Papers & Reports

This article discusses corporate tax effects on multinationals’ R&D. While corporate groups report aggregate R&D expenditures, the distribution across different subsidiaries is difficult to obtain in databases that are readily available for researchers. The present paper adds empirical evidence on real R&D activity by looking at R&D expenditures of U.S. majority-owned subsidiaries abroad.

The Global Minimum Tax (GMT) introduces significant changes to the international tax architecture and thereby to the taxation of large multinational enterprises. This paper assesses the impact of the GMT by using new and unique data on MNE worldwide activity building on comprehensive estimates of global low-taxed profit.

The proliferation of digital services taxes (DSTs) in Europe is generally understood as a way for those countries to claim taxing rights over the profits of large digital platforms. Under prevailing norms of international income taxation, these large digital businesses had been able to avoid paying taxes in countries where they had no physical presence, even if they had many users in those countries. The rise of big tech has generated a set of regulatory and political challenges, and taxation is one of these challenges. This article argues that the adoption of DSTs is not only about the fair allocation of taxing rights, but also economic competition between the U.S. and the EU, anxiety over the effects of digital platforms on society, and antitrust concerns about the economic power of the tech giants. DSTs provide an interesting illustration of how tax scholarship grapples with a novel tax.

Andrew T. Hayashi and Young Ran (Christine) Kim, Taxing Digital Platforms, 26 Va. J. L. & Tech. 1, 2023.

The European Commission published an FAQ regarding the application of the EU's pillar 2 global minimum tax directive, along with the commission's responses.

Corporate tax policy developments are the result of inter-governmental competition for increasing mobile capital. This paper empirically investigates whether governments are substituting from corporate to consumption taxation due to tax competition. This is investigated by using a novel self-collected data set of corporate and consumption tax regime information. Additionally, this paper analyzes the rate-revenue relationship of tax instruments to evaluate the overall revenue implications of corporate tax competition. From the investigation, it is found that, on average, a one percentage point decrease in the corporate tax rate leads to a 0.35 percentage point increase in the consumption tax rate. These results indicate that the debate on corporate tax competition may overstate efficiency considerations and underestimate equity concerns.

Georg Thunecke, Are Consumers Paying the Bill? How International Tax Competition Affects Consumption Taxation (Max Planck Inst. Tax L. & Pub. Fin., Paper No. 26, 2023).

The U.N. General Assembly adopted a resolution that calls for the establishment of a member-state-led, ad hoc intergovernmental committee to develop and finalize a comprehensive convention on international tax cooperation. 

Firms experiencing financing constraints may increase tax planning if the associated cash savings outweigh any increased cost of capital caused by information asymmetry resulting from those tax planning activities. Prior research found that US firms facing this trade-off engaged in additional tax planning. This paper investigated this relation in an international setting and found opposing results. Specifically, this paper found a significantly negative association between tax planning and country-level financing constraints. This suggests that, outside the U.S., the transparency benefits of committing less tax planning outweigh any cash-saving benefits. The effect is more pronounced in settings where transparency is already lacking, and cost of capital is otherwise high. Overall, this paper shows that U.S. firms are unique in their approach to tax planning when facing financing constraints. This is likely due to the relatively low U.S. penalty for tax planning and the U.S. cost of capital being the lowest in the world.

This document sets out the third set of Administrative Guidance released by the Inclusive Framework and includes further clarifications on a number of key areas that will help MNE Groups transition into the GloBE Rules.

This article revisits the OECD Commentary’s position on the compatibility of CFC rules and tax treaties from a historical perspective. It highlights that the key technical argument behind the compatibility endorsed by the Commentary rests on the anti-abuse character of the rule. This backdrop is of relevance for the analysis of rules that purport to have a similar mechanism but that lack the anti-abuse character – including worldwide income taxation rules and the Income Inclusion Rule (IIR) under Pillar 2. The article posits that these situations are beyond the scope of the technical argument and, therefore cannot rely on the OECD Commentary to support their compatibility with tax treaties.

Pedro Guilherme Lindenberg Schoueri, Ricardo André Galendi Júnior, Tax In History: CFCs and Tax Treaties: Historical Elements for the IIR Debate (2024), 52, Intertax, Issue 1 [pre-publication], pp. 1-11.

Christopher Hanna and Cody Wilson argue in U.S. International Tax Policy and Corporate America that an international tax reform proposal focusing on maintaining low financial accounting effective tax rates could win over proponents of full current rate taxation of foreign income as well as U.S. publicly traded corporate America. They propose combining full current rate taxation of foreign income with a reduced overall corporate tax rate of approximately 15%. This, they assert, could be roughly revenue neutral or raise revenue. In this paper, the authors explain why they disagree with this assertion and provide several justifications for their position. They argue that a reduction in the corporate tax rate would increase the problem of income and wealth inequality and exacerbate distortions of current law.  Again, they submit that with the adoption of the corporate alternative minimum tax by the United States in 2022 and the anticipated adoption by many countries of Pillar 2 qualified domestic minimum taxes, full current taxation of foreign income under Hanna and Wilson’s proposal would raise little or no additional revenue.

Shay, Stephen E. and Fleming, J. Clifton and Peroni, Robert Joseph, Directions for International Tax Policy, A Response to Hanna and Wilson (November 6, 2023). 48 The Journal of Corporation Law Digital 8 (2023).