Friday, February 12, 2021
Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Ozai's Inter-Nation Equity Revisited
This week, David Elkins (Netanya) reviews a new article by Ivan Ozai (McGill; Google Scholar), Inter-Nation Equity Revisited, 12 Colum. J. Tax L. 58 (2020):
In 1963, Peggy Brewer Richman introduced the concept of inter-nation equity as a cornerstone for normative analysis of international taxation. In 1972, she (now Peggy Musgrave) and her husband Richard Musgrave fleshed out the idea. Their argument was that the international tax base should be allocated in such a way as to recognize the entitlement of countries to tax the income arising in their territories and to allow for some degree of international redistribution.
Since that time, the literature has transformed the term “inter-nation equity” into a catch-all term devoid of any substantive meaning. It is often used simply to denote the vague concept of fairness. Commentators have employed it in ways that denote different and sometimes even contradictory conceptions of the idea. In this week’s article, Ivan Ozai examines the original meaning of the term as envisioned by the Musgraves and proposes a number of measures that might be adopted to promote those ideas.
According to the Musgraves, inter-nation equity concerns two fundamental questions: which countries should tax income internationally and how the taxing jurisdiction should be distributed among them. With regard to the first question, they answered that source should take precedence over residence, both because source jurisdictions are typically low-income countries and because corporate residence is a fairly arbitrary decision. Once it is determined that the source country has the primary entitlement to tax, the next question is how much the source country is entitled to tax. Here the Musgraves proposed three alternative principles for making such a determination. One is the principle of non-discrimination, or as it has come to be known, capital import neutrality. The idea that is that all economic activity within a country’s border should bear the same tax rate. The second, the principle of national rental, considers the total national gains of each country from international investment and suggests that there should be an equal net benefit to both sides. The third is the distributional approach, according to which tax rates should be differentiated so as to benefit the poorer country (i.e., the country with the lower per capita income).
Thus, relying upon the principle of inter-nation equity when advocating either a strictly entitlement approach or a strictly differential approach to the allocation of taxing rights is a misuse of the term as conceived by the Musgraves. In effect they took a middle path between cosmopolitanism (the idea that the normative requirements of distributive justice apply at the global level) and statism (the idea that a state has no duties of egalitarian distributive justice outside of its borders).
Ozai goes on to propose a number of means by which to apply this dual approach in practice. One example concerns the concept of source. In some instances, the source rules are fairly unambiguous. In others, they are rather arbitrary. A Musgravian approach might be to permit source countries to tax income generated unambiguously from their territory (the entitlement component), but to allocate taxing rights in a way that would best promote international distributive justice when allocation according to entitlement cannot be asserted unambiguously (the differential component). Of course, such an approach requires a determination of when income is generated “unambiguously” from a country, and this would introduce a not inconsiderable degree of uncertainty.
The requirements for differentiation are similarly unclear. Recent proposals do not treat similar low-income countries alike, as they favor those with certain attributes, such as natural resources. In terms of domestic tax theory, such an approach may promote vertical equity, but at the expense of horizontal inequity. Another problem is granularity. Placing countries in categories (developing, least developed, transition, newly industrialized, and small island developing) is problematic both because each of these contains countries in very different circumstances and because, for those on the cusp, countries in very similar circumstances might find themselves in different categories.
The author concludes that despite the prevailing realist view of international relations, which sees the terms of agreements as dictated by self-interest and bargaining power, there is evidence that governments are to some extent motivated by a concern with international justice. He adds that allocation of taxing rights is a viable option compared to alternative policies, such as development aid.
In a rapidly evolving field in which discussion of minutiae often makes it easy to lose sight of overarching goals, it is useful every so often to take a step back and reflect on the bigger picture: what we are actually trying to achieve instead of how we attempt to achieve it.
Here’s the rest of this week’s SSRN Tax Roundup:
- Reuven S. Avi-Yonah (Michigan), A New Corporate Tax, Tax Notes Fed. (7/27/20)
- Reuven S. Avi-Yonah (Michigan) & Gianluca Mazzoni, Coca Cola: A Decisive IRS Transfer Pricing Victory, at Last, 160 Tax Notes Fed. (12/14/20)
- Mark Brabazon, Holding Proteus: Emerging Treaty Practice on Hybrid and Fiscally Transparent Entities, [2020] British Tax Rev. 620https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3744483
- Marc K. Chan (Melbourne), Tod Morris (Max Planck), Cain Polidano (Melbourne) & Ha Vu (Deakin), Income and Saving Responses to Tax Incentives for Private Retirement Savings (2020)
- Ji-Hung Choi (Eastern Michigan), Jiho Yoon (Eastern Michigan) & Ju Myung Song (Massachusetts Lowell), A Contract for New Vaccine R&D under COVID-19 (2021)
- Dane M. Christensen (Oregon), Hengda Jin (Utah), Suhaas A. Sridharan (Emory) & Laura Wellman (Penn State), Hedging on the Hill: Does Political Hedging Reduce Firm Risk? (2020)
- Arthur J. Cockfield (Queen’s), International Tax Transparency, 1 Perspectives on Tax Law and Policy 1 (2020)
- Jean-Edouard Colliard (HEC Paris), Lourraine Eden (Texas A&M) & Co-Pierre Georg (Cape Town), Tax Complexity and Transfer Pricing Blueprints, Guidelines, and Manuals, 50 Tax Mgmt. Int’l J. 76 (2021)
- Eva Danzi (Tax Justice Network Africa), The Role of Country by Country Reporting in the Regulation of Aggressive Tax Planning Strategies Employed by Multinational Enterprises (2019)
- Bart Dierynck (Tilburg), Martin Jacob (WHU), Maximillian A. Miller (ESMT Berlin), Christian Peters (Tilburg) & Victor van Pelt (WHU), Public Tax Disclosures and Investor Perceptions (2020)
- Rita de la Feria (Leeds) & Michael Walpole (UNSW, Monash), The Impact of Public Perceptions on General Consumption Taxes, [2020] British Tax Rev. 637
- Brett Freudenberg (Griffith), Colin Perryman (Griffith), Kristin Thomas (Griffith) & Melissa Belle Isle (Griffith), The Griffith Tax Clinic, 22 J. Australian Tax 64 (2020)
- Brian D. Galle (Georgetown), Andrew Lund (Villanova) & Gregg D. Polsky (Georgia), Does Tax Matter? Evidence on Executive Compensation after 162(M)'s Repeal, __ Stanford J. L. Bus. & Fin. __ (2021) (forthcoming)
- Ladislav Hrabčák & Michael Radvan (Massaryk), Post-ATAD Fight Against Tax Evasion in the Czech Republic (2020)
- Jussi Karjalainen (Eastern Finland), Eero Kasanen (Helsinki), Juha Kinnunen (Aalto) & Jyrki Niskanen (Tampere), Dividends and Tax Avoidance as Drivers of Earnings Management: Evidence from Dividend-Paying Private SMEs in Finland, J. Small Bus. Mgmt. (2020)
- Stacy Leeds (Arizona State) & Lonnie Beard (Arkansas), A Wealth of Sovereign Choices: Tax Implications of McGirt v. Oklahoma and the Promise of Tribal Economic Development, 56 Tulsa L. Rev. __ (2021) (forthcoming)
- Michael Littlewood (Aukland), The Taxing and Spending Powers of the Hong Kong Government (2021)
- Charles Edward Andrew Lincoln IV (Gronigen, Boston University, Texas A&M), Crediting (or Not) Foreign Countries’ Digital Services Taxes Under Section 903, ABA Times (2020)
- Zhiming Ma (Peking), Derrald Stice (Hong Kong) & Dayne Wang (NYU), Do Credit Rating Agencies Care About Our International Tax Planning Strategy When Assigning Credit Ratings?, 169(6) Tax Notes Fed. (2020), 100(6) Tax Notes Int’l (2020)
- Ewan McGaughey (King’s College, Cambridge, UC Berkeley), A Social Recovery, Workplace Democracy and Security: COVID-19 and Labour Law, [2021] King’s L.J. __ (forthcoming)
- Aitor Navarro (Universidad Carlos III de Madrid), La atribución de beneficios a establecimientos permanentes de seguros en la red iberoamericana de convenios para evitar la doble imposición (The Attribution of Profits to Insurance Permanent Establishments in the Ibero-American Tax Treaty Network) (2019)
- Aitor Navarro (Universidad Carlos III de Madrid), Préstamos intragrupo en la normativa española sobre operaciones vinculadas del Impuesto sobre sociedades (Intra-group Loans within the Spanish Transfer Pricing Regulations), Nueva Fiscalidad, Monográfico sobre Fiscalidad Internacional y Comunitaria, 93-117 (2019)
- Zhan Pang (Purdue) & Yixuan Xio (Washington State), Optimal Inventory Policies under Taxation (2020)
- Joāo Félix Pinto Nogueira (Cape Town), Tax Reactions to the SARS-CoV-2/COVID-19 Pandemic in Portugal (2021)
- Anthony Pharm (Sherbrooke), Antoine Genest-Grégoire (Carleton), Luc Godbout (FAC.ADM) & Jean-Herman Guay (Sherbrooke), Tax Literary: A Canadian Perspective, 68 Canadian Tax J. 987 (2020)
- Mary Scott Polk (Mississippi), What to Do With Leftovers: Collecting Earmarked Donations Through Mobile Payment Apps (2021)
- Robert Rosenberg (Pace), Tax Credits vs. Corporate Social Responsibility: The Entertainment Industry's Challenge to State Anti-Abortion Bills, __ Ohio Northern L. Rev. __ (2020) (forthcoming)
- Nicholas Shatalow (Toronto), Policy Forum: The GST/HST Obligations of Non-Resident E-Commerce Firms - Jurisprudence and Policy, 68 Canadian Tax J. 1035 (2020)
- Zvi Halpern-Shavim (Blake, Cassels & Graydon), Policy Forum: Carrying on About Carrying on Business: A Response to ‘The GST/HST Obligations of Non-Resident E-Commerce Firms’, 68 Canadian Tax J. 1053 (2020)
- Suranjali Tandon (National Institute of Public Finance and Policy), Pillar One Blueprint: Towards Global Solution? (2020)
- Uri Weiss (Van Leer Jerusalem Institute), About Suffering and Law in the Labour Market (2021)
https://taxprof.typepad.com/taxprof_blog/2021/02/weekly-ssrn-tax-article-review-and-roundup-elkins-reviews-ozais-inter-nation-equity-revisited.html