Weekly SSRN Tax Article Review And Roundup: Speck Reviews Avi-Yonah's DSTs, Pillar One, And The Multilateral Tax Project

This week, Sloan Speck (Colorado; Google Scholar) reviews new works by Reuven Avi-Yonah (Michigan; Google Scholar) & Eran Lempert (Erdinast, Ben Nathan & Toledano, Israel), The Historical Origins and Current Prospects of the Multilateral Tax Convention, 15 World Tax J. 379 (2023).. 

Half of the BEPS 2.0 project stands on the precipice. As Reuven Avi-Yonah argues in a forthcoming article in Tax Notes, the multilateral convention to implement Pillar One is likely to fail. The United States must ratify the convention for it to take effect, and this outcome seems remote, given the United States’ historical behavior and current politics. Moreover, Canada threatens to end the OECD moratorium on digital services taxes (DSTs) in January 2024, and the United States may retaliate. The problem, however, isn’t clearly about DSTs, or trade wars, or Pillar One’s redistributive aims. Instead, as Avi-Yonah and Eran Lempert elaborate in a longer article in the World Tax Journal, the multilateral vehicle itself hinders the adoption of Pillar One.

In The Historical Origins and Current Prospects of the Multilateral Tax Convention, Avi-Yonah and Lempert employ archival materials to survey the development over time of the present-day bilateral tax treaty network, elucidating factors that foreclosed repeated efforts to establish a multilateral regime. From this historical project, two factors emerge. First, divergences among countries’ tax and fiscal systems impeded substantive agreements among multiple parties and favored two-party treaties with fewer variables to navigate. Second, Avi-Yonah and Lempert note that “no convergence of interests” emerged to bring multiple parties together on tax issues. More specifically, powerful players preferred bilateral negotiations in which their weight yielded better revenue results. These cash stakes are what ultimately doomed the twentieth century’s multilateral movement—and what disfavor the Pillar One convention in the twenty-first century.

Avi-Yonah and Lempert engage, I think, two distinct—and distinctly important—historical questions. One question interrogates the origins of today’s bilateral tax treaty network. Although two-party agreements became commonplace in Europe by the late 1920s, their dominance was not uncontested or preordained. Instead, shifting interests pressed multilateral alternatives—and a sort of perpetual yearning for a multilateral future—to mold the fiscal landscape to their own ends. Second, Avi-Yonah and Lempert ask why countries didn’t follow a multilateral approach. For me, this question is less conventional and perhaps less satisfying. Historical analysis generally struggles to disprove counterfactuals—to show why Sherlock Holmes’s dog didn’t bark in the night-time. The history of failure is a tricky analytical lift, and one that Avi-Yonah and Lempert perform quite ably, by interweaving a positive story of how things happened with the negative story of why alternatives failed to occur.

Turning to Avi-Yonah and Lempert’s two factors, it’s a compelling insight that, in an era of legal convergence in international tax, the barriers to multilateralism arise principally from divergent economic interests. Bargaining dynamics may operate structurally to shape the types of agreements that countries pursue. But Avi-Yonah and Lempert’s model leaves open why less-powerful countries didn’t—and don’t—simply band together to consolidate their leverage at some expense to their preferred positions. A point presumably exists at which the benefits of solidarity outweigh the costs that flow from misalignment. At the risk of cluttering Avi-Yonah and Lempert’s elegant and informed exegesis, there should be some accounting for the absence of collective action.

Finally, Avi-Yonah and Lempert allude to the role of private actors in efforts to develop multilateral treaties. These actors come from communities of experts—for example, various participants in the League of Nations’ Fiscal Committee—and business interests, and especially members of the International Chamber of Commerce. In many cases, these actors voice the constraints that Avi-Yonah and Lempert see with respect to multilateralism, often in conjunction with rhetorics of prosperity and economic growth. These statements carry significant weight but also must be interrogated for meaning. There is a rich mixing of interest and politics with science and economics, and Avi-Yonah and Lempert’s magisterial approach highlights places where personalities could be fleshed out, and where deeper stories might be told. These are beyond the scope of the author’s project and outline a potentially rich research agenda.

All of this historical talk, of course, points back to the Pillar One multilateral convention and Avi-Yonah’s forthcoming case that OECD countries should learn to stop worrying and love DSTs. And, particularly, that the United States—rich in its sense of exceptionalism—should accommodate these tax instruments as a clear cornerstone of the emerging international tax regime.

Overall, Avi-Yonah and Lempert’s excellent articles should interest policymakers, academics, and the general public, as BEPS 2.0 moves forward.

Here’s the rest of this week’s SSRN Tax Roundup:

• John Azzi (W. Sydney U.), Australia’s Tax Integrity Measure Targeting Payments for Intangibles by Multinational Groups Overreaches and Gives Much Cause for Concern (Oct. 4, 2023)
• Alessandro Cascavilla (U. Rome Unitelma Sapienza, Dept. L. & Econ.), Negotiated Transfer Pricing and Uncertain Regulation: A Simulated Trust Game Approach (Oct. 4, 2023)
• Daniel S. Goldberg (Maryland), Reimagining a U.S. Corporate Tax Increase as a Supplemental Subtraction VAT, 26 Fla. Tax Rev. 365 (2022)
• Tariq Haque (Austl. Competition & Consumer Comm’n), Thu Phuong Pham (Curtin U.) & Jiaxin Yang (U. Adelaide), Geopolitical Risk, Financial Constraints, and Tax Avoidance, J. Int’l Fin. Markets, Inst. & Money (forthcoming 2023)
• Hughes Jerome (Independent), Asset Sharing and Stakeholder Arrangements: Human Capital Investments, Distributive Powers, and the Design of Property Rights and Economic Institutions (Nov. 2, 2023)
• Louis Kaplow (Harvard; NBER), Optimal Income Taxation and Charitable Giving, 38 Tax Pol’y & Econ. __ (forthcoming 2024)
• Michael Mayberry (U. Florida, Fisher Sch. Acct.), Sean T. McGuire (Texas A&M U., Dept. Acct.) & Scott G. Rane (U. Florida, Fisher Sch. Acct.), Equity Incentives and Tax-Motivated Income Shifting (Feb. 2023)
• Ajay K. Mehrotra (Northwestern) & Lawrence Zelenak (Duke), Foreword: The Lasting Legacy of Stanley S. Surrey, 86 L & Contemp. Probs. i (2023)
• Ajay K. Mehrotra (Northwestern), The Surprising Surrey: Stanley S. Surrey as Educator, Mentor, and Institution Builder, 86 L & Contemp. Probs. 37 (2023)
• Elizabeth Morton (Royal Melbourne Inst. Tech.), A Practical Mapping of Australian Income Tax Implications for DeFi (Sept. 2023)
• Andrei Petroia (Acad. Econ. Stud. Moldova, Fac. Fin.) & Nina Surdu (Independent), Republic of Moldova: Pandemic Crisis and Financing Mechanism of the Health Care (Sept. 28, 2023)
• Donald B. Tobin (Maryland) & Ellen P. Aprill (Loyola LA), Brief of Amicus Curiae Tax Professors in Support of Respondent in Moore v. United States (Oct. 20, 2023)
• H. Tony Xu (American), Cancel the Debt, Cancel the Tax: Exclude Student Loan Debt Relief from Gross Income Using the General Welfare Exclusion, 75 Admin. L. Rev. 621 (2023)