Shaheen, Avi-Yonah & Kadet: Is The UTPR A 100 Percent Tax On A Deemed Distribution?

Fadi Shaheen (Rutgers; Google Scholar), Is the UTPR a 100 Percent Tax on a Deemed Distribution?, 181 Tax Notes Fed. 481 (Oct. 16, 2023):

This article floats the proposition that from a U.S. tax perspective, the UTPR is the mathematical, conceptual, and legal equivalent of a 100 percent withholding tax on a deemed distribution by the UTPR entity, and addresses questions that would follow regarding the desirability of such a confiscatory tax and its interaction with tax treaties.

Reuven S. Avi-Yonah (Michigan; Google Scholar), The UTPR Reconsidered: A Response to Fadi Shaheen, 181 Tax Notes Fed. 687 (Oct. 23, 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.

Jeffery M. Kadet (Washington), Comments on Fadi Shaheen’s UTPR Characterization, 181 Tax Notes Fed. 878 (Oct. 30, 2023):

Fadi Shaheen’s analysis of the OECD/G-20/inclusive framework’s UTPR (formerly known as the undertaxed payments rule) in his recent article has already prompted several letters to the editor. Reuven Avi-Yonah described Shaheen’s analysis as “fascinating” and “very original and thought-provoking.” While Avi-Yonah did not fault Shaheen’s analysis for a possible characterization of the UTPR as a deemed dividend in the U.S. context, he explained (1) why “the whole regime Shaheen’s proposal is built on is obsolete and should be abandoned,” and (2) why the proposal has no practical implications. While I fully agree with Avi-Yonah’s comments, I do have issues with Shaheen’s analysis.