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Papers & Reports

The Physical, Human Driven Digital Economy: The Overvaluation of Intangibles and its Effects on Tax and Society

  • By Jan Winterhalter, Mariam Sattorov, and Lukas Seiling

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.

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The Effects of the Tax Cuts and Jobs Act on the Tax-Competitiveness of Multinational Corporations

  • By Michael Overesch, Leon G. A. Reichert, and Georg Wamser

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.

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Designing Domestic Minimum Taxes in Response to the Global Minimum Tax

  • By Noam Noked

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.

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The Retained EU Law (Revocation and Reform) Bill - Could the UK VAT System Operate Without EU Law?

  • By Fabian Barth

According to Barth, the Retained (EU) Law (Revocation and Reform) Bill (the Bill) sends an unambiguous message of Parliament placing greater reliance on the UK's domestic enactments and interpretations, while removing EU law from the UK’s statute books and case-law. In this paper, the author explores the impact and risks of such reliance on UK domestic law within the realm of VAT, which is an area of tax law that places heavy reliance on retained EU law.

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General Explanations of the Administration's Fiscal Year 2024 Revenue Proposals

  • By U.S. Department of the Treasury

On March 9, 2023, President Biden submitted a proposed FY 2024 Budget request to Congress. The proposals include increases in corporate rates in order to align the United States with the Pillar II GLoBE rules.

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Trade Enforcement Tools and International Taxation: A Digital Services Tax Case Study

  • By Stephen E. Shay

Shay in this paper addresses digital services tax (DST) from the lens of the US’ approach. He argues that although the US Section 301 trade actions against DSTs were strikingly effective in the short term, the provision is nonetheless ill-suited as a process for challenging taxes of other countries and lacks legitimacy. Shay argues that the sovereign power to tax is very broad and that there is no sufficient consensus on tax norms which may form the basis for unilateral action against DSTs. He argues further that the US Trade Representative’s tax policy analysis is weak and unpersuasive and believes that the US’ application of Section 301 to contest taxes of other countries portends longer term consequences such as undermining efforts to achieve a stable and sustainable international tax system.

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Foreign Holding Companies and the US Taxation of Foreign Earnings: Evidence from TIPRA 2005

  • By Frank Murphy

Murphy analyzes the use of foreign holding companies in their organizational structure by US multinationals and its implication for internal capital markets. Murphy also analyzes the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) which provides for a look-thru rule which reduces the after-tax cost of foreign intercompany financing transactions. Using the TIPRA as a natural experimental setting to test whether a shift in US tax policy that reduces the cost of moving foreign capital increased firms’ reliance on foreign holding company subsidiaries, he opines that multinational companies responded to TIPRA by creating more foreign holding companies.

Murphy also notes that, consistent with the policy objectives of TIPRA, multinational companies that rely on holding companies gained tax efficiencies in their post-TIPRA foreign internal capital markets, reducing domestic taxation on foreign earnings and easing financial constraints.

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The effect of US tax reform on the taxation of US firms’ domestic and foreign earnings

  • By Scott Dyreng, Fabio B. Gaertner, Jeffrey L. Hoopes, and Mary Vernon

The authors attempt to quantify the immediate net effect of the TCJA on the tax burden on corporate profits for public US corporations and appears to find similar reductions in effective tax rates for domestic and multinational firms, with the entirety of multinational tax savings stemming from tax savings on their domestic, not foreign, earnings. The authors find no significant change in the federal tax burden on foreign earnings both on average and specifically for firms most likely to be subject to new anti-abuse provisions. They find some evidence that firms not targeted by anti-abuse provisions saw reductions in their federal tax burden on foreign income.

They conclude that while the tax burden on domestic income decreased significantly, their findings suggest that the tax burden on the foreign earnings of US multinationals is largely unaffected despite the overhaul of the international tax system. Additionally, they note that, in relation to the investment decision of US multinationals’, while foreign income was heavily tax-favored prior to tax reform, foreign and domestic incomes are similarly taxed after TCJA enactment.

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An Indonesian Perspective on Global Tax Reform and Pillar 2

  • By Gitarani Prastuti

Prastuti’s policy brief is a contribution to the work of policy makers in the Indonesian Ministry of Finance who are in a quest for the best policy response to the global minimum tax rules agreed upon by 137 countries on the 8th October 2021 - Global Base Erosion Rule (GloBE). Prastuti’s report includes recommendations such as the adoption of a domestic minimum tax to protect domestic tax revenue; the adoption of the GloBE rules to capture top-up tax from another country; the restructuring of investment policy in Indonesia to fit the global minimum tax landscape; simplification of the GloBE reporting system; an amplification of behavioral insights with advanced analytics for ease of administration; the adoption of the Multilateral Cooperative Compliance Framework for the GloBE Rules; and the strengthening of international collaboration and capacity building.

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Tax Challenges Arising from the Digitalisation of the Economy – Administrative Guidance on the Global Anti-Base Erosion Model Rules (Pillar Two)

  • By OECD

On February 2, 2023, the OECD released Administrative Guidance on the Pillar Two GloBE rules. The Administrative Guidance addresses multiple issues that Inclusive Framework members have identified as needing immediate clarification and simplification.

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