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Abstract:
This article analyzes a complex line of recent decisions in which the European Court of Justice has set forth its vision of a nondiscriminatory system for taxing corporate income distributed as dividends within the European Union. We begin by identifying the principal tax policy issues that arise in constructing a system for taxing cross-border dividends and then review the standard solutions found in national legislation and international tax treaties. Against that background, we examine in detail a dozen of the Court's decisions, half of which have been handed down since 2006. Our conclusion is that the ECJ is applying a standard of nondiscrimination to evaluate national tax laws in a manner totally divorced from the underlying tax policy norms that produced the legislation at issue. Some, but not all, of the decisions seem to require nondiscrimination based on the destination, but not the origin, of corporate investment. The result is a jurisprudence that fails to hold together substantively, functionally, and rhetorically. In many instances, this result follows from largely formalistic distinctions made by the Court, such as whether a withholding tax on dividends should be considered corporate or shareholder taxation.

direct taxation, company taxation, corporate taxation, dividends, European Court of Justice, nondiscrimination

Abstract:
In recent years, the European Court of Justice (ECJ) has invalidated many income tax law provisions of EU member states as violating the guarantees of the European constitutional treaties of freedom of movement for goods, services, persons, and capital. These decisions have not, however, been matched by significant European income tax legislation, because no European political institution has the power to enact such legislation without unanimous consent from the member states. Under the treaties, the member states have retained a veto power over income tax legislation. In this Article, we describe how the developing ECJ jurisprudence threatens the ability of member states to use tax incentives to stimulate their domestic economies and to resolve problems of international double taxation. We conclude that the ECJ approach is ultimately incoherent because it constitutes an impossible quest - in the absence of harmonized income tax bases and rates throughout Europe - to eliminate discrimination based on both origin and destination of economic activity. We also compare the ECJ's jurisprudence with the resolution of related issues in the U.S. taxation of interstate commerce and international taxation. Finally, we consider the potential responses of both the European Union and the United States to these developments.

income tax, discrimination, Europe

Abstract:
Recent developments - including greater taxpayer sophistication in structuring and locating international financing arrangements, increased government concerns with the role of debt in sophisticated tax avoidance techniques, and disruption by decisions of the European Court of Justice of member states' regimes limiting interest deductions - have stimulated new laws and policy controversies concerning the international tax treatment of interest expenses. National rules are in flux regarding the financing of both inbound and outbound transactions.

Heretofore, the question of the proper treatment of interest expense has generally been looked at from the perspective of either inbound or outbound investment. As a result, the issues of residence countries' limitations on interest deductions on borrowing to finance low-taxed, exempt or deferred foreign source income, on the one hand, and of source countries' restrictions on interest deductions intended to limit companies' ability to strip income from a higher-tax to a lower-tax country, on the other, have generally been treated as separate issues. A fundamental contribution of this essay is to demonstrate their linkage and to call for a multilateral solution that would address both of these problems.

The complexity, the incoherence, and the futility of countries acting independently to limit interest deductions are now clear. Worldwide allocation of interest expense by both source and resident countries would eliminate a host of problems now bedeviling nations throughout the world - problems that have produced varying, complex, and inconsistent responses among different countries, responses that frequently may result in zero or double taxation. Given the flexibility of multinational corporations to choose where to locate their borrowing and the difficulties nations have in maintaining their domestic income tax bases in the face of such flexibility, achieving a multilateral agreement for the treatment of interest expense based on a worldwide allocation should become a priority project for both source and residence countries.

taxation, international taxation, interest expense

Abstract:
This paper details a method for implementing personal retirement accounts (PRAs) as a part of Social Security reform. The approach described here answers the following questions: how funds are collected and credited to each participants' retirement account; how money is invested; and how funds are distributed to retirees. It is designed to accommodate a variety of answers to a wide range of important policy questions; to minimize administrative costs and distribute those costs in a fair and reasonable way; to minimize the burden on employers, especially small employees who do not now maintain a qualified retirement plan; and to meet the expectations of Americans for simplicity, security, control, and independence in ways that are easy to explain and to understand. The system we describe relies on existing payroll and income tax mechanisms for collecting PRA funds and crediting PRA accounts. It provides two basic options for investments: (i) a simply system involving a limited number of funds sponsored by the Social Security Administration and managed by private companies, and (ii) privately sponsored funds with additional investment choices. It also provides two distribution alternatives if distributions are required to be annuitized: (i) an increase in Social Security benefits, and (ii) inflation-protected annuities provided directly to retirees by private companies.

Abstract:
This report considers some of the payout issues that might arise from implementing a system of individual accounts, if such accounts were to become a part of federal retirement policy. Why is it important to examine "payout" issues? Because a central goal of retirement security policy is to assure some level of adequate income, it is essential that any debate about creating individual accounts include a complete understanding of how the benefits will be received. How would the assets accumulated in individual accounts be paid out during retirement? Will individuals have funds available to them before retirement? What rights does a spouse or former spouse have to these accounts? Can creditors reach the accounts? What institutions - government or private - will be responsible for making payments from the accounts? If private institutions are responsible, will the federal or state governments regulate their conduct? If these new accounts are part of Social Security or integrated with Social Security reforms, what will happen to payouts of Social Security benefits?

Social security reform, social security privatization, private accounts

Abstract:
The author discusses the issues impacting the development of international tax policy. He states that the proper question in forming international tax policy should be, "what policy is in the United States' national interest?" However, advancing the competitive position of U.S. multinationals may or may not be the right answer, depending on the issue and the circumstances. The author looks at the taxation of business income, and the relative merits of our credit system versus an exemption system, then explores the taxation of portfolio income. He notes that the U.S. international income tax system is built on irrelevant concepts, discussing specifically, corporate residence and source classifications. And, he finds that policymakers in the U.S. are insufficiently alert to the impact of international organizations such as the World Trade Organization and the European Court of Justice. Finally, he observes that the U.S. has the wrong mix of taxes, relying to heavily on income taxes and not nearly enough on a consumption tax.

Abstract:
The importance of international portfolio investment to the world economy has grown exponentially in recent years. Yet most analyses of international tax policy have either lumped direct and portfolio investment together or ignored foreign portfolio income altogether. The economic differences between foreign direct investment and foreign portfolio investment ("FPI") suggest that the principal normative criteria used to evaluate international tax policy generally capital export neutrality and capital import neutrality ("CEN") have little or no relevance with respect to international portfolio investment. Furthermore, empirical analysis illustrates that to achieve CEN for FPI would require the U.S. government to make politically infeasible and fundamentally undesirable tax policy changes. Principles of international equity and interpersonal fairness, as well as U.S. national interest, all suggest that income from FPI should be taxed by the country where the investor resides, and that taxation of income from FPI at source should be eliminated. Thus, a strong case can be made that, for FPI, the U.S. should replace its foreign tax credit with a deduction for foreign withholding taxes. Multilateral cooperation and coordination would be essential to ensure that such a regime would not worsen the widespread underreporting and evasion of taxes on income from FPI.