Paul L. Caron

Thursday, March 12, 2015

Marian Reviews Sanchirico's International Tax and Ownership Nationality

JotwellOmri Marian (Florida), So Who, at the End of the Day, Owns Google (or Apple, or Microsoft, or Pfizer ... )? (Jotwell) (reviewing Chris William Sanchirico (Pennsylvania), As American as Apple Inc.: International Tax and Ownership Nationality, 68 Tax. L. Rev. ___ (2014)):

Clearly, the taxation of “U.S. Companies” plays a major role in public discourse. Roughly speaking, the two sides of the debate can be outlined as follows: U.S. multinational corporations either pay too much (because our tax system is not competitive compared with the rest of the world), or too little (because our tax system is riddled with loopholes). We need to reform our tax system so “U.S. Companies” are at par with their foreign competitors; or, we need to tighten our tax rules so as to make sure that “U.S. Companies” share the burden. While political views differ, the terms of the debate seem clear. Whichever side of the debate one takes, something must be done about how we tax “U.S. companies.”

Sanchirico, however, questions the core terms of the debate: “When we speak of ‘U.S. multinationals,’ what do we mean by ‘U.S.’? More specifically, to what extent are these ‘U.S.’ companies owned by non-U.S. investors?” Sanchirico’s ultimate answer is quite a shocker: we have no idea what we are talking about when we speak of “U.S. Companies,” at least in terms of who owns these companies. ...

It is difficult to overstate the importance of Sanchirico’s findings to current tax-policy debate. Our tax-policy discourse is very much attached to national identities, with the beneficiaries of so-called U.S. corporations assumed to be U.S. individuals. In our globalized environment, Sanchirico proves such assumption to be, at the minimum, problematic. Would we really care if, say, Pfizer (a “U.S. company”) is outbid by Teva Pharmaceuticals (an “Israeli company”) when competing for an investment opportunity overseas if it turns out that Pfizer is majority-owned by non-U.S. investors? Can the U.S. tax systems be declared “uncompetitive” under such a set of facts? If so, uncompetitive relative to whom? How much should we care about Apple’s tax-avoidance strategies, if it turns out that Apple is beneficially owned by foreign investors? What would be the normative basis, under such circumstance, to force additional U.S. tax burden on Apple’s earnings? ...

[A]t the end of the day Sanchirico’s article points to a core terminological failure in our tax reform discourse. The outcome ought to be paradigm shifting, as no policy discussion on the taxation of U.S. companies can make sense as long as we fail to recognize the policy targets of the discussion. Sanchirico’s paper should serve as a launching-pad for any future discussion on U.S. international tax reform.

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