Tax presentations at the National Business Law Scholars Conference today at Tennessee (schedule):
Jordan Barry (USC; Google Scholar), Tax and the Boundaries of the Firm (with Victor Fleischer (UC-Irvine; Google Scholar)):
We analyze how income taxes distort firms’ decisions regarding what to produce themselves ("make") or purchase from others ("buy") along a number of dimensions. Many of these provisions expand the boundary of the firm; others contract it. Importantly, the expansions and contractions generally operate on different points, and thus do not offset each other, making each distortion problematic.
Our framework provides insight into a number of key tax policy questions, including the merits of worldwide versus territorial tax systems, the economic cost of the corporate tax, and the effects of the Tax Cuts and Jobs Act of 2017.
Assaf Harpaz (Drexel; Google Scholar), International Tax Reform: Who Gets a Seat at the Table?:
The international tax framework, which relies on early-twentieth-century principles, has failed to adapt to modern business practices. It bases taxing rights on a corporation’s physical presence and mostly allocates profits to the country of residence. In the digital economy, companies shift profits with relative ease and often do not require a physical presence in the location of their consumers. Moreover, the international tax framework favors the interests of the Global North which has historically shaped its norms.
In 2021, the Organisation for Economic Co-operation and Development (OECD), known as the informal “World Tax Organization”, introduced new rules for the cross-border taxation of multinational enterprises. The new rules intend to address the tax challenges of digitalization and profit shifting. They are likely the most significant change to international taxation in several decades. However, the OECD does not represent the interests of developing economies, and the proposed reform has not remedied the historic imbalance which disfavors the Global South.
This article highlights the shortcomings of the OECD’s multilateral efforts in the context of taxation and digitalization. It analyzes the political lawmaking of the OECD and presents the new rules as a compromise that fails to address inequities in cross-border taxation. The article argues that the reform undermines tax sovereignty and that the current international tax regime overlooks the involvement of the world’s developing countries. It asserts that attempts to promote inclusivity within the OECD have largely been expressive and that the international tax framework inherently disadvantages developing countries and their interests. The article proposes steps to promote the equal-footed participation of developing countries in future international tax policy initiatives. First, it recommends expanding voting rights for non-members within the OECD. Second, it supports the creation of a new intergovernmental framework within the United Nations that is better positioned to revisit traditional international tax norms.