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For the first time since 1913, and as part of the 2017 tax reform, Congress adopted a tax regime that exempts from U.S. taxation dividends from foreign subsidiaries. By doing so, Congress abandoned the general principle that U.S. residents should be subject to tax on all income 'from whatever source derived.' This shift marks a good opportunity for considering the reasons the United States taxed such dividends in the first place. In 1962, Congress enacted 'Subpart-F,' which subjected certain earnings of the foreign subsidiaries of American parent corporations to current-base taxation. This was a deviation from the general tax principle of tax deferral, under which earnings of foreign subsidiaries are taxed only upon repatriation of these earnings. An example of a taxable instance would be by a dividend. The new legislation was the result of political compromise. Although the Department of the Treasury (Treasury) supported a wide-scale elimination of tax deferral, Congress eventually adopted a much narrower law which eliminated tax deferral only in instances where it was abused, such as when deferrals are used to avoid paying otherwise owed U.S. taxes.Seven internal Treasury Department reports found in the archives of Harvard Law School's Law Library reveal the dramatic sequence of events that led to the enactment of Subpart-F, one of the most prominent international tax reforms the United States has ever known. The reports unequivocally support the notion that Subpart-F was initially formed mainly due to the deteriorating U.S. Balance of Payment position, and that its 'original intent,' as designed by its main architect, Assistant Secretary of the Treasury, Stanley S. Surrey, was to eliminate tax deferral and protect the U.S. tax base. This was based on the principles of equity, efficiency (Capital Export Neutrality), and elegance. Congress, on the other hand, rejected the proposal and adopted a much narrower piece of legislation, mainly due to the concern that eliminating tax deferral would result in a competitive disadvantage to American corporations operating abroad.Based on the reports, as well as the controlling legal and economic concepts of the time, I argue that Congress was mistaken in limiting the original proposal to eliminate tax deferral. This mistake was the result of relying on overly-emphasized and exaggerated competitive concerns, rather than on concrete and sound tax and fiscal policies.Keywords: International Tax, Tax Policy, Tax Reform, Tax Deferral.JEL Classification: D63, E61, E62, F42, H21, H25, H26, K34, 038., I Inrtoduction2018 marks a century of deviation from a very predominant era of tax legislation in the United States. Through the Revenue Act of 1918, the U.S. Congress enacted a [...]

The Internal Revenue Service (Service or IRS) for many Americans is a proverbial 'boogeyman,' eliciting thoughts of fines, audits, and even jail time. The Service wields powers that would frighten any taxpayer, such as the abilities to garnish wages, seize assets, and levy financial penalties. This begs the question--what are the odds that my return will be audited? From a preliminary look, it seems that the Service targets 'wealthy' with more scrutiny. However, there has been push-back against this notion. Recently, claims that the Service targets poor tax filers more than their wealthy counterparts have been addressed in congressional hearings. Additionally, recent data published by the Service suggests that their auditing procedures largely target lower-income filers rather than higher-income filers. This paper explores theories behind why this trend exists, what underlying causes may drive this practice, and takes a deeper dive into the published Service examination data. Section II of this paper discusses the theory of distribution and will heavily analyze the Service data provided. Section III concerns the earned-income-tax-credit and presents a theory for why this might cause higher audit rates in lower-income filer returns. Section IV surveys administrative costs of auditing, and the theory about why auditing lower-income filers may be easier for the IRS., TABLE OF CONTENTS I. INTRODUCTION 320 II. THE THEORY OF DISTRIBUTION AND CONCENTRATION 323 III. THE EARNED-INCOME-TAX-CREDIT THEORY 336 IV. THE EASE OF ADMINISTRATION THEORY 339 V. CONCLUSION 342 I. [...]

The global economy's center of gravity is shifting. For the first time since the 19th century, emerging and developing countries have been contributing over 50% of the global GDP since the onset of the 21st century. If soft power mirrors but lags behind economic power, then the source for global and political influence will be shifting gradually east, particularly from the U.S. to China. This paper offers the first historical analysis of the impact of global power shifts and innovation at the technological and financial regulatory fronts on the evolution of the international tax regime (ITR) since its emergence in the early 20th century. It shows that the ITR has been evolving along a spiral trajectory correlated to two global power shifts: first, a power shift from the U.K. to the U.S. in the 1930s and then, an emerging power shift from the U.S. to China beginning in the early 21st century. The ITR evolutionary pattern has similarities with other global legal systems, including the Gold Standard (1880-1914), Bretton Woods (1945-1971) and the World Trade Organization (1948-2017). This paper identifies normative implications of the ITR spiral evolution in new problem areas, such as the taxation of global digital commerce. The theoretical framework rests on the dynamics of hegemonic orders and the rule-standard spectrum., TABLE OF CONTENTS I. Introduction 221 II. The Theoretical Framework 224 A. The Dynamics of Hegemonic Orders and the Rule-Standard Spectrum 224 B. Rules and Standards as a Spectrum: Its [...]

Improving tax compliance is a common goal of governments worldwide. The United States is no exception. The size of the nation's 'tax gap ' - or the difference between what taxpayers pay in taxes in a timely manner and what they should pay if they fully complied with the tax laws - is hundreds of billions of dollars annually, significantly depriving the nation of muchneeded revenue. This paper explores the mixed effects of technological advancements on tax compliance - and, thus, its counterpart, tax noncompliance. On the one hand, technological advances have largely eradicated many of the commonplace tax-noncompliance techniques that once reigned during the twentieth century. On the other hand, many of these very same technological advances threaten to usher in new modes of tax evasion. Which of these emergent trends will dominate is unclear. The outcome will largely depend upon whether Congress updates the tax laws to address technological advances and grants sufficient funding to the Internal Revenue Service to maintain robust enforcement efforts in an ever-changing technological landscape. Failure to take these steps will destine the size of the tax gap to expand. Many prior studies have addressed discreet effects of specific technologies on tax compliance. This paper contributes to this developing literature by offering a cohesive framework to address technological advancement and tax compliance., TABLE OF CONTENTS I. INTRODUCTION 289 II. FUNDAMENTALS OF TAX NONCOMPLIANCE 291 A. Insights from Academic Research on Tax 291 Noncompliance B. Applying Academic Research to Tax Noncompliance 298 Behavior [...]

This article analyzes the use of intellectual property rights and the most common forms of tax measures to incentivize innovation, and it conducts a comparative analysis of the policies adopted by the European Union and the United States. The first part of this article will focus on intellectual property (IP) rights, building a framework for conducting a more thorough analysis of the interaction between these rights and tax policy. When tax policy instruments are used for purposes that differ from revenue-raising and wealth-redistribution, several issues arise, and it becomes necessary to understand whether the objectives are pursued without disrupting status quo equilibriums. The tax system should be looked at holistically, and several assessments should be conducted to determine whether there might be different ways to accomplish the same objectives more efficiently and without compromising the tax system's neutrality. All in all, the proposed policy should be clear with its objectives and strive to avoid undesirable effects. The most common ways to incentivize innovation through the tax system are research and development (R&D) tax credits and 'IP Box Regimes. ' This article will provide an analysis of these different innovation-oriented tax measures. This evaluation will lead to the determination that expenses-based tax incentives, in the form of R&D tax credits, are a better complement to IP rights in incentivizing innovation than IP Box Regimes, whose scope only somewhat overlaps with IP rights. The last part of this analysis will compare the innovation environments and legal frameworks of the European Union and the United States. In comparing these two different ways of achieving the same objective, it will consider the nature of these two tax policies, emphasizing potential causes and consequences of different choices. Consequently, this paper will highlight the conclusions of this analysis., TABLE OF CONTENTS I. INTRODUCTION 293 II. INTELLECTUAL PROPERTY RIGHTS 295 A. Definition of Intellectual Property Rights 295 1. Patents 295 2. Copyright 296 3. Trademarks 297 B. Intellectual Property [...]

Policymakers and international organizations such as the Organization for Economic Cooperation and Development (OECD) defend new tax measures to increase tax compliance and decrease tax competition and tax evasion. The proposed new policies often change the nature or distribution of tax liabilities, for instance by changing the rate structure, introducing new taxable events, or redistributing taxing rights. In a divided political landscape, this article suggests another approach to simplify taxes and raise compliance. This article doesn't intend to touch upon what we owe the government, but only regards how we execute the existing set of tax rules. In particular, this article explores enhancing tax efficiency by introducing blockchain technology in the tax administration and collection process. The main elements that currently undermine the functioning of the system are (1) that tax payments are taxpayer-driven, (2) that payments occur after the taxable event, and (3) that the nature of one's tax liability is highly complex. Because of these three problems, governments miss out on huge amounts of tax revenue, taxes are paid much later than the taxable event, and taxpayers spend huge amounts of money and energy to be (non)compliant. Blockchain technology kills not two but three birds with one stone--and solves these problems altogether. This article will show that, under a blockchain-driven consumption tax, taxes are paid in an automated way that doesn't rely on taxpayer initiative and in real time, i.e., simultaneously with the taxable event. Smart contracts enable programmed taxes that calculate the tax liability, further reducing compliance costs. This article introduces cutting-edge developments in what is known as 'layer 2 ' technology to the literature to render the system energy-sustainable and retain privacy. The current tax system was designed in a pre-digital era when financial institutions were manually operated and essentially paper based. Amid consensus that the current tax system is outdated, this article investigates a radically new way of levying, paying, and auditing taxes--whereby taxes are levied at the invoice level. This proposal slashes taxation costs, increases compliance, and enables lower overall tax rates, creating stronger governments and better-functioning economies., TABLE OF CONTENTS I. INTRODUCTION 39 II. A BLOCKCHAIN APPLICATION IN CONSUMPTION TAX 44 A. Why Apply Blockchain to Consumption Tax? 44 B. The Issues of the Current U.S. Sales [...]

The proper tax treatment of interest expense has been a subject of disagreement since the inception of the modern income tax in the early twentieth century. On one view, the purpose of the financing transaction dictates the tax treatment of interest expense: interest paid on borrowing used to finance consumption should be nondeductible, whereas business interest expense should be deductible. On another view, interest expense does not finance a consumption item but rather represents a mere shift in resources and therefore should be deductible at all events, assuming the recipient includes the interest in gross income. Both of these views lead to conundrums that cannot be resolved without considering the broader question of why some expenses are deductible at all. Focusing on that question, it turns out that business interest expense, like any other business expense, should generally be deductible under a timing or an accounting principle under an income tax. That principle does not apply to personal interest expense. Nevertheless, there may be an independent basis to permit a deduction for personal interest expense that is grounded in considerations of vertical equity. A related question arises when loan proceeds finance the purchase of business assets that are taxed under consumption tax principles. Congress has lately sought to limit interest expense deductibility in this setting because of the arbitrage benefit that deductibility provides. The paper argues that a better approach would be to apply consumption tax principles more consistently to the overall arrangement. Such an approach would keep business interest expense deductible, but business loan proceeds would be includible in gross income in whole or part on receipt and deductible when repaid., TABLE OF CONTENTS I. INTRODUCTION 2 II. ZERO REQUIRES LESS THAN 50 CENTS OF VALUE 9 III. THE REVENUE PROCEDURE FANTASY 18 IV. THE INITIAL BURDEN OF VALUATION IS ON [...]

Affiliated corporations can elect to file a consolidated tax return, thereby using the losses from some members to offset the income of other members. To prevent this strategy from being used by multinational entities, the Dual Consolidated Loss rules prohibit the use of a loss in the United States if the loss has been, or is expected to be, used in a foreign country. Furthermore, the structure of affiliated corporations may change over time. The Separate Return Limitation Year rules limit the utilization of losses when a member of a group leaves or joins the consolidate unit. These rules, although being used very often in practice, are still considered complicated, and limited research exists. Therefore the purpose of this paper is to explain the interaction of these two sets of rules and provide the much-needed guidance to these complicated and highly technical issues., TABLE OF CONTENTS: I. Introduction 392 II. DCL Overview 393 A. Limitation on Domestic Use of DCL 396 B. Separate Units and Combining Rule 396 III. Overview of SRLY Rules [...]

INTRODUCTION Reitenga et al. (2002) (hereafter the paper) address an interesting question at the intersection of tax policy and earnings management. In particular, the paper investigates whether the enactment of [...]

In December 2017, Congress enacted tax reform legislation, commonly referred to as the 'Tax Cuts and Jobs Act' or 'TCJA,' which fundamentally changed the United States' international corporate taxation system. The TCJA was enacted quickly; the bill was signed into law less than 2 months after the House of Representatives introduced it. Since that time, tax professionals across the United States and around the world have worked overtime to try to understand the new tax laws. Now that the U.S. Treasury Department is releasing and requesting comments on proposed tax regulations, practitioners must have a thorough understanding of the TCJA. This paper attempts to reduce the complexity of the TCJA's international tax provisions by examining global intangible low-taxed income ('GILT]') and its interaction with other provisions that implement income taxation of cross border corporations. First, this article outlines corporate income taxation after the TCJA's enactment, and demonstrates how GILTI, the Section 245A deduction, and the other international tax law provisions are integrated into the corporation income tax scheme. Second, a hypothetical cross border corporation is analyzed to demonstrate the calculation of income tax, including the determination of GILTI, Section 245 A deductions, and the foreign tax credit. Third, the article highlights how the current tax system, after the TCJA, is really a hybrid system where some income is taxed as part of the exemption or territorial tax system, while other amounts are still taxed as part of the worldwide tax/foreign tax credit system, which significantly increases the complexity of the United States' international corporate income tax regime. Keywords: Tax Cuts and Jobs Act, TCJA, Global Intangible Low-Taxed Income, GILT1, Section 951A, International Tax, Corporation Tax, Foreign Tax Credit, FTC, Previously Taxed Income, Section 959, Territorial Taxation, Exemption System., I. INTRODUCTION 319 II. CORPORATE TAX LIABILITY AFTER THE TAX CUTS AND JOBS ACT 321 A. Gross Income 321 1. Gross Income Determination For Cross-Border Corporations 323 a. US Taxation [...]