Papers & Reports

“Zero-price” transactions—in which goods or services are provided at a cash price of zero—are an increasingly important feature of economic life. Consumers can search the web, use email, listen to music, and even trade stocks, all without paying anything out of pocket. But zero-price transactions are not free: for-profit businesses provide products at zero-price because they get something valuable from consumers in return. Consumers pay with their time, attention, or private information. Zero-price transactions are not giveaways; they are a form of barter exchange. Under federal income tax principals, barter exchanges are taxable: both parties to the transaction are taxed on the value they receive. This Article considers the treatment of zero-price transactions from an income tax perspective. Should zero-price transactions be taxed like barter exchanges? If so, how should the amount received in a zero-price transaction be valued? And how can the federal government practically collect tax owed on zero-price transactions?

This article analyses the testimony submitted to the US Senate Finance Committee on this very topic and explores the ways in which the 2017 Tax Act (TCJA) contributed to the ongoing offshoring of profits by major pharmaceutical companies that generate significant portions of their revenues from the US market. The Article’s analysis are in three broad perspectives: It reviews the pre-2018 US international tax and profit shifting; the impact of TCJA; and finally, the implications of the OECD pillar two for the US and the taxation of US multinational corporations. The article concludes that the combination of dramatic profit shifting by many US multinationals, the global adoption of pillar two and the US commitment to a minimum tax call for reforms of US international tax policy.

The authors revisit the classical question as to the optimal design for the international corporate tax system in a multi-country general equilibrium model that incorporates three key features of the modern globalized economy, to wit: multinational production; intangible capital; and international profit shifting. They argue that the Ramsey model’s competitive equilibrium is inefficient due to an externality that arises from international spillovers in intangible investment. In order to quantitatively investigate the properties of the Ramsey planner's optimal policy in a more realistic setting, the authors extend the Ramsey model to an environment with firm heterogeneity and selection into multinational production. In their view the optimal policy in this environment is to cut corporate income taxes in rich countries and raise taxes in poor countries, which would benefit the latter substantially and shut down profit shifting worldwide.

Osswald and Pierk in this study investigate to what extent U.S. multinational corporations’ (MNCs) executives affect the tax planning of their foreign subsidiaries. They opine based on their results that parent executives (CEOs and CFOs) do not affect foreign subsidiaries’ tax planning (profit shifting and effective tax rates), and instead, subsidiaries' tax planning is largely explained by time-invariant subsidiary characteristics, and partly by local subsidiary executives when subsidiary managers have more incentives and opportunities to engage in tax planning. They analyze the role of executives in international tax planning and note that tax planning in non-tax haven subsidiaries is shaped by features of subsidiaries’ as well as local management as opposed to their parent executives.

Pantazatou in this article critically assesses the recent Grand Chamber judgment of the Court of Justice of the European Union (CJEU) on Registers of Beneficial Ownership (RBOs) and the preceding Advocate General’s Opinion. The author highlights certain misconceptions and ponders on the open questions left and then focuses on the interaction between the transparency principle and the fundamental rights of privacy and data protection. It also considers the potential impact of the judgment on ‘tax-related’ data and on fighting money laundering and tax evasion altogether.

Avi-Yonah considers the new proposed Global corporate minimum tax (GLoBE) as embodied in Pillar 2 of the OECD/IF BEPS 2.0 proposal which provides a 15% of financial statement income of within scope MNEs as well as the adoption of a similar rate and base for the new US corporate alternative minimum tax. Avi- Yonah posits that the Single Tax Principle (STP) on which Pillar 2 is built suggests that the rate should be the average OECD corporate tax rate (about 23%) and on that basis queries the 15% rate as being a political solution. In his response, he opines that this is not that case because it represents a justifiable compromise between the three goals of the corporate tax.

Cui in this paper considers the Canadian draft Digital Services Tax Act (DSTA) and the status of the Act in Canada. Cui notes that there has been a dismissal of the Canadian efforts towards taxation of the digital economy both within and outside Canada, and highlights three ways in which this dismissal of Canada’s proposed DST is worthy of consideration. Cui opines that the Canadian DST is much broader in scope than its U.K. and French counterparts, which in his view displaces criticism as to narrow scope which was leveled against the UK and French digital services taxes. Secondly, the author argues that the DSTA raises important new questions about DST design, especially in connection with taxing business-to-business and social media platforms, that may not be just technical in nature, but requires debate on the DST’s purpose. Finally, Cui notes that, since the enactment of the DST in 2019, the world has been plagued by other larger, and seemingly intractable, trade disputes. Yet the global tax profession continues to be fixated on the pettier trade dispute that DSTs have generated.

The authors in this paper provide a unique perspective to the debate around the digital economy, intangibles and taxation. They argue against the common perception of the digital economy being driven mostly by data, technology, the network effect or broadly speaking – intangibles.

They argue instead that “intangibles”, “technology”, or even “robots” should not simply be regarded as output of a genius or AI from the cloud but as output of labour, data, and resources. They posit that intangibles are overvalued, and auxiliary routine functions are undervalued. The potential reasons for this overvaluation include a lack of digital literacy even under experts, a biased valuation process, and tax evasion.

The authors opine that the potential negative impacts, such as inequalities and a monopoly driven innovation blockade, resulting from a potential overvaluation, emphasizes the need for further research, and submit that when the issues are looked at from their prism, the outcome for the nexus discussions in international tax law will be that even for AI you might need a physical presence in the form of labour, data, and resources.

The authors in this paper exploit the 2017 US tax reform to learn about the tax-competitiveness of US multinational corporations relative to their international peers. They compare pairs of similar US and European firms listed on the S&P500 or StoxxEurope600. Their results suggest significantly lower effective tax rates of US MNCs compared to their European competitors after the US tax reform. They provide evidence that US MNCs already successfully engaged in international tax planning prior to the reform, and this behavior is unchanged after the tax reform.

In view of the looming adoption of domestic minimum tax regimes under the Global Anti-Base Erosion (GloBE) as a means of ensuring that multinational enterprises pay a minimum level of tax, Noked in this paper notes the absence of guidance on several important design and policy issues concerning domestic minimum tax and analyzes the relevant rules in the OECD Model Rules and the guidance in the Commentary. He also explores several questions that the OECD and the GloBE Implementation Framework should consider regarding the design of domestic minimum taxes and related issues such as collateral benefits.