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Corporate Taxation and International Charter Competition

Mitchell Kane

New York University (NYU)

Edward B. Rock

University of Pennsylvania Law School

Michigan Law Review, Vol. 106, p. 1229, 2008
U of Penn, Inst for Law & Econ Research Paper No. 07-16

Corporate Charter competition has become an increasingly international phenomenon. The thesis of this article is that this development in the corporate law requires a greater focus on the corporate tax law. We first demonstrate how a tax system's capacity to distort the international charter market depends both upon its approach to determining corporate location and the extent to which it taxes foreign source corporate profits. We also show, however, that it is not possible to remove all distortions through modifications to the tax system alone. We present instead two alternative methods for preserving an international charter market. The first best solution involves severing the markets for corporate law and corporate tax law through coordination of locational rules under each regime, with a "place of incorporation" rule for corporate law and a "real seat" rule for corporate tax. The second best solution relies on a properly designed federal structure. The crucial design elements for such a federal system are the allocation of substantive law between the federal and subfederal levels, corporate and corporate tax locational rules, and the taxation of corporate migration and foreign source corporate profits. With due attention to these details, an international charter market can be protected from the potentially distorting effects of corporate taxation, but only if considerable care is taken. In the final part of the paper we apply our analysis to the United States, Canada, the European Union, and Israel, and show how difficult it is, in the real world, to separate corporate charter and corporate tax competition.

Number of Pages in PDF File: 56

Keywords: reincorporation, corporate charter competition, corporate tax, international charter market, severing markets, place of incorporation, real seat

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Date posted: August 5, 2007 ; Last revised: April 4, 2009

Suggested Citation

Kane, Mitchell and Rock, Edward B., Corporate Taxation and International Charter Competition. Michigan Law Review, Vol. 106, p. 1229, 2008; U of Penn, Inst for Law & Econ Research Paper No. 07-16. Available at SSRN: http://ssrn.com/abstract=1004607

Contact Information

Mitchell Kane (Contact Author)
New York University (NYU) ( email )
Bobst Library, E-resource Acquisitions
20 Cooper Square 3rd Floor
New York, NY 10003-711
United States
Edward B. Rock
University of Pennsylvania Law School ( email )
3501 Sansom Street
Philadelphia, PA 19104
United States
215-898-8631 (Phone)
215-573-2025 (Fax)
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