Susan Morse (UC-Hastings) presents Tax Imperialism at Loyola-L.A. today as part of its Tax Policy Colloquium Series:
The jurisdictional tussle of international tax reform necessarily involves countries influencing each others’ tax policy choices. They may do so in a straightforward way, as when a particular tax is made a condition of International Monetary Fund or World Bank support or a prerequisite for admission into a multinational group such as the European Union. Or they may do so in more subtle fashion, for example when a domestic country only credits foreign taxes that fit a definition that the domestic country decides on; or when a model treaty takes a position that narrows a source country’s right to tax certain streams of income.
U.S. decisions about the international aspects of the U.S. tax system inevitably affect other countries. But the literature, to the extent that it considers impact on non- U.S. countries, generally investigates only two questions: what is the impact of the U.S. decision on the location of capital investment and/or ownership, and how does the U.S. decision broaden or narrow the U.S. jurisdiction to tax. In addition, the literature often considers the different advantages of ideal systems, rather than the likely incremental impact of a particular unilateral tax policy change. Yet it is the latter question that more closely resembles the actual policy framework faced by decision makers.
This Article takes a different view. It builds a concept of tax imperialism that includes three cost and benefit factors through which a unilateral tax policy change undertaken by one nation can incrementally affect other nations. These three factors are investment ownership and location, tax system design and tax revenue, and fiscal sovereignty. The Article then considers what costs and benefits non-U.S. countries would experience if the U.S. adopted worldwide consolidation or, in the alternative, an explicitly territorial system for taxing corporate income. It further argues that this consideration of non-U.S. costs and benefits is important no matter what other policymaking priorities exist.
Anders Christiansen (Loyola-L.A.) is the commentator.
