I encourage folks who were not able to attend Friday’s wonderful AALS Tax Section program on Can the Income Tax Survive in a Globalized Economy? to listen to the podcast when it become available.  In the meantime, Michael Kirsch (Notre Dame) has provided a helpful summary of the panel’s remarks below the fold:

• Moderator:  Linda Beale (Wayne State)
• Panelists:
  • Craig Boise (Case Western)
  • Robert Peroni (Texas)
  • Julie Roin (Chicago)

The discussion addressed both theoretical and practical concerns regarding the United States’ imposition of income tax on transnational transactions, as well as the political realities of achieiving meaningful reform. Ultimately, none of the participants defended the ability of the present income tax system to deal with modern business and financial developments. However, each panelist presented a different perspective on possible fixes.

Bob Peroni, speaking first, outlined the many shortcomings of the present U.S. system of international taxation of transnational business income, asserting that the incoherence of the current system permits significant abuses and creates enforcement problems. He called for a reinvigorated system of worldwide income taxation, with a renewed emphasis on the principles underlying the major provisions. For example, Professor Peroni noted that the current sourcing and foreign tax credit rules often result in the U.S. ceding taxing authority in situations where the other country is unlikely to tax the income, and suggested that the sourcing and limitation rules must be re-examined and re-alligned with their fundamental purpose of preventing double-taxation. He also discussed the lack of coherence in the Subpart F rules, and advocated the curtailment of deferral opportunities. In addition, he called for a reconsideration of the place-of-incorporation rule for defining a domestic corporation, and a reexamination of the check-the-box rules in the international context.

Julie Roin was more pessimistic regarding the future of worldwide income taxation in a globalized economy. She predicted that multinational corporations, in the long-term, will avoid domestic corporation status, regardless of the definition used, thereby placing more pressure on source-based taxation. Professor Roin asserted that current arms-length separate accounting principles will not be adequate to enforce source-based taxation, particularly given the importance of intellectual property in foreign base company structures. She then discussed the merits of formulary apportionment. While acknowledging that formulary apportionment is less appealing than separate accounting as a theoretical matter, she suggested that it might be more accurate as a practical matter. However, after discussing potential problems with the property, sales, and payroll factors in the international context, she acknowledged that formulary apportionment is not a panacea.

Craig Boise was the least pessimistic regarding the prognosis for the income tax in a globalized economy. Given the manipulability of the tax at the multinational corporate level, he suggested that greater focus should be placed on individual income taxation. After discussing the problems raised by offshore tax havens, Professor Boise suggested that the IRS should continue its recent emphasis on enforcement in the international area, paying particular attention to tax shelter promoters, transfers of money offshore via deductible payments, methods by which U.S. persons maintain control of money held offshore, and ways in which U.S. persons access money in offshore accounts.

During the Q&A period, the panelists focused on the political difficulties of achieving fundamental international tax reform. While acknowledging the significant political barriers to meaningful reform, Professor Peroni expressed hope that at some point, if public pressure or fiscal realities become strong enough, political leaders might support a serious study, with all issues on the table, to develop recommendations to bring coherence back to the tax system. In addition, the panelists discussed the importance of improving international cooperation in this area.