Papers & Reports

This article explores the underexamined area of sovereign tax immunity—the federal income tax treatment of foreign governments investing in the United States—arguing that it has significant potential as a national security tool. Amid growing calls to reconceptualize taxation through a national security lens, the article critiques recent legislative proposals that seek to modify sovereign tax immunity without fully considering their broader implications. Through an interdisciplinary analysis spanning tax law, national security policy, and international law, the article warns that altering the U.S. approach to sovereign tax immunity risks conflicting with established interpretations of customary international law, potentially undermining the legitimacy of international norms, harming U.S. diplomatic relationships, and provoking retaliatory actions. While recognizing the strategic utility of sovereign tax immunity, the article emphasizes that changes must be carefully crafted to avoid unintended diplomatic and legal consequences. It concludes by proposing a legislative framework for leveraging sovereign tax immunity in a way that aligns with U.S. foreign policy and national security interests while preserving international legal coherence and credibility.

This article investigates how the EU prohibition of State aid affects the tax allocation of multinational profits, focusing on the application of the arm’s length standard across EU Member States. While designed to ensure market-based transfer pricing, the standard can unintentionally result in prohibited State aid, both through its regulatory structure and enforcement practices. These concerns have intensified in light of recent EU State aid cases involving individual tax rulings granted to major multinationals, which were reviewed by the European Court of Justice. This contribution offers a systematic analysis of the broader tensions between transfer pricing regulations and the EU State aid framework, using the latest jurisprudence as a basis. The article first dissects the objectives and internal contradictions of the arm’s length standard to construct a reference point for identifying selective advantages. It then explores how deviations from this standard—whether through special regimes or individual rulings—may constitute unlawful State aid under EU law, raising questions about the compatibility of transfer pricing enforcement with internal market rules.

This paper analyzes the implications of Donald Trump’s proposed 25% across-the-board tariff on U.S. imports, including those from Canada, framing it as a fundamental break from the post-WWII U.S.-led trade system. While past retaliatory tariffs—such as those in response to Trump’s steel and aluminum duties—were effective in prompting reversals, the current geopolitical and ideological climate suggests retaliation may no longer yield the same results. A new populist trade narrative in the U.S., centered on deindustrialization, national security, and anti-globalization sentiment, particularly with regard to China, indicates that protectionism may be entrenched for the long term. Given this shift and the potential for a prolonged disruption to North American trade, the paper proposes a resilient Canadian policy response modeled on past crisis management strategies and the long-term success of firms like Lincoln Electric. Key recommendations include: strengthening the social safety net, especially in anticipation of AI-driven labor disruptions; investing in modern infrastructure; accelerating innovation in the intangibles economy; and supporting domestic start-ups by redirecting subsidies away from foreign multinationals. This approach aims to reduce vulnerability to U.S. trade shocks and build a self-sustaining, innovation-driven Canadian economy.

This article examines three recent court decisions—Toulouse, Christensen, and Bruyea—that address whether U.S. tax treaties provide an independent basis for claiming a foreign tax credit against the Net Investment Income Tax (NIIT), which is not creditable under the Internal Revenue Code. In Toulouse, the Tax Court denied a treaty-based credit, while in Christensen, the Court of Federal Claims reached the opposite conclusion, distinguishing Toulouse. The Bruyea decision went further, broadly permitting the credit and, crucially, addressing whether the NIIT constitutes a treaty override. The court's reasoning in Bruyea raises the broader and potentially far-reaching implication that no 21st-century U.S. tax legislation—such as the BEAT (Base Erosion and Anti-Abuse Tax)—overrides U.S. treaty obligations. Given the substantial revenue consequences of holding that BEAT and similar provisions may not apply to treaty residents, the article argues that Congress must clarify the relationship between newer tax laws and existing treaty commitments in upcoming tax legislation.

This paper analyzes the economic impact of trade frictions between the U.S., Canada, Mexico, and China using a computable general equilibrium (CGE) model that incorporates Armington elasticity and the Eaton-Kortum approach. By simulating various tariff scenarios and retaliatory measures, the study finds that tariff increases lead to GDP declines of up to 16.5% for Canada, 6.6% for Mexico, 0.3% for China, and 0.19% for the U.S., while benefiting major trading partners of these nations. The results show that retaliatory tariffs do not significantly mitigate economic losses for Mexico, Canada, or China. Additionally, the study challenges the assumption that trade frictions promote domestic production in the U.S., revealing that broad-based tariffs on Canada, Mexico, and China could instead reduce U.S. import and export trade flows, prompting global trade to bypass the U.S. altogether. These findings underscore the unintended consequences of protectionist policies and highlight the shifting dynamics of global trade.

This study examines the economic impact of geo-economic fragmentation (GEF) and the disintegration of global value chains (GVCs) driven by geopolitical tensions and supply chain disruptions. As nations adopt near-shoring and friend-shoring strategies to enhance supply chain resilience, the shift toward de-globalization accelerates. Using a multi-country, multi-sector computable general equilibrium (CGE) model that incorporates global production networks, the study quantifies the economic costs of friend-shoring. The findings reveal that economies engaging in friend-shoring incur significant economic losses, with real GDP declines exceeding 20% in some cases. The severity of these effects depends on trade dependency, reliance on key trading partners, and a country’s strategic role within global production networks. Notably, the study finds that countries with higher centrality in global trade networks face lower economic costs. In China, the extensive and diversified trade in goods and intermediate products helps mitigate the risks of trade disruptions, buffering the impact of friend-shoring strategies.

This paper examines the impact of strategic trade policy interventions, specifically tariffs, on wages and welfare using a two-country general oligopolistic equilibrium (GOLE) model. Contrary to findings in partial equilibrium frameworks, the study finds that tariffs do not affect domestic wages and instead reduce the welfare of the tariff-imposing country. It further explores whether tariff revenue can compensate affected workers and finds that when only final goods are traded, worker compensation is feasible beyond a specific tariff threshold, which depends on foreign tariff rates. However, when both final and intermediate goods are traded, the results reverse, meaning that tariff revenue can only compensate workers up to a certain tariff level, as tariffs may lower overall labor demand. These findings are policy-relevant in light of the growing integration of developing economies into Global Value Chains (GVCs) and the renewed use of tariff protectionism worldwide, highlighting the potential trade-offs between protectionist policies and labor market outcomes.

This paper examines the Trump administration's potential use of Section 891 of the Internal Revenue Code and pending legislation as tools to impose retaliatory taxes on foreign countries that enact “discriminatory or extraterritorial” taxes targeting U.S. multinationals. Section 891, a rarely invoked provision, allows the U.S. to double the tax rates on corporations and individuals from countries that impose discriminatory taxation on U.S. businesses.

This paper examines mandatory binding arbitration as a dispute resolution mechanism in the post-BEPS landscape, particularly in the context of African countries implementing the OECD’s tax reforms. This paper evaluates the benefits and risks of arbitration, particularly within the realities of African tax systems, and ultimately advocates for its adoption as the preferred dispute resolution mechanism despite existing concerns. It argues that arbitration offers a more efficient, predictable, and enforceable approach to resolving tax disputes, positioning African countries to navigate the complexities of the post-BEPS international tax framework effectively.

This article examines how states respond to foreign economic coercion, arguing that sanctions trigger broader security concerns that incentivize governments to protect a wide range of domestic firms, not just those directly targeted. Using an original dataset of U.S.-sanctioned Chinese firms, the study explores how China shields its industries from U.S. sanctions. The research finds that China not only subsidizes sanctioned firms but also extends support to other domestic firms competing for the same government contracts. This protective strategy ensures supply chain resilience and encourages domestic firms to maintain normal business operations within sanctioned industries. The findings offer new insights into the intersection of geopolitics and industrial policy, illustrating how governments leverage state intervention to counteract economic warfare and sustain strategic industries.