Friday, November 8, 2019
This week, David Elkins (Netanya) reviews a new work by Yair Listokin (Yale), Posner on Tax: The Independent Investor Test, 86 U. Chi. L. Rev. 1159 (2019):
Richard Posner is one of the most influential legal scholars of recent generations. He is perhaps best known as a leading figure in the school of Law and Economics. Complimenting his academic work, he served as a judge on the Seventh Circuit Court of Appeals for 36 years before retiring in 2017. In the field of taxation, one of his more memorable decisions was Exacto Springs Corp. v. Commissioner, 196 F3d 833 (7th Cir. 1999), which concerns the characterization of payments from closely held corporations to individuals who are both shareholders and employees: is the payment properly classified as a salary or as a distribution?
The question of how to characterize payments to shareholders arises whenever shareholders provide services or sell property to the corporation that they control. If a shareholder leases property to a corporation, is the payment that the parties describe as rent truly rent or is it only partly rent and partly a distribution? The issue of classification is particularly significant in the field of international taxation. For example, if a corporation operating in Country A pays what it describes as a royalty to a parent (or otherwise related) corporation in Country B, is the payment actually a deductible royalty or is it a nondeductible distribution? The answer to that question may determine whether Country A can collect tax from the economic activity in its territory.
November 8, 2019 in David Elkins, Scholarship, Tax, Tax Scholarship, Weekly SSRN Roundup, Weekly Tax Roundup | Permalink
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Friday, September 27, 2019
This week, David Elkins (Netanya) reviews Jeffrey A. Cooper (Quinnipiac), Red States, Blue States: Lessons from the State Death Tax Credit and the “SALT” Deduction, 73 Tax Law. __ (2020) (forthcoming).
One of the more politically contentious provisions of the 2017 Tax Cuts and Jobs Act is the capping of the deduction for state and local taxes (SALT) at $10,000 per married couple. Opponents of the change have argued that it was designed to punish those states that voted for Hillary Clinton in the 2016 presidential elections. In an attempt to reverse the legislation, the leaders of four of these states have sued the federal government. Proponents claim that the cap is necessary to prevent high-tax states from imposing the costs of their expensive programs on the federal government and, indirectly, on residents of low-tax states.
In a timely article, Professor Cooper places the issue in historical context by comparing the SALT deduction to the federal estate tax state death tax credit that was established in 1924 and repealed in 2001. He posits that viewing the 2017 legislation within the broader historical context reveals trends and patterns, providing greater insight than would a study of the SALT deduction in isolation. He considers not only the rhetoric surrounding the various legislative changes but also how states responded to the adoption and then to the repeat of the state death tax credit and examines whether such behavior might be a harbinger of state reaction to the SALT deduction cap.
September 27, 2019 in David Elkins, Scholarship, Tax, Tax Scholarship, Weekly SSRN Roundup, Weekly Tax Roundup | Permalink
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Friday, August 2, 2019
This week, David Elkins (Netanya) reviews Rebecca M. Kysar (Fordham), Unraveling the Tax Treaty, 103 Minn. L. Rev. __ (2019).
Tax treaties are a ubiquitous feature in the landscape of international taxation, with several thousand bilateral instruments operating to regulate the taxing power of their signatories. However, in recent years, scholars have begun to challenge the century-old principles underlying the tax treaty. Some of these challenges concern the capacity of an institution formed in the aftermath of the First World War to handle our digital and much more globalized economy. Other challenges concern the role of the tax treaty in protecting the interests of wealthier countries.
The bulk of Professor Rebecca Kysar’s essay is dedicated to a critical examination of the tax treaty, as currently constituted. Tax treaties have been justified as tools for preventing double taxation, combatting tax evasion, inhibiting double non-taxation, encouraging foreign direct investment, respecting comity, providing certainty and predictability, institutionalizing non-discrimination, and binding governments to follow good tax policy even when confronted with the demands of political expediency. Professor Kysar addresses each of these issues in turn.
August 2, 2019 in David Elkins, Scholarship, Tax, Tax Scholarship, Weekly SSRN Roundup, Weekly Tax Roundup | Permalink
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Friday, June 14, 2019
This week, David Elkins (Netanya) reviews a book chapter by Reuven S. Avi-Yonah (Michigan), Does Customary International Tax Law Exist.
Customary international law provides that when countries habitually adhere to certain norms because of a belief that customary international law requires them to do so, then those norms constitute binding international law. Note that the fact that countries adhere to certain norms is not sufficient to establish the existence of an international obligation. For a usage to become a custom, it must be shown not only that countries habitually act (or refrain from acting) in a certain manner, but that they do so because of their belief that they are so obliged under international customary law. Once a custom has been established, it is binding upon all countries, including countries that did not take part in creating it and countries that did not even exist when the customary norm was established.
The other source of international obligations is conventional international law, which provides that countries are bound by the term of treaties to which they are signatories. On occasion, customary and conventional international law overlap.
June 14, 2019 in David Elkins, Scholarship, Tax, Weekly SSRN Roundup, Weekly Tax Roundup | Permalink
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Friday, April 26, 2019
This week, David Elkins (Netanya) reviews a two-part work by Michael S. Knoll (Pennsylvania), The TCJA and the Questionable Incentive to Incorporate, 162 Tax Notes 977 (Mar. 4, 2019), and The TCJA and the Questionable Incentive to Incorporate, Part 2, 162 Tax Notes 1447 (Mar. 25, 2019).
The Tax Cuts and Jobs Act (TCJA) is the most far-reaching tax reform in a generation. The political, and often the academic, discourse regarding the TCJA has tended to focus on the distributional effect of the reform – who gains and who loses from the changes instituted by the act. However, one particular aspect of the TCJA that been largely ignored by the popular press – indeed by most except those who are responsible for advising clients how to arrange their tax affairs – is the seismic shift in the corporation tax regime.
Until the turn of the twenty-first century, U.S. corporate taxation was based upon what is commonly referred to as either the “classic model” or the “double taxation model,” under which corporations pay tax at full rates on their income as it accrues and shareholders pay tax at full rates on dividends when they receive them. The problem with the classic model is that economically the same income is taxed twice. For that reason, during the course of the twentieth century, most other countries moved to integrate their corporation tax structure.
April 26, 2019 in David Elkins, Scholarship, Tax, Weekly SSRN Roundup | Permalink
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Friday, March 15, 2019
This week, David Elkins (Netanya) reviews new works by Miranda Perry Fleischer (San Diego) & Daniel Hemel (Chicago), The Architecture of Basic Income, 86 U. Chi. L. Rev. ___ (2019) and Benjamin M. Leff (American), EITC for All: A Universal Basic Income Compromise Proposal, 25 Wash. & Lee J. Rts. & Soc. Just. __ (2019):
This week saw the posting of two articles discussing the concept of universal basic income (“UBI”). It is interesting to compare and contrast two proposals for what is likely to be a focus of academic and political attention in the near future.
At the most fundamental level, the two articles take different tacks by their choice of how conceptually to integrate UBI into the current tax framework. Fleischer and Hemel compare UBI to a negative income tax. They demonstrate it that the difference between them is merely one of framing: a UBI financed by a progressive income is functionally equivalent to a negative income tax. One significant difference is that the negative income tax – like the positive income tax – is calculated on the family level, whereas UBI is calculated on the individual level. Fleischer and Hemel argue that a cash grant to each citizen and lawful permanent resident, regardless of age, would better serve the goals of reducing poverty that would a payment to families.
March 15, 2019 in David Elkins, Scholarship, Tax, Weekly SSRN Roundup | Permalink
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Friday, November 23, 2018
This week, David Elkins (Netanya) reviews a new paper by Joseph Bankman (Stanford), Mitchell Kane (NYU) & Alan Sykes (Stanford), Collecting the Rent: The Global Battle to Capture MNE Profits, 72 Tax L. Rev. __ (2019):
This article focuses on the concept of economic rent within the context of the taxation and regulation of multinational enterprises (MNEs). Rent is the income above and beyond what is necessary in order to induce an individual or firm to engage in any particular economic activity. For marginal producers, the rent will be zero. Infra-marginal producers will recognize varying degrees of rent. One consequence of the concept of economic rent is that a tax or regulatory scheme that extracts some or even all of that rent will not likely affect a firm’s behavior. In contrast, a tax or regulatory scheme that extracts more than rent will likely induce a change in behavior.
In describing rent, the authors distinguish between true economic rent and quasi-rent. Assume that there is a firm that has already incurred a large economic outlay in order to establish a production line, develop intellectual property and so forth. The difference between its income and its current costs is quasi-rent. However, to determine its true economic rent, we would also need to factor in its initial economic outlay. The difference is significant because a tax or regulatory scheme that extracts quasi-rents may not change the firm’s immediate behavior, but will affect future investment. Therefore, taxing quasi-rents is not sustainable on a long-time basis.
November 23, 2018 in David Elkins, Scholarship, Tax, Weekly SSRN Roundup | Permalink
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