Papers & Reports

In this article, the author reacts to a recent publication in the Canadian Tax Journal where the author argued that a country that applies pillar 2 could trigger an investment arbitration under a bilateral investment treaty. The author believes that theoretically, this may be true but on the whole, the Canadian Tax Journal article ignores the effect of not raising the tax on the investment, which is to trigger the application of tax by another country not party to the BIT. He argued that from the investor`s perspective, since it will be paying the tax in both cases, it is not clear that it is worth suing the host country because a successful suit that results in a payment could be treated as a further tax reduction that triggers additional tax elsewhere.

The benefits principle (that the source jurisdiction should tax active (business) income and the residence jurisdiction should tax passive (investment) income) is fundamental to the international tax regime. The four economists in 1923 based it on economic theory but also on the pre-1914 treaties. But where did the pre-1914 treaties derive the benefits principle from? The answer is not the theoretical considerations that influenced the four economists. In this case a page of history is worth a volume of economics. In the medieval and early modern tradition, a distinction was made between in personam and in rem taxes. In personam taxes could only be levied by the sovereign that an individual was subject to. The implication was that an individual could only be subject to in personam taxation by his country of citizenship, but that unlike modern residence-based taxation this tax could be applied wherever the citizen resided (like the modern US rule). In rem taxes, on the other hand, were imposed on the property itself, not on the individual, and therefore could be levied by the source jurisdiction.

This article discusses what options countries have to tax large multinationals without Pillar One, and then addresses the US response. The article argues that the best US response would be to adopt unitary taxation unilaterally along the lines long espoused by Sol Picciotto. The authors are of the view that pillar one is unlikely to succeed for three reasons. First is the requirement for a multilateral tax convention (MTC) to implement Amount A but negotiating an MTC is very challenging, especially when over 100 countries are involved and there are fundamental disagreements among them. Second, pillar one is aimed primarily at taxing US digital corporations and it is hard to implement it without the US particularly, when the Republicans are opposed to it. Third, is the fact that countries that have adopted digital services taxes (DSTs) are required by pillar one to repealed them but given that the US may not ratify the MTC, countries may be unwilling to repeal their DSTs.

In this article, the authors examine the application of section 367 to section 351 exchanges and the income inclusion issues that may arise upon a contribution made by a US person to a foreign entity. Essentially, the Article focuses on the contribution of property by a US person to a foreign corporation that would not disqualify the transaction’s favorable tax treatment and would not trigger an immediate taxable event. The authors believe that allowing favorable tax treatment in cross-border transactions where a person contributes appreciated unrealized property may lead to tax revenue losses and such transactions should be re-examined under sections 351 and 367.

This article examines the role of binding taxpayer initiated international dispute resolution on the international tax system. The authors believe that international tax arbitration is less developed and less respectful of private interests than investor-state arbitration. It analyses the binding multilateral dispute settlement endorsed by the over 130 countries of the OECD inclusive framework pillar two solution as important because of the reconsideration by some states to their initial consent to the international adjudication of trade and investment disputes. The authors believe that the design of the international dispute settlement in the two-pillar solution and the focus on protection of multinationals from juridical double taxation display little appreciation of the experience with dispute resolution in international trade and investment.

This Article digests the OECD pillar two 15% minimum tax on the GloBE income of certain in-scope multinational enterprises. The authors believe that the pillar two rules will clash with the typical tax incentives offered by countries to attract foreign direct investments including tax holidays, lower tax rates, exemptions and accelerated depreciation regimes which are normally offered in tax treaties. Notwithstanding, the authors believe that the 15% minimum tax is a win-win solution for both investors and host states.

Loitti, Wamuyu and Owens address how the GloBE Rules and their impact on investment incentives interact with investment provisions in Regional Trade Agreements. They also consider the impact of the minimum tax on regional integration efforts and the potential for a regional approach to its implementation.

This paper analyzes the use of intellectual property (IP) rights and the most common forms of tax measures to incentivize innovation and conducts a comparative analysis between the policies adopted by the US and the European Union. In discussing the interaction between tax policy and IP rights, it notes that tax policy instruments are used for purposes that differ from revenue-raising and wealth-redistribution, and a deep investigation becomes necessary to understand whether the objectives are pursued without hampering the status quo. Rizzo argues that the system should be looked at as a whole and several considerations should be conducted to understand whether there might be different ways to reach the same objectives more efficiently and without affecting the neutrality of the tax system; and that in all cases, the proposed policy should be coherent with its objectives and avoid undesired effects. The author proposes the use of tax systems to incentivize R&D tax credits and IP Box Regimes and analyses how these innovation-oriented tax measures will work.

According to the author, capital mobility has preoccupied scholars of international taxation for more than 30 years and while capital is highly mobile, countries compete to attract investment, creating a race to the bottom, enabling multinational enterprises (MNEs) to shift profits, and recently culminating in the OECD’s proposed Global Minimum Tax, with the aim of substantially curtailing tax competition. This paper suggests, however, that the significance of mobile capital for international taxation may be largely an illusion.

Geringer’s paper seeks to explore treaty anti-abuse provisions specifically from an equality perspective. The significance of differing concepts for the assessment of tax avoidance and tax abuse in different double tax conventions has not yet been specifically evaluated through the lens of equality, and no previous studies have particularly focused on the question as to whether, to what extent, and on the basis of which concepts or principles, equal treatment for similar and possibly abusive situations ought (not) be realized at the treaty, EU or national levels. Geringer’s paper aims to rectify this, and questions the impact of unequal tax treatment in treaty application as a product of variances in anti-abuse provisions. It is based on a comparative analysis and demonstrates that these effects are likely to specifically materialize in smaller economies and developing countries.