Daniel N. Shaviro (NYU) presents The New Non-Territorial U.S. International Tax System, Part 1, 160 Tax Notes 57 (July 2, 2018), and Part 2, 160 Tax Notes 171 (July 9, 2018) (reviewed by David Elkins (Netanya) here), at today's Copenhagen Business School Annual Tax Conference.
These papers, published in Tax Notes, examine and analyze the three main international provisions in the 2017 tax act. Part 1 of this report discusses how one could more crisply, comprehensively, and accurately conceptualize international tax policy than through the outdated and unhelpful language of “worldwide versus territorial.” It also explores the reasons for several key margins’ normative ambiguity, which include the tension between what I call unilateral and strategic approaches to international tax policymaking. Only the latter involves considering how a given country’s international tax policy choices might subsequently affect other countries’ behavior. Thus, for example, engaging in tax competition is not inherently strategic in my sense of the term. Indeed, tax competition fails to be strategic if it involves overlooking how one’s own tax law changes might affect what other countries later do. Unfortunately, although all sophisticated actors in international tax policy should consider the strategic aspect, it tends to make the underlying policy choices even harder to parse confidently. Strategic interactions are often unpredictable, and even more so when they involve government actors who are subject to the vagaries of domestic politics.
"Part 2 of this report will evaluate three of the TCJA’s main international features in light of the forgoing analysis: (1) the base erosion and antiabuse tax,19 a measure that appears to have been designed primarily to address inbound base erosion engaged in by foreign MNCs investing in the United States20 but that can also affect outbound profit-shifting by U.S. MNCs;21 (2) global intangible low-taxed income,22 an anti-taxhaven provision that targets outbound profitshifting by U.S. MNCs;23 and (3) foreign-derived intangible income (FDII),24 which Lee A. Sheppard has called “a stingy patent box laid on in the hope that some [U.S.] companies will want to keep intangibles onshore.”
I conclude that the BEAT and GILTI, although not FDII, have the potential (with suitable revisions) to serve as important parts of an improved U.S. international tax system that eschews deferral. Or at least, with suitable revisions they would be reasonably defensible, subject to the underlying conceptual challenges in specifying good international tax policy design. As for FDII, while major reworking would be necessary before one could reach such optimistic ground, the likelihood of its being held to violate WTO rules26 may give optimists grounds for hoping that it will not long persist, at least in its current form. Part 2 also discusses possible next steps for the BEAT, GILTI, and FDII.