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.'

International VAT/GST Guidelines

Interesting Guidelines by the OCDE: http://www.law.uconn.edu/news/events/itax/vat.pdf


More on www.braxton-com/en, www.jpa-iac.com/en and http://www.tax-international.com/.

The Demand for Tax Haven Operations

The Demand for Tax Haven OperThe Demand for Tax Haven Operations

Mihir A. Desai
Harvard Business School - Finance Unit; National Bureau of Economic Research (NBER)

C. Fritz Foley
Harvard Business School; National Bureau of Economic Research (NBER)

James R. Hines Jr.
University of Michigan at Ann Arbor Law School; National Bureau of Economic Research (NBER)


March 2005

Abstract:
What types of firms establish tax haven operations, and what purposes do these operations serve? Analysis of affiliate-level data for American firms indicates that larger, more international firms, and those with extensive intrafirm trade and high R&D intensities, are the most likely to use tax havens. Tax haven operations facilitate tax avoidance both by permitting firms to allocate taxable income away from high-tax jurisdictions and by reducing the burden of home country taxation of foreign income. The evidence suggests that the primary use of affiliates in larger tax haven countries is to reallocate taxable income, whereas the primary use of affiliates in smaller tax haven countries is to facilitate deferral of U.S. taxation of foreign income. Firms with sizeable foreign operations benefit the most from using tax havens, an effect that can be evaluated by using foreign economic growth rates as instruments for firm-level growth of foreign investment outside of tax havens. One percent greater sales and investment growth in nearby non-haven countries is associated with an 1.5 to two percent greater likelihood of establishing a tax haven operation.
Keywords: Tax havens, tax competition, foreign direct investment, transfer pricing, investment, multinational firms
JEL Classifications: H87, F23, F21
Working Paper Series
Date posted: September 21, 2004 ; Last revised: February 03, 2006
Suggested Citation
Desai, Mihir A., Foley, C. Fritz and Hines Jr., James R.,The Demand for Tax Haven Operations(March 2005). Available at SSRN: http://ssrn.com/abstract=593546 or DOI: 10.2139/ssrn.593546
ations
Mihir A. Desai (Harvard Business School and National Bureau of Economic Research), C. Fritz Foley (Harvard Business School and National Bureau of Economic Research) and James R. Hines Jr. (University of Michigan and National Bureau of Economic Research) published this report at March 2005.

Here is the Abstract:

What types of firms establish tax haven operations, and what purposes do these operations serve? Analysis of affiliate-level data for American firms indicates that larger, more international firms, and those with extensive intrafirm trade and high R&D intensities, are the most likely to use tax havens. Tax haven operations facilitate tax avoidance both by permitting firms to allocate taxable income away from high-tax jurisdictions and by reducing the burden of home country taxation of foreign income.

The evidence suggests that the primary use of affiliates in larger tax haven countries is to reallocate taxable income, whereas the primary use of affiliates in smaller tax haven countries is to facilitate deferral of U.S. taxation of foreign income. Firms with sizeable foreign operations benefit the most from using tax havens, an effect that can be evaluated by using foreign economic growth rates as instruments for firm-level growth of foreign investment outside of tax havens. One percent greater sales and investment growth in nearby non-haven countries is associated with an 1.5 to two percent greater likelihood of establishing a tax haven operation.

Available at SSRN: http://ssrn.com/abstract=593546 or DOI: 10.2139/ssrn.593546

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