A Foundation for International Taxation: The Institutional Competence of Nations

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

International Prescriptive Jurisdiction and American Conflict of Laws

Today’s conflicts law embraces two approaches: an early 20th century approach that chooses between states based on their territory and a mid- century approach that chooses between individual legal rules based on posited governmental interests. Although both approaches have merit, neither is fully conscious of lawmakers’ comprehensive plans for economic and social development and the related matters of institutional competence. As a result, both approaches may lead to unsatisfactory choices of law to govern regulated contracts and relationships. To produce more satisfying choices of law for regulated contracts and relationships, this Article proposes a third approach to conflicts law. The approach draws on the public international law of prescriptive jurisdiction and on the management of complex organizations. The Article refers to its proposed third approach as the prescriptive framework. The international law of prescriptive jurisdiction allocates law-making power among nations, and, by doing so, establishes spheres of decision- making for economic and social development. The spheres frequently overlap, with multiple nations having discretion to make decisions about development, to select suitable institutions, and to enact law accordingly. Nations deal with the overlaps and conflicts between their plans of development through deference to each other (frequently expressed as prescriptive comity) and through negotiated settlements embodied in international agreements. This Article brings the perspective of international prescriptive jurisdiction into American conflicts law. Within the prescriptive framework proposed by this Article, American conflict-of-law rules also allocate law- making power among sovereigns, albeit among the sub-national sovereigns of a federal state. The framework recognizes that American states have their own spheres of decision-making for economic and social development, along with discretion to make decisions about development, to select suitable institutions, and to enact law accordingly. Those subnational spheres also overlap, and the prescriptive framework gives structure to the practice of deference to another lawmaker’s discretion. The Article also draws on the institutional analysis of decision-making within complex organizations. An institutional analysis helps us understand states’ comparative competence and legitimacy in lawmaking. An institutional analysis allows us to identify the best decision-makers for economic and social development through the benefits of delegation, standards, and limitations to reduce the abuse of decision-making discretion, and the value of social norms to address problems in collective action. Hence, an institutional analysis gives structure to prescriptive comity among the American states. We are then able to reframe the American law of conflict of laws as structured prescriptive comity in the management of state economies

The United States\u27 Response to Tax Havens: The Foreign Base Company Services Income of Controlled Foreign Corporations

This article is a detailed study of the taxation by the United States of foreign base company services income. Foreign base company services in- come is defined generally as the income derived by a controlled foreign corporation from the performance of services for a related person.2 Con- trolled foreign corporations, in turn, generally are the foreign subsidiaries of U.S. parent corporations.3 A controlled foreign corporation\u27s foreign base company services income is taxed to its U.S. parent corporation, subject to various exclusions and qualifications. This article defines the class of sus- pect relationships between the controlled foreign corporation and its related persons and delineates the category of relevant services. The article\u27s con- tributions to the literature on controlled foreign corporations include: the proper coordination of the guaranty-plus rule with the substantial assistance rule;4 a critique of the avoidance of tax through the use of branches and, more generally, of the requirement that a related person figure in a tax ha- ven arrangement before the United States imposes tax;5 a clear analysis of the complex relationship among related-person factoring, foreign personal holding company income, and foreign base company services income;6 and \u27 Subpart F in the parlance of international tax lawyers comprises sections 951-964 of the Internal Revenue Code. Section 954(e) defines foreign base company services income, the subject matter of this article. There is very little legislative history for section 954(e). The provision originated in the Senate as an amendment to what was to become the Revenue Act of 1962, Pub. L. No. 87-834, § 12, 76 Stat. 960, 1006 (1962). S. REP. No. 1881, 87th Cong., 2d Sess. (1962), reprinted in 1962-3 C.B. 703, 785. The Senate Report states only that the purpose of the provision is to deny tax deferral where a service subsidiary is separated from manufacturing or similar activities of a related corporation and organized in another country primarily to obtain a lower rate of tax for the service income. Id. at 790. Code section 954(e) is broader in scope, of course, and reaches a service subsidiary that is separated from a U.S. parent corporation that engages only in services. Examples include corporations en- gaged in engineering, construction, or oil field services

The United States\u27 Response to Tax Havens: The Foreign Base Company Services Income of Controlled Foreign Corporations

This article is a detailed study of the taxation by the United States of foreign base company services income. Foreign base company services in- come is defined generally as the income derived by a controlled foreign corporation from the performance of services for a related person.2 Con- trolled foreign corporations, in turn, generally are the foreign subsidiaries of U.S. parent corporations.3 A controlled foreign corporation\u27s foreign base company services income is taxed to its U.S. parent corporation, subject to various exclusions and qualifications. This article defines the class of sus- pect relationships between the controlled foreign corporation and its related persons and delineates the category of relevant services. The article\u27s con- tributions to the literature on controlled foreign corporations include: the proper coordination of the guaranty-plus rule with the substantial assistance rule;4 a critique of the avoidance of tax through the use of branches and, more generally, of the requirement that a related person figure in a tax ha- ven arrangement before the United States imposes tax;5 a clear analysis of the complex relationship among related-person factoring, foreign personal holding company income, and foreign base company services income;6 and \u27 Subpart F in the parlance of international tax lawyers comprises sections 951-964 of the Internal Revenue Code. Section 954(e) defines foreign base company services income, the subject matter of this article. There is very little legislative history for section 954(e). The provision originated in the Senate as an amendment to what was to become the Revenue Act of 1962, Pub. L. No. 87-834, § 12, 76 Stat. 960, 1006 (1962). S. REP. No. 1881, 87th Cong., 2d Sess. (1962), reprinted in 1962-3 C.B. 703, 785. The Senate Report states only that the purpose of the provision is to deny tax deferral where a service subsidiary is separated from manufacturing or similar activities of a related corporation and organized in another country primarily to obtain a lower rate of tax for the service income. Id. at 790. Code section 954(e) is broader in scope, of course, and reaches a service subsidiary that is separated from a U.S. parent corporation that engages only in services. Examples include corporations en- gaged in engineering, construction, or oil field services