Wednesday, November 29, 2023
Reuven Avi-Yonah (Michigan; Google Scholar) has posted two international tax papers on SSRN:
The First US Tax Treaty and Its Influence:
This paper discusses the first US tax treaty concluded with France in 1932 and ratified in 1935. This treaty is interesting because it follows the League of Nations model of 1928 but with significant differences. It is also a treaty between a global jurisdiction and (at the time) a purely territorial one. This meant that while reductions in French taxes benefited the US fisc because they resulted in lower foreign tax credits (but the overall tax level was the same), French investors into the US could derive some types of income (e.g., royalties) without any tax being imposed by either country. This may also explain why the treaty was more limited in scope than the League of Nations model. But the main importance of the treaty is because it is the first ever appearance of the Arms Length Principle in international tax, which had a profound influence.
The UTPR Reconsidered: A Response to Fadi Shaheen:
In a letter to the editor [Much Ado: Why the United States Should Calm Down About DSTs], 181 Tax Notes Fed. 1235 (Nov. 13, 2023)], Reuven S. Avi-Yonah rebuts criticism of the UTPR that Fadi Shaheen made in a recent article [Is the UTPR a 100 Percent Tax on a Deemed Distribution?, 181 Tax Notes Fed. 481 (Oct. 16, 2023)].
In the October 16 issue of Tax Notes, professor Fadi Shaheen published a fascinating new analysis of the OECD/G-20/inclusive framework’s UTPR (formerly known as the undertaxed payments rule). In his article Shaheen demonstrates that the UTPR is equivalent to a 100 percent withholding tax on deemed distributions from the subsidiary subject to the UTPR to its parent. Shaheen argues that such a tax is “confiscatory” and that it violates tax treaties.
I do not fault this analysis as far as it goes. But I disagree for two reasons. First, the analysis applies an obsolete conception of multinational enterprises, which is contrary to the conception embraced by the countries that have adopted pillar 2. Second, the analysis has no practical implications.