In a time of growing tension and fragmentation in global trade and as a result also in international taxation, Kuźniacki and Avi-Yonah’s paper provides an analytically rigorous examination of the United States’ retaliatory tax responses to foreign measures such as the Undertaxed Profits Rule (UTPR) and Digital Services Taxes (DSTs) (though the authors do not take a definitive position on whether DSTs violate international law, noting this to be "highly contentious in existing scholarship (even among the present authors)," for disclosure purposes, my view is that some DSTs, especially those based on gross revenue and targeted at specific digital sectors, violate WTO rules, particularly under GATT Articles II and III).

The authors frame the current situation as a clash between the rule of law and the rule of power, focusing their analysis on the principle of proportionality as articulated in Article 51 of the International Law Commission’s Articles on Responsibility of States for Internationally Wrongful Acts (ARSIWA), and argue for a principled adherence to customary international law (CIL) as a necessary constraint on the use of unilateral fiscal force.

The authors’ claim is that U.S. countermeasures, namely Code Sections 891 and 896, along with the proposed but ultimately abandoned Section 899 (which was quickly labeled as the “revenge tax”), can only be justified under international law if those meet the legal threshold of proportionality. This threshold requires that the measures respond to an internationally wrongful act in a manner that is neither excessive nor punitive, and aimed at securing compliance. While the premise that the UTPR and DSTs constitute internationally wrongful acts remains contested, the authors adopt this assumption to examine whether U.S. responses meet the proportionality standard under international law. This approach allows the authors to focus their analysis without taking a position on the underlying legal and attributional disputes that, at least for now, remain unresolved.

The article follows a clear and logical structure that supports its legal analysis and helps the reader understand the relevant legal framework, the underlying issues, and the interaction between the statutory provisions and international law principles. The introduction contextualizes the return of U.S. retaliatory fiscal tools within a broader shift from cooperative multilateralism to power-based bargaining. According to the authors, this shift risks undermining the normative order that has governed cross-border taxation for a long time. Following this, Section I offers an excellent doctrinal review of the position of CIL in the U.S. legal system, including an analysis of domestic statutes, treaties, and constitutional principles, drawing on Supreme Court precedents like The Paquete Habana, 175 U.S. 677 (1900), and scholarly commentaries. Section II provides a historical and doctrinal review of the relevant U.S. statutory provisions. Section 891, first enacted during the 1930s in the context of U.S.-France treaty disputes, permits the doubling of tax rates on foreign entities from discriminatory jurisdictions. Section 891 generally caps any tax increase it imposes at 80% of the taxpayer's taxable income, a limit unchanged since 1934. However, as the authors state, this provision was never used, mainly because after its introduction, U.S. tax treaties include non-discrimination rules that prohibit the higher rates on foreign entities, effectively overriding or constraining its application to avoid treaty violations. Next, the authors describe Section 896, which was enacted as part of the 1966 Foreign Investors Tax Act, as a safeguard against concerns that the United States’ unilateral easing of tax rules for foreign investors would undermine its bargaining power in tax treaty negotiations. Section 896 authorizes retaliatory denial of deductions or the imposition of higher tax rates. Yet like Section 891, it has never been invoked. Finally, Section 899, proposed in 2025 as part of the One Big Beautiful Bill Act and later abandoned, while also briefly the subject of significant scholarly and public attention before being abandoned (for further analysis on this proposed rule, see the recent article by Wei Cui, The Logic of the Revenge Tax), outlined broad retaliatory measures against countries imposing "unfair foreign taxes" like the UTPR or DSTs on U.S. companies. The provision would have imposed tax increases on income from countries imposing discriminatory or extraterritorial taxes, but only where such taxes were actually applied to U.S. companies or their subsidiaries. The Senate version of this further limited the scope by excluding DSTs from the rate increase and applying only the enhanced minimum tax, known as the super-BEAT, which denied a broader range of deductions and applied to more entities than the existing BEAT regime. The authors note that while Section 899 had significant initial revenue potential, its effectiveness was likely to diminish over time as foreign multinationals would have adjusted their structures. It also emphasizes that the absence of an explicit treaty override rendered the provision vulnerable to legal challenges under U.S. tax treaties. The authors suggest that although Section 899 was dropped following the G7 deal to exempt U.S. companies from the UTPR, it may return if tariffs and older statutory tools like Section 891 prove ineffective at deterring foreign digital taxes.

Section III constructs the paper’s normative core by mapping the legal criteria for lawful countermeasures under ARSIWA. The authors start by identifying the procedural prerequisites for invoking countermeasures: attribution of the wrongful act to a state, exhaustion of applicable lex specialis mechanisms (such as treaty-based dispute settlement), notice, and efforts to negotiate. They emphasize that while countermeasures may affect nationals of the offending state, such impacts are permissible so long as they do not violate fundamental rights. Citing authorities such as Cargill v. Mexico, the authors highlight that state-directed measures that indirectly burden private actors can still meet international standards.

The principle of proportionality is deconstructed to three distinct elements. First, suitability requires that the measure be capable of compelling the other state to return to lawful behavior. Second, necessity requires that the countermeasure be the least restrictive means available to achieve this goal. Third, stricto sensu proportionality evaluates whether the measure strikes an acceptable balance between the severity of the original breach and the burden imposed by the response. These elements are situated within a broader body of jurisprudence, including ICJ decisions such as Gabčíkovo-Nagymaros, and tied back to ARSIWA’s codified principles. The authors argue that proportionality acts as a legal limit on hegemonic states such as the United States, preventing them from exploiting their fiscal power without constraint.

Section IV applies the framework in a meticulous evaluation of each statutory measure mentioned earlier in Section II of the paper. Section 891, in the authors’ view, fails on multiple grounds. It lacks suitability, since it can be evaded by structuring investments through exempt entities or through treaty protection. It also fails the necessity test, as its punitive retroactivity and sweeping rate increases render it more coercive than necessary, especially when alternatives such as targeted tariffs exist. Moreover, it risks violating non-discrimination provisions under treaties such as the U.S.-France income tax convention. Section 899, though newer, suffers from similar defects. It applies primarily to foreign banks and insurance firms, making its reach narrow and potentially ineffective. Its procurement bans appear disconnected from the underlying tax harms, raising proportionality concerns. Furthermore, the statute’s lack of explicit treaty overrides renders it vulnerable to legal challenge.

In contrast, Section 896 fares better across all metrics. The authors argue that it meets the test of suitability, as it can produce reciprocal tax consequences that mirror the foreign measure. It is necessary, insofar as it avoids more disruptive alternatives while remaining effective. And it satisfies the balancing requirement by limiting its application to the scope of the foreign measure without escalating the dispute. As such, Section 896 emerges as a model of lawful and restrained countermeasures, capable of inducing compliance without violating international law.

The conclusion draws on the proportionality analysis to advance two main claims. First, the United States should prioritize Section 896 in its legislative and diplomatic response to extraterritorial taxation. Unlike Sections 891 and 899, which risk functioning as unlawful punitive measures, Section 896 offers much more likely a proportionate, lawful, and reciprocal mechanism consistent with international law. Second, the paper offers a broader legal framework that other states may consider before adopting unilateral tax measures. At the same time, the authors express concern that current U.S. policy reflects a broader turn toward the rule of power rather than the rule of law. The failure to consider Section 896, despite its legal viability and strategic precision, raises questions about the real objectives of the U.S. response. That failure is mirrored on the international side, where institutions such as the OECD, the European Union, and the United Nations have also failed to integrate public international law principles into the design of their tax regimes. The paper therefore issues a broader warning: unless states and institutions recommit to legal discipline, international tax policy may continue to evolve in ways that erode the foundations of international law itself.

Overall, the article makes a timely and substantive contribution by situating U.S. tax defense measures within a coherent framework of international law and by providing valuable historical and doctrinal context. Its principal strength lies in the careful and methodical application of the proportionality test to Sections 891, 896, and 899, resulting in an analysis that is both doctrinally rigorous and highly relevant to contemporary policy debates. In doing so, the authors also highlight critical tensions and areas of misalignment within the current fragmented international tax framework, offering a foundation for more legally consistent and principled responses to unilateral measures.