Paul L. Caron

Thursday, July 26, 2007

Tax Panels at Today's Law & Society Annual Meeting

There are three tax panels today at the Annual Meeting of the Law & Society Association at Humboldt University in Berlin, Germany, organized by Neil H. Buchanan (George Washington):

Law, Society, and Taxation II: Encouraging Development in Poorer Countries through Tax Policies (8:15 a.m. - 10:00 a.m.):

The papers in this session all explore ways in which richer countries can change their tax regimes to enhance the possiblities for growth and development in poorer countries.

Chair/Discussant: Lisa Philipps (York University)


High-income countries' willingness to support the use of tax sparing provisions in tax treaties to preserve the tax incentives offered by low-income countries has varied over the years, but the willingness to incorporate tax sparing appears to have diminished. Is this good tax policy, or another sign of high-income countries ignoring the needs of their low-income country neighbours?

Wealthier nations have used tax agreements and implemented tax policies that have the effect of protecting their own revenue while limiting the ability of nations in the Caribbean region to tap new revenue sources. This paper examines possible development strategies and the prospects for a role for Caribbean countries in implementing them.

This paper explores who has access to tax system design in developing countries, how that access impacts the ultimate distribution of tax burdens among social, political, and economic groups, and how globalization and the increasing interchange and interdependence between and among countries and international groups shapes and constrains tax policy choices.

Around the world, the tax laws are shaped by concerns with competitiveness. This paper provides a general theory of how taxes impact competitiveness. As part of that theory, this paper also introduces the concept of tax-based competitiveness neutrality. A tax system is competitively neutral when taxes do not cause competitors to change their relative valuations of any investments. This paper then uses that theory to evaluate tax policy in two high profile and important areas. The paper begins by describing two models of competitiveness, called the conduit or new money model and the investor or old money model. The central difference between the models is whether the competition is between conduit entities that must compete for funds or is between the ultimate investors themselves. When the competition is between conduits that raise the funds to invest, competitiveness neutrality requires that the tax cost of the investment be the same across entities. In contrast, when the competition is between investors who invest their own money, then neutrality does not require that the tax cost be equal across the investors. Instead, when investors are investing their own money, competitiveness neutrality requires only that tax incentives have the same dollar value for all competitors. This paper then uses the theory of competitiveness neutrality to analyze two sets of laws that were heavily influenced by concerns with competitiveness. They are the unrelated business income tax (UBIT) and the tax treatment of cross-border transactions. In both areas, the failure to recognize the nature of the competition has caused policymakers and scholars to rely on the incorrect model in designing and evaluating tax policy.

Law, Society, and Taxation III: International and Comparative Tax Issues (10:15 a.m. - 12:00 p.m.):

The papers in this session explore tax competition within and between the EU and the US, United States international tax issues, and the presence of certain types of US business entities in Germany.

Chair/Discussant: Allison Christians (Wisconsin)


This paper exams both old and recent criticisms of tax expenditure analysis, concludes that tax expenditure analysis stands up to the critiques and continues to be a robust and useful tax policy tool, and then applies tax expenditure analysis to key features of the U.S. international income tax regime ( deferral, cross crediting and the export sale source rule).

This article will study the EU’s policy towards state aid in the form of tax incentives and provide an effective comparison of the U.S. and EU approaches to such "state aid". With such different approaches, I am interested in the ability of the American States and the European Union Member States to provide state aid through tax policy and the consequences of the actual policies.

Certain banking practices, particularly refusal to reveal identifying information regarding depositors to the tax collection agencies having personal jurisdiction over the depositor, obviously facilitate international tax avoidance and even evasion. This in turn aids harmful tax competition by adding to the pressure to keep income tax rates as low as possible, and to grant exemptions generously. This paper will discuss some of the means that the US IRS uses in its efforts to surrmount these obstacles.

The US Limited Liability Company ("LLC") has become an increasingly popular business entity. LLCs have begun doing business overseas, including in Germany. The German Bundesministerium der Finanzen (roughly equivalent to the US Treasury Department) has come out with an opinion on the classification of US LLCs in Germany. The classification can vary. Depending on the totality of its characteristics, generally a US LLC can be classified as a German corporation (“Körperschaft”) or partnership (“Personengesellschaft”). Significant tax ramifications accompany the classification. The paper will analyze and discuss the US and German classification rules for LLCs, and the relevant tax consequences, with emphasis on the opinion of the Bundesministerium der Finanzen.

Law, Society, and Taxation IV: Justice, Religion, and Tax Policy (12:30 p.m. - 2:15 p.m.):

The papers in this session look broadly at the concepts of morality and justice in tax policy, investigating the nature of social obligations in theory and also describing the tax treatment of religious institutions in light of different countries' attitudes about religion in public life.

Chair/Discussant: Kathryn A. James (Monash University)


This paper will examine the loss of tax exempt status of churches when they engage in partisan political speech. Churches play a unique role in society. Some churches feel that part of their mission is to speak out on issues, even if that means the speech falls into the realm of partisan politics. The Internal Revenue Service must make determinations whether such speech is political. This paper will examine these issues and whether Section 501(c)(3) of the Internal Revenue Code should be amended.

It is common in fiscal policy analysis to argue that current generations should not do anything which would decrease the economic prosperity that would otherwise be enjoyed by future generations. This paper explores the philosophical basis for that belief and asks whether there are any principled means by which we can balance the interests of current and future generations.

This paper considers the role and content of the Sixteenth Amendment and the Direct Tax Apportionment Requirement in Assessing federal taxes and provisions thereof.

This paper seeks to compare the federal tax subsidization of religious organizations in the United States and Germany. Although the countries' governing principles regarding the interaction of church and state are quite different, both countries forego revenue in favor of funding religion. A comparison of the two systems reveals key differences in conceptions of religion's role in a democratic society.

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