Papers & Reports

According to Wilkie and Eden, there are three underlying reasons for the current lack of confidence in the international rules for taxing the global profits of multinational enterprises (MNEs), to wit: (1) tax rules are not universal or natural; (2) taxes must be practical, administrable, and collectible; and (3) tax policy is a domain where national sovereignty and multilateralism are both important and conflictual. The authors use Transfer Pricing as a case study because it affects how an MNEs global profits are allocated among countries. Wilkie and Eden then make proposals for an alternative to the arm’s length principle with inspiration from the distinction made by the International Centre for Settlement of Investment Disputes between investment and trade that underlies the four-factor Salini test: contribution, assets, risk, and duration. They argue that the Salini test provides useful insights into the conundrum of “source” and a way out of the current lack of confidence in the international tax system.

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Mintz in this paper examines the intersection between the corporate income tax base and the proposed global corporate minimum tax. Mintz notes that the aim of the global minimum tax is to reduce the incentive for profit shifting by putting a floor on corporate tax rates so that they do not fall below 15 percent of adjusted accounting profits. However, the global minimum tax itself will introduce new capital market inefficiencies as a result of which foreign-owned capital will be subject to tax more heavily than domestic capital. He notes further that the minimum tax distorts capital allocation by favoring labor-intensive projects over capital-intensive projects. Mintz also argues that it distorts the accounting decisions of corporations when they seek to avoid paying the tax. Overall, it is not clear that the global minimum tax will work any better than other policies aimed at reducing corporate profit shifting.

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This paper by Kofler and Schnitzer considers the operation of the initial phase relief under the OECD Two Pillar Model Rules in its application in Europe, regarding whether it violates EU fundamental freedoms. The Pillar Two OECD Model Rules provide for initial phase relief for a five-year period, which prevents the application of the Undertaxed Payments Rule in order to ensure that the development of cross-border activities by purely domestic enterprises that benefit from low taxes in their home jurisdiction is not discouraged. The EU’s Pillar Two Directive mirrors the OECD Model Rules in that respect, but – due to its application of the Income Inclusion Rule to domestic Constituent Entities, including the Ultimate Parent Entity – it takes a more indirect approach to the initial phase relief through a mandatory exclusion from the IIR in certain domestic settings.
According to the authors, the non-application of the IIR to domestic Constituent Entities in the initial phase of an MNE’s international activity and to large scale domestic groups triggers the question whether the EU fundamental freedoms are breached.

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Avi-Yonah in this paper interrogates the basic question as to why International Tax is bilateral compared to other areas of international law. Avi-Yonah notes that international tax law has traditionally been built upon bilateral treaties and unilateral actions, and by contrast, International trade law has traditionally been built upon multilateral treaties, with international investment law, although bilateral, containing Most Favored Nation (MFN) clauses that render it effectively multilateral. Avi-yonah’s paper explores the reasons and asks whether they are still valid.

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Eden considers the UN Resolution 77/244, adopted by the General Assembly on 30 December 2022 which reaffirms earlier commitments by the United Nations to improve international tax cooperation, fight illicit financial flows, and combat aggressive tax avoidance and evasion. The resolution requires the Secretary General to prepare a report on the ways to strengthen the inclusiveness and effectiveness of international tax cooperation with consultation with member states and other states actors (civil society inclusive). It is in furtherance of this that Eden offers comments on different ways to frame the issue of international tax cooperation. This opinion piece provides a brief history of international tax cooperation, it analyzes the three streams of research that may inform UN policymaking, to wit: the literatures on wicked problems, prescriptive public finance, and international regimes and global governance; and concludes with some suggestions for the way forward.

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Hanna and Wilson’s paper seeks to address a gap in existing proposals for U.S. international tax reform by discussing Corporate America’s focus on the interaction between financial accounting and tax accounting. The authors propose a U.S. international tax system that could have the support of tax scholars, policymakers, and Corporate America, all without sacrificing revenue. This paper is written on the backdrop of recent proposals by the Biden administration to raise revenue by bringing the United States closer to a worldwide no deferral system and raising the corporate tax rate from 21 percent to 28 percent. The authors argue that these changes are unlikely to become law and that the administration simply does not have the support of moderate Democrats, Republicans, and, especially, Corporate America. The Article aims to resolve the Biden Administration’s conundrum by proposing a worldwide no deferral system with a corporate tax rate in the mid to high teens, and argues that the proposal already exists in the 15 percent corporate alternative minimum tax, but few recognize this new tax system as a worldwide no deferral system because it is imposed on financial accounting income and applies only to the largest corporations.

According to Mohan and Gupta, IP assets enjoy a unique advantage in tax planning because of their intangible nature and the lack of physical substance thus making them susceptible to transfer across tax jurisdictions. The authors review the decision of the New Delhi High Court in a dispute in which IP assets registered in India were transferred between the Australian and English company through their subsidiary in Mauritius, and where the court relied on the doctrine of mobilia sequuntur personam to fill the lacuna in the Indian Income Tax Act 1961 and thus held that if a foreign corporation owns an IP asset, regardless of its registration and use in India, it would be taxed by the jurisdiction of the owner’s residence.  Mohan and Gupta in this article examine the relevance of the doctrine in line with precedential guidelines and the international treaty framework and posit that either inadvertently or by design, the Indo–Mauritian Double Taxation Avoidance Agreement creates an instance of double tax exemption of Mauritian-owned, Indian-registered IP assets.

To Brauner, one cannot escape the data revolution; it is all around us. Advancements in information collection, collation, and analysis are fundamentally altering our world. They are transforming the economy, society, and even ourselves. In view of the debate that these dramatic, fast-paced changes has triggered from the legal perspective, Brauner argues that existing and universal income tax rules are inherently incompatible with an economy in which information plays a significant and growing role, and that income taxation is incapable of effectively taxing information. Brauner thus posits that this inability necessitates immediate reform, and offers three viable paths to such reform: consumption taxation, data taxes, and formulary taxation. According to Brauner, formulary taxation is currently the most desirable and plausible path to effective reform, owing to its promise to best stabilize and maintain the legitimacy of the international tax regime. He believes that formulary taxation can be incorporated into the existing regime most naturally, and its use of multi-factor formulae gives it the best chances of legitimacy because such reform does not pre-determine winners and losers.

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.

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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.

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