative and pragmatic aspects of tax policy design, particularly with respect to tax enforcement, behavioral attributes of taxation, and the tax burden distribution.

November 11: Shirley Tillotson (Dalhousie University)

·         Professor Tillotson is a member of the history department at Dalhousie University. Her research and publications focus on the cultural history of taxation in Canada, the evolution of the welfare state, and how gender, class, and social norms affect personal finance.

November 25: Diane Ring (Boston College Law School)

·         Diane M. Ring is a Professor of Law at Boston College Law School, where she researches and writes primarily in the field of international taxation, corporate taxation, and the taxation of financial instruments. Her recent work addresses issues including cross-border tax arbitrage, advance pricing agreements, and international tax relations.