2023

This working paper examines how import competition affects sentiment toward China in local communities within the United States using a news-based index for sentiment. The authors find that commuting zones that bear the brunt of the trade shock exhibit significantly more negative shifts in sentiment. This adverse effect is not confined to economic and financial news but permeates a range of topics such as military/security and human rights. The negative effect on news-based sentiment persists over time and is robust to various checks. Our findings suggest that competition over trade may have important geopolitical implications through the sentiments of local communities.

This paper aims to explore the possibility of a UN Framework Convention on International Tax Cooperation (FCITC). The author argues that the creation of this framework is an opportunity for an institutional and conceptual reset. This reset is aimed at re-establishing a global perspective that has been disrupted by the assumption of an increasingly dominant role in international tax by the OECD. The author argues that the OECD’s expansive approach has taken place in counterpoint with growing concerns about the dysfunctionality of that approach and that the current process should learn from the past to design a global framework fit for the future by embodying the general principles that have come to be recognized as essential guideposts for effective international tax reform.

This working paper investigates whether artificial intelligence should be taxed independently from its controllers and how this taxation could be used to benefit tax administration while being a positive influence for private sector stakeholders. The authors propose that autonomous AI has started a transformation in the way legal systems around the world assign rights and obligations. Implementing a tax on the profits generated by autonomous systems is not only coherent with the current business entity model of taxation, but it is also an effective way to address the international tax challenges arising from AI operating in multiple jurisdictions.

Reuven S. Avi-Yonah & Lucas Salama, Taxation of Autonomous Artificial Intelligence: Socially Sustainable Expansion of Automation and Impacts on International Tax, U. Mich. Pub. L. Rsch. (forthcoming).

This article focuses on the tax implications and challenges that arise from the increasing mobility of human capital, and the necessary modifications that should be taken to strengthen the operation of the tax rules within the existing treaty network. The authors argue that taxing rules need modification to catch up with changes in technology and its effect in diminishing the significance of geographical nexus to more fairly allocate taxing rights among countries. International tax regime measures must acknowledge that, more often than not, individual taxpayers may have meaningful social and economic allegiances with more than a single taxing jurisdiction, and the geographical nexus may, in certain instances, be of less relevance than the personal nexus.

Tamir Shanan & Doron Narotzki, Tax Treaties and Denizenship Based Tax Systems, 36 N.Y. Int’l L. Rev. 57 (2023). 

This chapter describes one of the key anti-tax-avoidance rules to combat profit shifting by multinational corporations—Controlled Foreign Corporation (CFC) rules, including GILTI—that directly target income in low-tax countries. They find that GILTI seems to be ineffective when it comes to profit shifting, but it has consequences for real activity. The authors explain some key institutional features of CFC provisions and argue that research on CFC regulations and GILTI can be informative in assessing the recent global minimum tax initiative.

Michael Overesch, Dirk Schindler & Georg Wamser, Design and Consequences of CFC and GILTI Rules: A Review and Potential Lessons for the Global Minimum Tax (CESifo Working Paper No. 11018, 2024).

This article finds evidence to suggest that where a subsidiary is located in a country with a larger unique treaty network, the sensitivity of reported profits increases with regards to the statutory tax rate; the author concludes that this correlation suggests increased profit shifting. They note that this profit shifting enhancing effect decreases with host countries’ levels of tax enforcement.

This IMF working paper highlights that the international agreement on a corporate minimum tax is a milestone in global corporate tax arrangements. The minimum tax disturbs the equivalence between otherwise equivalent forms of efficient economic rent taxation: cash-flow tax and allowance for corporate equity. This paper shows that the marginal effective tax rate initially declines as the statutory tax rate rises, reaching zero where the minimum tax is inapplicable and increases thereafter. The key insight is that a minimum tax, akin to Pillar Two, breaks the equivalence between cash-flow taxation and the allowance for corporate equity (ACE).

Shafik Hebous & Andualem Mengistu, Efficient Economic Rent Taxation Under a Global Minimum Corporate Tax, (IMF Working Paper No. 2024/057, 2024).

This technical report aims to provide a seminal analysis and strategic roadmap that aims to empower Africa to assert its voice and agency in shaping inclusive and transformative international tax cooperation and governance. It provides African policymakers and leaders with a nuanced blueprint to recalibrate international tax cooperation, underscoring principles of inclusivity, equity, and transparency. Through highlighting the urgency of addressing illicit financial flows and the disproportionate impact of global crises on developing nations, this report advocates for a globally inclusive, intergovernmental tax process at the UN that ensures equal representation and participation of all countries.

This paper analyses developments in the CJEU’s case law regarding withholding taxes and the constraints that fundamental freedoms impose on Member States in this area.

Ivan Lazarov, Case Law Trend: Withholding Taxation Under the Fundamental Freedoms, 51 Intertax 524 (2023).

This paper investigates the introduction of Controlled Foreign Company (CFC) rules by the Anti-Tax Avoidance Directive (ATAD) in the European Union. The authors study whether the implementation of CFC rules, in the context of the ATAD, alters the location, financial, and economic activity decisions of multinational enterprises (MNEs). The results reveal that the newly implemented CFC rules are only partly effective in reducing profit shifting. Instead, the overall number of CFC subsidiaries decreased, and the financial revenue of the persisting subsidiaries remained largely unchanged. The authors observed positive effects on the costs of employees assigned to a CFC subsidiary, suggesting that the economic activity exemptions introduced by the ATAD allow MNEs to circumvent the rules. This permits them to opt for a simple approach, enhancing economic activity in these locations.

The authors examine the effect of business model digitalization on competition and corporate tax savings. Global policymakers have expressed concern that digitalization-related tax savings unfairly benefit the competitive standing of rival firms over their competitors. This article argues that rivals’ adoption of a digital business model leads to negative economic effects on the performance of their non-digitalizing competitors. Contrary to policymakers’ concerns of digitalization-related tax savings unfairly shaping competition, the authors' findings suggest that tax savings from digitalization are not a key driver of altering competition between digitalized and non-digitalized firms.

Elisa Casi, Petro Lisowsky, Barbara Stage, & Maximilian Todtenhaupt, Business model digitalization, competition, and tax savings (TRR 266 Acct. for Transparency Working Paper Series No. 142, 2024).