Exchange-of-Information Clauses in International Tax Treaties

Philippe Bacchetta (University of Lausanne; Swiss National Bank - Study Center Gerzensee; Centre for Economic Policy Research (CEPR); Swiss Finance Institute) and Maria Paz Espinosa (Universidad del Pais Vasco - Department de Fundamentos del Analisis Economico) published this 2001 paper in International Tax and Public Finance, Vol. 7, No. 3, 2000

Here is the Abstract:

This paper examines bilateral double taxation treaties, with an emphasis on information exchange among tax authorities. A major objective is to understand which countries are more likely to sign a tax-relief treaty and when information-exchange clauses will be added to a treaty. A simple model with two asymmetric countries and repeated interactions among governments is used. The paper shows that no information exchange clause may be added to a tax treaty when there is a reciprocity requirement, when there is a high cost of negotiation, when there is a cost of providing information, or with one-way capital flows. It is also shown that an information clause increases the gains from a tax relief treaty, but may make it less sustainable.

Available at SSRN: http://ssrn.com/abstract=261971

Note on International Tax Regimes

Note on International Tax Regimes
Mihir A. Desai (Harvard Business School) posted the note at HBS Publishing Case No.: 9-206-014

Here is the Abstract:

Provides a framework for understanding different types of international tax regimes. Examines how alternative tax regimes tax the foreign income of their citizens (including corporate citizens); how tax regimes define foreign and domestic income; and how foreign tax credits and deductions are used in worldwide tax regimes to mitigate double taxation. Discusses in detail the current U.S. system of worldwide taxation and the managerial incentives created by the U.S. tax system.

Available at SSRN: http://ssrn.com/abstract=924675

Reaganomics at 25

Well deserved to view editorial in the Weekend Wall Street Journal, entitled Reaganomics at 25:

Twenty-five years ago this weekend, Ronald Reagan signed the Economic Recovery Tax Act. The bill cut personal income tax rates by 25% across the board, indexed tax brackets for inflation and reduced the corporate income tax rate. The anniversary is worth commemorating as a seminal moment that continues to influence policy for the better in the U.S., and around the globe....

[T]he top marginal personal and corporate tax rates are 35%, compared with 70% and 48% in 1981. In the late 1970s the tax on dividends was 70% and the capital gains rate was 50%; now they're both 15%....

The rest of the world, meanwhile, has followed the Gipper down the tax-cut curve. Daniel Mitchell of the Heritage Foundation finds that the average personal income tax rate in the industrialized world is now 43%, versus 67% in 1980. The average top corporate tax rate has fallen to 29% from 48%. This decline in global tax rates has been the economic counterpart to the fall of the Berlin Wall. Most of Eastern Europe has adopted flat tax rates of 25% or lower, and the Russians now have a flat income tax of 13%. In Old Europe, Ireland's corporate and personal income tax rate cuts have helped generate the swiftest economic growth in the EU.

LLCs are up, Corporations are down

Are Corporations Going the Way of the Edsel?
Posted by Peter Lattman, from http://blogs.wsj.com/law.

LLC’s are way up and corporations are down, according to the latest data from the International Association of Commercial Administrators, which collects state-by-state filings.
Limited Liability Companies are popular because, like corporations, owners have limited personal liability for the debts and actions of the LLC. Other features of LLCs are more like those in partnerships, providing management flexibility and the benefit of pass-through taxation. Here’s the IRS site on LLCs.

Thanks to Larry Ribstein at Ideoblog, here’s the IACA report, which shows that filings for LLCs are up in almost every state, while filings for corporations are down in most states. Of the 35 states with filing data for the past four years, 32 reported increases in LLC filings and 21 reported decreases in corporation filings.

As Ribstein puts it, “the corporate form is hanging on — it’s what most practitioners know. But it’s looking less and less like the future of business associations.”

The Competence of Nations and International Tax Law

Eric T. Laity (Oklahoma City University) published the article "The Competence of Nations and International Tax Law"

Here is the Abstract:

This article proposes a conceptual foundation for the field of international tax law. The article refers to this foundation as the institutional competence of nations in global economic development. A nation's institutional competence is its discretion to make decisions in pursuit of our collective goal of global economic development, discretion that is subject to a number of standards and limitations. The article constructs the institutional competence of nations in global economic development from institutional economics, simple game theory, and the literature on social norms. The article expresses the institutional competence of nations through standards and limitations that reduce the abuse of sovereign discretion and address international collective action problems in the pursuit of global economic development. These standards and limitations allocate prescriptive jurisdiction among nations over the global income tax base. The foundation proposed by the article would coordinate international taxation with the international regulation of trade.

The article also addresses the proper place of capital export neutrality in the hierarchy of values for economic development, the choice between territorial and worldwide tax systems, the evaluation of tax havens and appropriate responses, the use of anti-deferral regimes, and the possible need for a multilateral tax treaty. On this institutional foundation, the role of the state is both essential and subordinate: sovereignty becomes an instrumental value and national law-making is seen in terms of a conceptual subsidiarity, to use the European term, or a consequentialist federalism in the realm of global economic development. Moreover, non-state actors facilitate sovereign competition and the benefits that such a constraint on the abuse of sovereign discretion brings to the world's people.


Available at SSRN: http://ssrn.com/abstract=897082

Do Tax Havens Divert Economic Activity?

Do Tax Havens Divert Economic Activity?

Mihir A. Desai (Harvard Business School), C. Fritz Foley (Harvard Business School) and James R. Hines Jr. (University of Michigan) published on April 2005 this paper at Ross School of Business Paper No. 1024.

Here is the Abstract:

When multinational firms expand their operations in tax havens, do they divert activity from non-havens? Much of the debate on tax competition presumes that the answer to this question is yes. This paper offers a model for examining the relationship between activity in havens and non-havens, and discusses the implications of recent evidence in light of that model. Properly interpreted, the evidence suggests that tax haven activity enhances activity in nearby non-havens.

Available at SSRN: http://ssrn.com/abstract=704221 or DOI: 10.2139/ssrn.704221

Unified Corporate Income Tax in China

Forbes Magazine published an article entitled "China to Enact Unified Corporate Income Tax Law This Year." Once I read the entire article, I think the unification will take years to realize. For example, "Jiang Enzhu, spokesman for the National People's Congress, .... played down the impact of the planned new ruling."
"Jiang indicated that the new, standardized tax regime would not take effect immediately on enactment. We [China's Parliament] will also adopt some transitional steps and bear in mind the carrying capacity of the foreign-funded enterprises,' he said."

Furthermore, "within the government, opinion is divided on tax unification. While some government bodies call for a fair tax system, others fear this could deter future investment from overseas."

According to Chinalawblog.com, "Forbes' assumption that a "fair" tax system equates to one with equal tax rates between foreign and domestic companies completely ignores the wealth of subsidies given to Chinese domestic companies and not given to foreign companies in China. I, and many others, view the lower foreign tax rate as fair because it helps equalize competition between foreign and domestic companies in China by counteracting the subsidies given to domestic companies.
Interestingly enough, there are murmurs that if and when China's corporate tax rate becomes unified, it will be at a rate between the present rates for foreign and domestic companies. I am hearing it will be at around 20 percent."

'With the further implementation of the policy of reform and opening up, the investment environment in China will be further improved. Therefore to make unified arrangements for corporate income tax for both domestic and foreign funded enterprises will not have a big impact on China's efforts to attract foreign investment.'