A Good Old Habit, or Just an Old One? Preferential Tax Treatment for Reorganizations

This article proposes to repeal the preferential tax treatment of certain merger and acquisition transactions known as reorganizations, and tax them like all other sales or exchanges. In the last 80 years this preference has been a cornerstone of our tax system. It is also one of the most stable rules in the tax code. Nevertheless, its normative justification is weak, and has never been rigorously debated in the legal literature. This article rejects the stated rationale for this rules - that such transactions trigger insufficient realization and therefore it is both unfair and impractical to currently tax them. It further demonstrates that the preferential tax treatment of reorganizations cannot be supported on efficiency grounds, applying the formerly unexploited (at least in the tax literature) wisdom available in the economic, business and corporate law literature. The latter conclusion is the primary contribution of this article

Integration in an Integrating World

During the second half of the last century, many countries gradually replaced their so-called classical corporate tax regimes, under which corporate earnings were taxed twice -- once in the hands of the corporation, and again when distributed to corporate shareholders as dividends -- with an integrated regime (imputation), which taxed such earnings only once. The driving force behind this trend was the expectation of significant efficiency gains. This clear and gradual trend has been abruptly reversed with the turn of the century. The phenomenon we call globalization, and in particular the proliferation of cross-border business and investment, has materially contributed to this dramatic sea change in the corporate tax world. The conventional wisdom was that imputation is unsustainable in a world whose markets integrate. This article argues that the abandonment of imputation is partly a consequence of our essentially non-cooperative world in terms of tax policy coordination. It concludes that imputation does not have to be the victim of globalization -- it can be retained to the benefit of many countries, but only through enhanced international cooperation and coordination of tax policies

An International Tax Regime in Crystallization

The grand illusion of a single, worldwide, tax system that will eliminate all international inefficiencies, and assist all the nations of the world to maximize their relative advantages, is, as commonly accepted, utopian. The tax, academic and professional, writing in the field of international taxation, and cross-border interaction, between tax systems and jurisdictions has grown, exponentially, in the last decade, but no significant work has been done to prove, or disprove, the naivety of this hypothesis. Some scholars and tax executives, in certain international organizations, have discussed ideas along this line, but no single organization has, seriously, attempted to promote global tax harmonization. Additionally, no national government has provided support to enable research of this idea. In this paper I advocate the benefits of a true global approach. I examine the possibility of worldwide adoption of a single set of international tax rules. Unlike prior literature I seek to avoid an all-or-nothing perspective for the analysis of a possible World Tax Regime, and, prefer to explore each component of it as it is at present in light of a unification proposal. Eventually, I advocate a gradual and partial rule-harmonization effort led, preferably, by the OECD. My intention is not to present a specific proposal, but present a framework for thinking about it and, possibly, negotiating it. The basic theme is that any one (or more) of the sets of rules of international taxation could be adjusted at any given, practical time, and then, gradually, as possible, the rest of the rules may be brought into harmony. The structure of the international tax rules allows for such flexibility and gradualness without adverse implications

Serenity Now! The (Not So) Inclusive Framework and the Multilateral Instrument

The Article demonstrates that the most important initiatives to promote inclusivity within the international tax regime (Country-by-Country Reporting, the Multilateral Instrument, and the Inclusive Framework), based on publicly available data and a variety of indicators, have, at best, done little to increase meaningful participation of non-OECD countries in the regime, and have been disingenuous at worst. This indi¬rect methodology was dictated by the opacity of the analyzed efforts and the difficulties of evaluating inclusivity, but the picture it paints is unmistakable. Using Hirschman’s exit and voice theory, the article con¬cludes by explaining why the OECD asked non-member states to join these efforts and why they have nominally joined. Based on this study, it is concluded that the issues that prompted the establishment of inclu¬sive fora within the international tax regime will not “go away” with such nominal inclusion, and that only meaningful inclusivity has the potential to stabilize the international tax regime

The Non-Sense Tax: A Reply to New Corporate Income Tax Advocacy

This Article challenges recent attempts by influential scholars to rationalize the existence of the corporate income tax. The corporate income tax has long been considered unjustifiable on traditional tax policy grounds. The new justifications recognize this, yet argue that the tax is still desirable because it promotes other goals, such as improvement of corporate governance and restraint of undesirable corporate management power accumulation. This Article demonstrates that the existence and magnitude of these alleged benefits of the corporate income tax are doubtful. Yet, the Article argues, even if taken as correct, the recent rationalization of the corporate income tax cannot support its retention, since it misses certain crucial steps in the analysis. First, the rationalization does not compare the effects of the corporate income tax with its alternatives. This Article demonstrates that once such comparison takes place, the corporate income tax proves to be less desirable than its alternative on the very grounds promoted by its proponents. Secondly, the support of the corporate income tax completely ignores the social costs of the tax. This Article argues that once taken into account, such costs may overwhelm the alleged benefits, if any. Finally, the Article claims that the recent support of the corporate income tax is based on a strong, yet unproven, popular intuition that the tax is fair. The Article goes on to explain the uncertainty that governs the economic analysis of the burden of the tax, which results in confusion and the inability to assess the fairness of the tax as a whole. This understanding should pull the carpet from underneath the very basis of the arguments in support of the corporate income tax. The Article concludes by asserting that the tax not only should, but also could, be repealed consistent with accepted tax policy principles

Treaties in the Aftermath of BEPS

The article argues that, despite the fanfare around it, the outcome of the BEPS project is unlikely to be dramatic, at least in the short term. Beyond a period of increased legal uncertainty and aggressive enforcement by some countries, it expects little substantive change in tax treaties. The challenges to the dominance of the OECD and the richest countries would likely be assuaged with marginal concessions, most or all of which not be affecting tax treaties. Yet, the article sees a silver lining in the non-substantive, structural, and instrumental outcomes of the BEPS project. It argues that even if unintended, these outcomes, including the multilateral instrument, the compact to intensify the use of arbitration, and the standardization of transfer pricing reporting will have the most meaningful impact on tax treaties, their content, and the future of the international tax regime

Integration in an Integrating World

During the second half of the last century, many countries gradually replaced their so-called classical corporate tax regimes, under which corporate earnings were taxed twice -- once in the hands of the corporation, and again when distributed to corporate shareholders as dividends -- with an integrated regime (imputation), which taxed such earnings only once. The driving force behind this trend was the expectation of significant efficiency gains. This clear and gradual trend has been abruptly reversed with the turn of the century. The phenomenon we call globalization, and in particular the proliferation of cross-border business and investment, has materially contributed to this dramatic sea change in the corporate tax world. The conventional wisdom was that imputation is unsustainable in a world whose markets integrate. This article argues that the abandonment of imputation is partly a consequence of our essentially non-cooperative world in terms of tax policy coordination. It concludes that imputation does not have to be the victim of globalization -- it can be retained to the benefit of many countries, but only through enhanced international cooperation and coordination of tax policies

The Non-Sense Tax: A Reply to New Corporate Income Tax Advocacy

This Article challenges recent attempts by influential scholars to rationalize the existence of the corporate income tax. The corporate income tax has long been considered unjustifiable on traditional tax policy grounds. The new justifications recognize this, yet argue that the tax is still desirable because it promotes other goals, such as improvement of corporate governance and restraint of undesirable corporate management power accumulation. This Article demonstrates that the existence and magnitude of these alleged benefits of the corporate income tax are doubtful. Yet, the Article argues, even if taken as correct, the recent rationalization of the corporate income tax cannot support its retention, since it misses certain crucial steps in the analysis. First, the rationalization does not compare the effects of the corporate income tax with its alternatives. This Article demonstrates that once such comparison takes place, the corporate income tax proves to be less desirable than its alternative on the very grounds promoted by its proponents. Secondly, the support of the corporate income tax completely ignores the social costs of the tax. This Article argues that once taken into account, such costs may overwhelm the alleged benefits, if any. Finally, the Article claims that the recent support of the corporate income tax is based on a strong, yet unproven, popular intuition that the tax is fair. The Article goes on to explain the uncertainty that governs the economic analysis of the burden of the tax, which results in confusion and the inability to assess the fairness of the tax as a whole. This understanding should pull the carpet from underneath the very basis of the arguments in support of the corporate income tax. The Article concludes by asserting that the tax not only should, but also could, be repealed consistent with accepted tax policy principles