Netanya Hosts 8th International Roundtable On Taxation And Tax Policy

Netanya hosts the 8th International Roundtable on Taxation and Tax Policy (program) today:

Session I: Jurisprudence and Enforcement 

Chair: Assaf Harpaz (Georgia; Google Scholar) 

Viva Hammer (Australian National University), Tax Law as Political Gesture: U.S. Internal Revenue Service Through the Lens of Walter Benjamin’s Readings of Franz Kafka’s Allegories:

The Internal Revenue Code of the United States is known for its length and complexity, and virtually every change in the law has made it longer and more complex. Scholars continue to evaluate and propose changes to the law based on norms of equity, efficiency, simplicity and administrability, from which successive legislative changes consistently depart. This paper proposes that enacted laws are not failed attempts to implement good policies. Rather, each enacted tax law is a record of the outcome of conflict and cooperation between individuals with diverse motivations coming together in the lawmaking process. Every tax law contains the imprint from an individual’s political “gesture,” a term adapted here from Walter Benjamin's readings of Franz Kafka’s political allegories.

Tamir Shanan (College of Management; Google Scholar), Reevaluating Tax Amnesty Programs (Voluntary Disclosure Programs) in the 21st Century (with Doron Narotzki (Akron; Google Scholar)):

The current income tax rules for taxing cross-border income were largely shaped a century ago, a time when the income tax was itself a “work in progress,” when the economic reality was very different, and when capital (both human and physical) was relatively static. Over the years, it has become clear that physical capital is becoming more mobile than ever, and every year, governments from all over the world forgo considerable sums in lost revenues. Following Becker’s seminal research, the literature on the public enforcement of law acknowledged that information about violations could only be obtained by investing significant resources in improving policing power and in obtaining information on such violations. Over the years, more and more countries realized the advantages of obtaining information mainly on offshore tax violations from the violators themselves using voluntary compliance/disclosure programs (VDPs). Generally, VDPs offer non-compliant taxpayers an opportunity to declare unpaid income and wealth that were concealed in the past in return for defined concessions over civil or criminal penalties, while some countries even offered concessions over the amount of tax or interest payable. In 2010 and 2015, the OECD issued two comparative, analysis, and policy reports on VDPs, and proposed a recommended general VDP framework for countries. Our paper critically examines the OECD general framework for VDPs, its impact on compliant taxpayers, and governments’ tax revenues and questions to what extent such programs are still relevant or effective following the recent collapse of bank secrecy, the ratification of over 130 countries of the multilateral instrument and the integration of AI and data mining technologies in sophisticated tax audits that turn concealed information instantly more transparent in a feasible manner. 

Mirit Eyal-Cohen (Alabama; Google Scholar) & David Elkins (Netanya), Taxing Artificial Entrepreneurs:

 

Advances in artificial intelligence (AI) present challenges for many legal disciplines: torts, intellectual property, and others. In the field of taxation, one of the primary questions that arises is how to classify AI. Under current law, things that that do not have legal personhood (e.g., machines or animals) are considered property and any income generated by that property is the income of the owner of that property. This is true of computer programs as well. However, as AI programs become more independent of human operators, this paradigm begins to break down. This paper will explore a number of scenarios is which AI programs could have various degrees of independence from human and examine when traditional legal paradigms can appropriately describe these situations, when these paradigms would need to be modified, and when they would need to be replaced. The purpose of the paper is not to provide definitive answers to all of the questions that it raises but to provide tools that would enable the tax system to address these issues.

Session II: International Taxation I

Chair: Israel Klein (Ariel University; Google Scholar)

Assaf Harpaz (Georgia; Google Scholar), Global Tax Wars and the Shift to Source-Based Taxation:

International taxation is at a crossroads. In a rapidly evolving digital economy, intergovernmental organizations are battling to shape the cross-border tax agenda. Global North economies have dominated this regime through the Organisation for Economic Co-operation and Development (OECD), which has drawn backlash due to its undemocratic procedure and unfavorable outcomes for developing countries. Meanwhile, the United Nations has occupied a relatively peripheral role in global tax governance. Nonetheless, in 2023, developing countries overwhelmingly supported the establishment of a new Framework Convention on International Tax Cooperation within the UN. The unprecedented initiative marks a novel challenge to the Global North’s hegemony in international tax policymaking.

This article conceptualizes the contemporary international tax discourse as “tax wars”. It contrasts the taxing powers and interests of the OECD-led Global North with those of the UN-backed Global South. The article argues that the UN must lead a shift towards source-based taxation. This transition will address longstanding disparities and is becoming increasingly justified in a digital economy that does not rely on physical presence. To do so, the article proposes expanding the permanent establishment standard to permit the broader taxation of business profits in the market jurisdiction. Moreover, it endorses a framework grounded on inter-nation equity that avoids the historic replication of inequitable outcomes.

Yehonatan Givati (Hebrew University), Income and Preferences for International Redistribution:

How do preferences for international redistribution vary with income across countries? And within countries, are poor people more or less likely than rich people to support international redistribution? I develop a simple model which includes both domestic and international tax and transfer programs. I show that an increase in international redistribution comes at the expense of domestic redistribution. Still, I find that income is negatively correlated with support for international redistribution. Using new data on preferences for an international tax and transfer program in the U.S. and in 29 other countries, I first show a strong negative correlation across countries between income and preferences for international redistribution. Then, using individual level-data, and different measures of income, I show that in the U.S., and within other countries, income is negatively correlated with support for international redistribution.

Session III: International Taxation II

Chair: Yehonatan Givati (Hebrew University)

Yariv Brauner (Florida; Google Scholar), Taxing Income, Not Residents (reviewed by Mirit Eyal-Cohen (Alabama; Google Scholar) here):

Essentially all states tax their residents’ (individuals and corporations) worldwide income. This norm is difficult to justify beyond vague notions of state provided benefits enjoyed by residents. It has been particularly difficult to justify in the last few decades with the ascent of globalization and the digitalization of the economy. This difficulty has been at the top of the agenda of the international tax discourse, yet separately for individual and corporate income taxation purposes. Specifically, the OECD made sure in the recent dozen years that the focus was on the sufficient taxation of multinational enterprises (in the context of the BEPS project), essentially blocking a wider discussion. This limited focus of international corporate income tax reform could not eventually stifle the distributional problems of the residence dominant regime in an increasingly mobile business place, as evident by the recent initiative at the UN to present an alternative to the OECD work. At the same time, many states have experienced increased mobility of individuals (particularly tax-motivated mobility of wealthy individuals), a rising importance of remote work and digital nomadism. These present a serious challenge to the linking of residence and taxing rights that to date has only begun to be addressed and almost solely by scholars.

The importance of consistent taxation of individuals and corporations is obvious but has been regularly and simply ignored in policymaking circles. This article demonstrates that the policy challenges of international taxation of individuals and corporations in the 21st century are not dissimilar. It further examines whether exclusive source taxation of both types of taxpayers could replace the existing rules which are based on a compromise between residence and source taxation. The article concludes that exclusive source taxation is both feasible and desirable, although it requires a different level of coordination among states, which, the article argues, is eventually inevitable if they were to preserve the achievements of the international tax regime to date. It further makes a few observations on the possible content of such reform and on how it may take place.

Noam Noked (Chinese University of Hong Kong; Google Scholar), Chinese Companies in Tax Havens (with Jingyi Wang (Chinese University of Hong Kong)):

Alibaba and Baidu are frequently referred to as the “Chinese Amazon” and the “Chinese Google.” However, these companies and many other Chinese multinational enterprises (MNEs) take the position that they are not Chinese residents for tax purposes. This position provides these MNEs tax advantages at the corporate and shareholder levels. We analyze the tax residence positions of the largest 80 Chinese MNEs with tax-haven-incorporated parent companies traded on major U.S. stock exchanges. Our analysis of a hand-collected dataset of relevant disclosures in these companies’ annual reports reveals that all of these companies reported that they are not resident enterprises for Chinese tax purposes. We then explore the expected implications of the global minimum tax on these MNEs, which will be affected by the non-RE status of their ultimate parent entities. The global minimum tax may reduce, but not eliminate, the tax advantages of these MNEs’ non-resident status.

Session IV: Corporate Taxation

Chair: Lior Davidai (College of Law and Business)

Jacob Nussim (Bar-Ilan University), Share Redemption 

Israel Klein (Ariel University; Google Scholar), FinanTAXing:

Business entities, especially large corporations, can utilize the tax system to enhance their financial position. By making “tax investments” in the form of early tax payments or overpayment of estimated taxes followed by later tax refunds, corporations can strengthen their investment portfolios and earn risk-free returns on available cash balances, benefiting from the financial stability and guarantees provided by the government. Similarly, by delaying tax payments, including late remittance of taxes withheld from third parties to the IRS, businesses can effectively borrow money from the government, take “tax loans,” and diversify their sources of short-term capital.

As direct tax investing and borrowing—finantaxing—are regulated under the Code, companies use another “indirect” tax-based finance instrument that is currently not effectively regulated: tax positions. By reporting tax positions, including those that managers know will not sustain a prospective tax audit (“unsustainable positions”), corporations gain immediate liquidity and effectively borrow funds from the government. These loans, while theoretically carrying interest and fines, provide companies with immediate liquidity and will not necessarily ever be paid back.

Using a novel empirical study, this article sheds light on the financial use of tax positions by corporations. Its findings show that corporations report unsustainable positions in jurisdictions where reporting carries less risk for managers and is expected to yield better returns for the corporation. Moreover, the findings show the magnitude of reporting is directly tied to the corporations’ liquidity requirements and the amount of a company’s external debt.

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