Friday, June 4, 2021
This week, Young Ran (Christine) Kim (Utah; Google Scholar) reviews a new work by Diane Ring (Boston College; Google Scholar) and Shu-yi Oei (Boston College; Google Scholar), "Slack" in the Data Age, 73 Ala. Law Rev. ___ (2021).
Legal systems tolerate "informal" spaces where law is not enforced and where those who violate the law are not sanctioned. We, tax lawyers, are familiar with this situation. In their new article, "Slack" in the Data Age, forthcoming in the Alabama Law Review, Diane Ring (Boston College) and Shu-yi Oei (Boston College) refer to this phenomenon as "slack." The authors discuss how slack relates to the formal flexibility and leniency of legal systems, and how the influx of ubiquitous data and information affects slack. While they give examples of slack in other areas of law, such as criminal law, this review will focus on slack in tax law.
Slack arises when enforcers have scarce resources and must prioritize, as Leigh Osofsky (North Carolina) demonstrated in The Case for Categorial Nonenforcement.
June 4, 2021 in Christine Kim, Scholarship, Tax, Tax Scholarship, Weekly SSRN Roundup, Weekly Tax Roundup | Permalink
Friday, April 16, 2021
This week, Young Ran (Christine) Kim (Utah; Google Scholar) reviews a new work by Darien Shanske (UC-Davis), Agglomeration and State Personal Income Taxes: Time to Apportion (With Critical Commentary on New Hampshire’s Complaint Against Massachusetts), 48 Fordham Urb. L.J. ___ (2021).
Many people have been working from home since COVID-19 swept the country in early 2020. If the pre-pandemic workplace and the remote workplace are located in different states, many potential tax problems for employees (individuals) and employers (businesses) arise. To address individuals’ tax issues, the Supreme Court is considering granting certiorari in the New Hampshire v. Massachusetts case. Massachusetts would only tax nonresident employees' income before the pandemic if such employee physically worked in Massachusetts. On the other hand, if the employee worked remotely from a different state, their income was sourced in their residence state—e.g., New Hampshire—and thus, Massachusetts had not taxed such income. However, when the pandemic hit, those employees stopped commuting to Massachusetts. Massachusetts then announced a temporary emergency regulation to treat nonresident employees who commuted to Massachusetts but now work from home as Massachusetts source. In other words, nonresident remote workers' income is now subject to Massachusetts state income tax. As a residence state of those remote workers, New Hampshire has submitted a claim that Massachusetts’ emergency regulation violates the dormant Commerce Clause and the Due Process Clause.
April 16, 2021 in Christine Kim, Scholarship, Tax, Tax Scholarship, Weekly SSRN Roundup | Permalink
Friday, February 26, 2021
This week, Young Ran (Christine) Kim (Utah; Google Scholar) reviews a new work by Reuven Avi-Yonah (Michigan; Google Scholar) & Gianluca Mazzoni (Michigan SJD), Coca Cola: A Decisive IRS Transfer Pricing Victory, at Last, 169 Tax Notes Fed. 1739 (2020).
Coca-Cola has offshore manufacturing facilities that produce beverage concentrate in low tax countries, such as Brazil, Ireland, and Egypt. Because the beverage concentrate is a Coca-Cola product, though it is not a final product, the US Parent co. licenses its intangibles, such as trademarks and secret formulas, and the manufacturing facilities pay royalties and dividends. But the role of offshore manufacturing facilities stops there. The final products are made by third party entities, called “Bottlers,” and the marketing activities of the Coca-Cola brand and the final products are conducted by another foreign subsidiary (ServCos). Given such a limited role of offshore manufacturing facilities, called "Supply Points," what portion of profits under the transfer pricing rules should be allocated to those Supply Points compared to the US Parent co.? Probably not much.
February 26, 2021 in Christine Kim, Scholarship, Tax, Tax Scholarship, Weekly SSRN Roundup, Weekly Tax Roundup | Permalink
Friday, January 15, 2021
This week, Young Ran (Christine) Kim (Utah) reviews a new work by Hayes Holderness (Richmond), Changing Lanes: Tax Relief for Commuters, 40 Va. Tax Rev. ___ (2021).
Commuting has mixed motives: one must travel to get to work (business motive), but the extent and burden of the travel is the result of the personal choice about where to live (personal motive). However, there is no middle ground under the tax law; an expense is classified as either personal or business. Under current law, it is well established that commuting expenses are personal, and thus, nondeductible expenses under the tax law (e.g., Comm'r v. Flowers, 326 U.S. 465 (1946)). However, in the wake of COVID-19, working from home has become the new normal. Many people who used to commute to work no longer have the same amount of expenditure for commuting, such as gas and metro passes. What are the normative implications of such changed behavior? Hayes Holderness offers his views in his recent essay, Changing Lanes: Tax Relief for Commuters (forthcoming in Va. Tax Rev.).
January 15, 2021 in Christine Kim, Scholarship, Tax, Tax Scholarship, Weekly SSRN Roundup, Weekly Tax Roundup | Permalink
Wednesday, October 14, 2020
Young Ran (Christine) Kim (Utah) presents Blockchain Initiatives for Tax Administration virtually at Oregon today as part of its Tax Policy Colloquium Series hosted by Roberta Mann:
Blockchain has become an attractive topic not only among techies, but also entrepreneurs, policymakers, and even laymen. A thriving body of literature discusses various legal issues related to blockchain, but it often mixes the discussion of blockchain with Bitcoin and other cryptocurrencies. However, cryptocurrencies and blockchain are not synonymous. Blockchain is a decentralized, immutable, peer-to-leer ledger technology, whereas cryptocurrencies are built on a blockchain. In other words, blockchain is the original, underlying technology of cryptocurrencies. Recently, not only the private sector—e.g., financial services, smart contracts, medical records, property records, supply chain—but also the public sector—e.g., defense, budget allocation, government approval chain, voting—have gone beyond the cryptocurrencies and have begun to utilize blockchain technology itself as a newly emerged data management system, appreciating its resilient and immutable features. Considering that more data is processed remotely and thus digitally in post COVID-19 era, the data management system built upon blockchain will gain stronger momentum.
October 14, 2020 in Christine Kim, Colloquia, Scholarship, Tax, Tax Scholarship, Tax Workshops | Permalink
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Friday, August 28, 2020
This week, Young Ran (Christine) Kim (Utah) reviews a new work by J. Clifton Fleming, Jr. (BYU), Robert J. Peroni (Texas), and Stephen E. Shay (Boston College), Is Unilateral Formulary Apportionment Better than the Status Quo?, in The Allocation of Multinational Business Income: Reassessing the Formulary Apportionment Option (Wolters Kluwer 2020).
It is always exciting to find a new international tax paper written by the famous cohort of authors—our learned Professors J. Clifton Fleming, Jr. (BYU), Robert J. Peroni (Texas), and Stephen E. Shay (Boston College). These authors can be trusted to provide insight into carefully selected topics relevant to current issues in international tax. In each paper, they demonstrate profound knowledge and experience in the chosen topic, and share thoughtful policy suggestions. The new book chapter, Is Unilateral Formulary Apportionment Better than the Status Quo?, in The Allocation of Multinational Business Income: Reassessing the Formulary Apportionment Option (Wolters Kluwer 2020), is not an exception. It provides a condensed analysis of the arm's length standard and the rise of formulary apportionment as an alternative. Additionally, the paper suggests criteria for the cost/benefit analysis of unilaterally adopted formulary apportionment in both territorial and worldwide system paradigms. Readers with advanced knowledge of international tax will find this chapter to be interesting, and, thanks to the authors’ mastery of the topic, the paper is also accessible to readers with only a basic knowledge of international tax. I highly recommend this paper to professors who are looking for reading material on transfer pricing.
August 28, 2020 in Christine Kim, Scholarship, Tax, Tax Scholarship, Weekly SSRN Roundup, Weekly Tax Roundup | Permalink
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Friday, May 15, 2020
This week, Young Ran (Christine) Kim (Utah) reviews a new work by Edward A. Zelinsky (Cardozo), Coronavirus, Telecommuting, And the 'Employer Convenience' Rule 95 State Tax Notes 1101 (Mar. 30, 2020):
I hope everyone who reads this review stays well and healthy. Many non-essential workers have been working from home as nearly all states have issued stay-at-home orders and closed businesses in an effort to stem the tide of the virus. This raises a new question for out-of-state commuters: which state can tax the income that cross-border workers have earned at home under the COVID-19 situation? I personally have been curious about this issue because I taught two classes, Federal Income Tax class and Taxation of Business Entities, remotely from another state since spring break of this semester. Edward Zelinsky's short article, Coronavirus, Telecommuting, And the 'Employer Convenience' Rule, brings an interesting perspective to this question. He criticizes New York's policy of taxing the income earned by out-of-state telecommuters, arguing that it was bad policy in good times and even worse policy in times like today.
May 15, 2020 in Christine Kim, Scholarship, Tax, Tax Scholarship, Weekly SSRN Roundup, Weekly Tax Roundup | Permalink
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Friday, March 13, 2020
This week, Young Ran (Christine) Kim (Utah) reviews a new work by David J. Shakow (Pennsylavania), Taxing Bitcoin and Blockchains—What the IRS Told Us (and Didn't), 166 Tax Notes Fed. 241 (Jan. 13, 2020).
The IRS has issued two new guidance on tax issues related to Bitcoin and other cryptocurrencies–Notice 2014-21 and Rev. Rul. 2019-24. However, by no means, has the guidance answered all questions surrounding the tax treatment of cryptocurrencies. David Shakow's new work, Taxing Bitcoin and Blockchains—What the IRS Told Us (and Didn't), offers an excellent roadmap for those who would like to understand the tax issues of cryptocurrencies along with the recent IRS guidance.
To offer basic knowledge of the blockchain structure, Shakow starts with comparing a "Proof of Work" (PoW) structure with a "Proof of Stake" (PoS) structure. These two structures are used to confirm transactions of cryptocurrencies. Bitcoin uses a PoW consensus process, recording transactions in a "block," which is verified by miners through their work. That work requires the use of substantial computer and electric power.
March 13, 2020 in Christine Kim, Scholarship, Tax, Tax Scholarship, Weekly SSRN Roundup, Weekly Tax Roundup | Permalink
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Friday, January 24, 2020
This week, Young Ran (Christine) Kim (Utah) reviews a new work by Eric D. Chason (William & Mary), Cryptocurrency Hard Forks and Revenue Ruling 2019-24, 39 Va. Tax Rev. 277 (2019).
When the IRS issued Revenue Ruling 2019-24 (the "Ruling") on the tax treatment of hard forks and airdrops of cryptocurrencies, many people believed that the Ruling would offer guidance on the tax issues of both hard forks and airdrops that the community of cryptocurrency users generally understand. Is that so? Many commentators and investors in cryptocurrencies say no (see e.g., Mathew Beedham, The IRS' Latest Cryptocurrency Tax Guidance Shows It Still Doesn't Get It). Eric Chason's new work, Cryptocurrency Hard Forks and Revenue Ruling 2019-24, 39 Va. Tax Rev. 277 (2019), is soundly in line with such criticism.
As an introduction, the Ruling is understood as the IRS’s response to tax issues arising from the hard fork of the Bitcoin blockchain that resulted in the creation of Bitcoin Cash, a new cryptocurrency. The hard fork resulted in a windfall to owners of Bitcoin, who, at the time of the hard fork, received one unit of Bitcoin Cash for each unit of Bitcoin owned. This hard fork resulted in many unanswered tax issues relating to such newly created cryptocurrency.
January 24, 2020 in Christine Kim, Scholarship, Tax, Tax Scholarship, Tax Workshops, Weekly SSRN Roundup, Weekly Tax Roundup | Permalink
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Friday, December 6, 2019
This week, Young Ran (Christine) Kim (Utah) reviews a new work by Abraham Sutherland (Virginia), Cryptocurrency Economics and the Taxation of Block Rewards, Part 1 in 165 Tax Notes 749 (Nov. 4, 2019), Part 2 in 165 Tax Notes 953 (Nov. 11, 2019).
Blockchain, which is the technology behind cryptocurrency, is gradually achieving mainstream adoption. On October 28, 2019, the Securities and Exchange Commission authorized a blockchain startup's pilot project where blockchain will be used to settle trades in stock such as GE and AT&T. This project may challenge the securities trading system for clearing and settlement that has been monopolized by the U.S. Central Depository Agency (DTCC). However, the tax community still has a long way to go in the realm of cryptocurrency, not to mention the underlying blockchain technology, because there are many unresolved issues related to the tax consequences of cryptocurrency. IRS Notice 2014-21 provides that cryptocurrency is not currency—rather, it would be taxed as intangible property and should be included in gross income when received. Recently, IRS Rev. Rul. 2019-24 and FAQ on virtual currency transactions clarify the tax treatment of hard forks and airdrops. To be specific, the splitting of a cryptocurrency under a "hard fork" does not create taxable income if no new cryptocurrency is received, but taxable income is generated by "airdrops" that deliver new cryptocurrency. Nonetheless, the IRS has again punted other long-awaited issues, such as the valuation of cryptocurrency and the foreign reporting requirement.
December 6, 2019 in Christine Kim, Scholarship, Tax, Weekly SSRN Roundup, Weekly Tax Roundup | Permalink
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Friday, October 11, 2019
This week, Young Ran (Christine) Kim (Utah) reviews a new work by Daniel Shaviro (NYU), Digital Service Taxes and the Broader Shift from Determining the Source of Income to Taxing Location-Specific Rents.
Earlier this week, the OECD released the Secretariat Proposal for a "Unified Approach" for the new tax nexus and profit allocation rules to address the tax challenges of the increasingly digitalized economy. The proposal covers highly digitalized business models, but is increased in scope to include consumer-facing businesses. The Unified Approach creates 1) a new nexus rule, not dependent on physical presence and instead largely based on sales, and 2) a new profit allocation rule using a formulaic approach to determine a share of residual, or non-routine, profit allocated to market countries. In addition, if a taxpayer has a traditional nexus in the market country, an additional amount of profit consisting of a fixed return for certain baseline marketing and distribution functions that take place in the market country may further be allocated to the market country. In exchange for this new taxing right of market countries, the countries should agree to a binding and effective dispute prevention and resolution mechanism even if there might be cases where there are more functions in the market countries—that is, more allocable profits to market countries—than the baseline marketing and distribution functions.
October 11, 2019 in Christine Kim, Scholarship, Tax, Tax Scholarship, Weekly SSRN Roundup, Weekly Tax Roundup | Permalink
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Friday, August 23, 2019
This week, Young Ran (Christine) Kim (Utah) reviews a new work by Eric C. Chaffee (Toledo), Collaboration Theory and Corporate Tax Avoidance, 76 Wash. & Lee L. Rev. 93 (2019).
Although there is a famous tax quote by Justice Oliver Wendell Holmes, "I like to pay taxes. With them I buy civilization."; there is nothing wrong with taxpayers’ efforts to minimize their tax liability in manners the legislative body deems permissible. Such “tax minimization” is legally permissible and distinguished from “tax evasion,” which is the illegal nonpayment or underpayment of taxes. Then, what about the gray area between tax minimization and tax evasion, commonly referred to as “tax avoidance?” Is it permissible to pursue tax avoidance, where taxpayers reduce their tax obligations in a manner that technically complies with the law but violates the spirit of the law?
Eric C. Chaffee's new work, Collaboration Theory and Corporate Tax Avoidance, 76 Wash. & Lee L. Rev. 91 (2019), is an effort to answer this difficult question in the corporate tax context.
August 23, 2019 in Christine Kim, Scholarship, Tax, Tax Scholarship, Weekly SSRN Roundup, Weekly Tax Roundup | Permalink
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Friday, May 17, 2019
This week, Young Ran (Christine) Kim (Utah) reviews a new work by Wei Cui (UBC), The Digital Services Tax: A Conceptual Defense (April 2019).
There are already multiple versions of a real digital services tax (DST) that have been implemented or proposed in multiple countries. France released a bill introducing a DST retroactively to January 1, 2019, UK will introduce a DST in April 2020, and other European countries, such as Spain, Austria, and Italy, are discussing or have proposed a bill mimicking the March 2018 DST proposal from the European Council. While details of the proposed DSTs vary, in general, a DST is a 2-3% tax imposed on the gross revenues of specific digital business models where revenues are linked to the participation of users in the country exercising such taxing right. It also establishes a specified revenue threshold which triggers the DST. The goal of the DST is to capture profits earned by multinationals that reflect value contributed by users of such digital business.
May 17, 2019 in Christine Kim, Scholarship, Tax, Weekly SSRN Roundup | Permalink
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Friday, March 29, 2019
This week, Young Ran (Christine) Kim (Utah) reviews a new work by Michael Devereux (Oxford), Alan Auerbach (UC-Berkeley), Michael Keen (IMF), Paul Oosterhuis (Skadden), Wolfgang Schön (Max Planck) & John Vella (Oxford), Residual Profit Allocation by Income, a paper of the Oxford International Tax Group, chaired by Michael Devereux (March 2019).
This paper is a draft chapter of a forthcoming book on the taxation of international business profit by the authors to be published by Oxford University Press. The book will study two proposals for international tax reform — one is the destination based cash flow tax, and the second, which is offered in this paper, is a new form of residual profit allocation for transfer pricing analysis.
The authors refer to the new residual profit allocation method as a "Residual Profit Allocation by Income," or RPA-I. It is a category of profit-based methodology that allocates the total profit of a multinational enterprise (MNE) into two parts — the "routine" profit, and the "residual" profit.
"Routine" profit is the profit a third party would expect to earn for performing a particular set of functions and activities on an outsourcing basis. Such third party does not share in the overall risk of the MNEs and earns no return based on the overall success or failure of the product or business to which its activities relate. Thus, affiliates of MNEs that take limited risk are assigned such routine profit. On the other hand, "residual" profit is an excess return that is associated with the entrepreneurial success or failure of the enterprise. Thus, only entrepreneurial affiliates may participate in the residual profit of the overall enterprise.
March 29, 2019 in Christine Kim, Weekly SSRN Roundup | Permalink
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