There are three tax panels today at the Annual Meeting of the Law & Society Association at Humboldt University in Berlin, Germany, organized by Neil H. Buchanan (George Washington):

Law, Society, and Taxation VI: Doctrinal Aspects of Current Tax Controversies (10:15 a.m. – 12:00 p.m.):

The papers in this session offer new insights on a range of classic issues in tax doctrine, including transfer pricing issues, tax aspects of insuring against major disasters, special property exchanges, and taxation of compensation payments.

Chair/Discussant: Tracy Kaye (Seton Hall)

Papers:

• Transfer Pricing Theory: Inconsistent Applications in Direct and Indirect Taxation, by Richard T. Ainsworth (Boston University):

There are three spheres of transfer pricing analysis – income tax, customs and VAT – and the rules among these spheres are not harmonized. Because these rules intersect far more in practice than in theory businesses frequently face inconsistent treatment among these taxes, a three-way, potentially no-win situation whenever they structure cross-border related party transactions. The world’s largest multinational enterprises transfer goods, services and intangible properties in cross-border related party transactions on a daily basis. Although income tax, customs and VAT authorities each demand an accurate valuation of these supplies, the reality is (with very few exceptions) that the applicable transfer pricing rules are not harmonized among the tax types within jurisdictions (vertical harmonization). There is however, considerable harmonization of transfer pricing norms within a single tax type across multiple jurisdictions (horizontal harmonization). Horizontal harmonies are largely attributable to the influence of supra-national standard setting organizations: the Organization for Economic Cooperation and Development (OECD) in income tax, the World Trade Organization (WTO) in customs, and various regional economic unions, like the European Union (EU) in VAT. The time has come for a concerted effort to be made in the vertical harmonization of transfer pricing regimes, one that maintains the horizontal linkages of the current system. In other words, what is needed is a single global transfer pricing standard. This paper considers the barriers to international trade caused by the partial harmonization of transfer pricing rules.

• In Defense of Section 1031, by Brad Borden (Washburn):

This papere will discuss the policy justifications for section 1031 and why it remains a part of the U.S. tax law after being criticized severely for the past twenty-five years.

• Tax Policy, Statutory Interpretation, and the “In Lieu of” Theory, by Tamara Lynn Larre (University of Saskatchewan):

This paper will discuss the use of the “in lieu of” theory as a tax policy tool and as an interpretive device. The “in lieu of” theory is employed by tax academics and courts to argue that the tax treatment of a compensation payment should depend on the tax treatment of the thing lost. The theory, however, is usually applied without justification or explanation. This paper will explore the ideas that may underlie the “in lieu of” theory and, in light of this analysis, will examine the extent to which the theory should be used in tax policy debates. As the “in lieu of” theory is also used by the courts to interpret income tax law, this paper will examine the appropriateness of this reasoning.

Law, Society, and Taxation VII: Administrative and Political Aspects of Taxes (12:30 p.m. – 2:15 p.m.):

The papers in this session will explore the judicial and administrative enforcement of tax laws, looking in particular at the enforcement of consumption taxes in Australia and the United States.

Chair/Discussant: Karen Brown (George Washington)

Papers:

• Carousel Fraud: Proposal for a Certified Technology Solution, by Richard T. Ainsworth (Boston University):

Missing trader intra-community (MTIC) fraud threatens the structure and the stability of the European value added tax (VAT). Germany and the United Kingdom have taken the lead in providing empirical measures of the fiscal impact of MTIC fraud. At present good figures for the whole E.U. are merely extrapolations from country-specific reports. Thus, in the U.K. VAT losses are estimated to be between 2.98 billion and 4.47 billion euros this year, leading to “best estimates” of the annual VAT losses to MTIC fraud for the E.U. as a whole to be about 23 billion euro. MTIC fraud, also known as carousel fraud, takes advantage of an imperfect compromise worked out among the Member States in 1991 to facilitate lowering the fiscal frontiers. The compromise was implemented on January 1, 1993, and immediately afterwards an exponential growth in MTIC fraud was observable. The connection between the explosion of MTIC fraud and opening of the single market is more than coincidental. The U.K. Office for National Statistics (ONS) has convincingly documented the relationship. By examining the import and export asymmetries in E.U. – U.K. trade, the ONS has demonstrated that MTIC fraud expanded on the opening of the single market. This paper proposes a technology intensive solution. It argues that a technological approach is preferable in large measure because (unlike the German and U.K. solutions) it retains the fractional payment system, and because it automates the administrative cooperation solution (but does so immediately rather than through the delayed exchanges encouraged by the Commission).

• The Politics of Tax Reform: The Introduction of a Goods and Services Tax, by Kathryn A James (Monash University):

As one of the most pervasive global tax instruments, the goods and services tax (or value-added tax) offers an archetypal example of ‘policy transfer’ or ‘policy convergence’ whereby policy instruments are becoming progressively similar across the developed and developing world. Despite consumption tax reform dominating the Australian political agenda from the 1970s and despite repeated bipartisan attempts to introduce a consumption tax, by 1999 Australia was one of only two OECD countries who had not introduced a goods and services tax. However, on 8 July 1999, the Australian Parliament enacted the A New Tax System (Goods and Services) Act 1999 (Cth), which heralded the introduction of a goods and services tax into the Australian tax system after more than 25 years of failed reform efforts. In light of Australia’s controversial and prolonged resistance to the global trend towards consumption tax reform, the introduction of the Australian goods and services tax provides fertile ground for testing political theory. The paper adopts a framework for analysis which encompasses the major normative approaches across a range of political, legal and social science disciplines. The approaches broadly converge on five principal themes: environment; power; institutions; ideas and processes. In applying this inter-disciplinary and multi-factorial approach to analysing the politics of an Australian goods and services tax, the analysis will enable: 1. The opportunity to test broad and divergent theoretical approaches to a controversial case study in a national context; 2. The induction of broader political theoretical insights from the Australian case study; 3. The detection of broader trends in national and international fiscal policy.

• Tax Reform and Political Reform in Hong Kong, by Tor Krever (University of Cambridge) & Richard Cullen (University of Hong Kong):

There is open agreement that tax reform in Hong Kong is now a matter of when rather than if. The Hong Kong Government itself acknowledges that Hong Kong’s revenue law is out-dated. The expected keystone of the reform process is the introduction of Hong Kong’s first ever general consumption tax, in the form of a Goods and Services Tax. The introduction of a GST will represent the most radical tax reform in Hong Kong since 1947 when the jurisdiction’s first income tax system was introduced. The Hong Kong Special Administrative Region of the PRC is also notable for retaining a comparatively outmoded political system. Given that Hong Kong is by most measures a first-world, city-state and has been so for some time, this conjunction of attenuated development in two fundamental public policy regimes raises several questions. First, how has this come to pass? Second, what relationship, if any, lies between the development and maintenance of the tax and political regimes? Third, if major tax reform is to come, is this bound to add significant impetus to the calls for increased democracy in Hong Kong?

• The Culture of Tax Avoidance in Europe and the U.S., by Henry Ordower (St. Louis):

The paper explores the cultural context that contributes or drives decisions to avoid payment of taxes through both permissible means such as tax shelters and impermissible means like unreported income. The paper seeks to understand what societal conditions contribute to increase and decrease in tax avoidance. Examples may include the failure of the legislature to adjust tax rules to changing cultural expectations.

Law, Society, and Taxation VIII: Culture, Family, and Taxes (2:30 p.m. – 4:15 p.m.):

The papers in this panel will explore the development of cultural origins of tax rules as well as specific aspects of how family norms and forms are treated in the tax laws of Canada and the United States.

Chair/Discussant: Anthony C. Infanti (Pittsburgh)

Papers:

• Tax Regulation of Intimacy by Contract: Transfer Tax Aspects of Powers of Attorney, by Bridget J. Crawford (Pace):

Powers of attorney may be among the most common and the most abused of all estate planning devises. Under a typical durable general power of attorney, the attorney-in-fact typically has the ability to act on behalf of the principal on almost all affairs. Neither the creation nor exercise of such a power usually gives rise to taxable transfer for U.S. federal estate and gift tax consequences. These wealth transfer tax outcomes hinge in large part on the recognition of the fiduciary limitation on an attorney-in-fact’s powers, a limitation that has been rejected by the Internal Revenue Service in other contexts. This paper explores and interprets proposals to commodify the principal/attorney-in-fact relationship against the backdrop of other U.S. cultural practices of outsourcing work that a person cannot find willing and able family members to do, but the person cannot (or will not) do himself or herself.

• Methodology for Analysis of Cultural Origins of Taxation Rules, by Henry Ordower (Saint Louis):

While tax systems in developed economies tend to converge, they are not identical. Dissimilarities in systems generate significant challenges for unification of tax systems and administrations within free trade and proposed free trade blocks. Some differences among systems may yield to a leveling effort, but others may be closely linked to cultural differences that are much more difficult to reconcile. Toward a better understanding of such cultural differences, this paper seeks to develop a methodology for analysis of the cultural origins of taxation elements.

• Just Helping Out: How Should Tax Law Deal with Informal Family Workers?, by Lisa Philipps (York University):

Business owners and employees often incorporate family members into their production processes. How should income tax law conceptualize the work done, for example, by corporate wives, children working in the family restaurant, or relatives helping out in a small service enterprise? The paper elaborates feminist theories of unpaid work to argue that income earning in many contexts is more a collective than an individual undertaking. This insight has implications for the way tax law assigns income, expenses and losses to different taxpayers.