Tuesday, September 30, 2014

Book review for Fixing U.S. International Taxation

Christiana Panayi of the Queen Mary University in London has written a book review of my recently published book Fixing U.S. International Taxation.  It should be appearing shortly in the British Tax Review.  The text of the review goes something like this:

"Professor Daniel Shaviro is a well-known and widely published professor of international taxation at New York University. As the title suggests, in this book Shaviro advances several proposals aimed at improving US international tax law. Broadly, his main proposal is to set the average effective rate on foreign-source income of US multinationals somewhere below the statutory corporate rate and above zero. He also proposes to eliminate deferral advantages and to abolish the foreign tax credit, replacing it with a deduction for foreign taxes.

"Shaviro’s writing is clear and highly thought-provoking. In spite of the complexities of the issues in place, the author manages to offer a concise and comprehensible overview of the problems plaguing the current discourse on reform of US international tax law.

"There are six chapters in this 200 page book.

"Chapter one is an introductory chapter. Here, Shaviro identifies the problems with the current rules of US international tax law, and reviews the academic debate on these problems. He sets out “the core dilemmas in international tax policy” and “the defects in prevailing modes of analysis”, before laying down the parameters for his proposals and the main policy implications.

"All of these issues are examined in greater detail in the following chapters.

"Chapters two and three delve into the basics of the US international tax regime. The author focuses on what he considers to be the main building blocks of this regime, namely the rules for determining corporate residence, some source rules such as transfer pricing, the rules on foreign tax credits and the rules on deferral and Subpart F. Chapter three revisits these building blocks, but the focus is on the main incentives and tax planning opportunities that the existing rules create and the possible impact of marginal changes to these rules.

"Chapter four explores the global welfare perspective on US international tax policy. The author reaches the conclusion that global welfare analysis plays a small role, notwithstanding its normative appeal. In fact, in Shaviro’s view, prevailing international tax practices are not greatly influenced by global welfare considerations. In any case, the author argues that the potential gains that are available through global cooperation are much more limited than in the field of international trade. In this chapter, the author goes on to reject what he calls the global “alphabet
soup” and the single-bullet approach of achieving global welfare. The alphabet soup is a reference to the acronyms used for capital export neutrality (CEN), capital import neutrality (CIN), national neutrality (NN), and, more recently, capital ownership neutrality (CON), national ownership neutrality (NON) and global portfolio neutrality (GPN). All of these concepts are analysed at some length. Shaviro concludes that  “[w]hile global welfare considerations may be important when unilateral cooperation is sufficiently feasible, in the main countries must and will make international tax policy choices in a largely unilateral setting”.

"This idea, which he describes as the unilateral national welfare perspective, is further elaborated in Chapter five, wherein the basic elements of this perspective are analysed. Shaviro argues that foreign-sourced income should be subject to a lower rate than is currently the case, but the base should be broadened. Both deferral and foreign tax credits should be eliminated.

"On the basis of these conclusions, Shaviro sets out in Chapter six the practical steps that should be taken to improve US international tax policy. In addition to the above proposals, Shaviro makes further interesting suggestions. Inter alia, he argues that the concept of US corporate residence should include companies that are incorporated abroad but have US headquarters. He also argues for the application of formulary approach to allocating interest expenses.

"Interestingly, though rather briefly, at the end of this chapter, Shaviro touches on the topic of transfer pricing versus formulary apportionment, and emphasises the importance of 'think[ing] about the proper choice of factors' under formulary apportionment. He suggests the use of all three traditional factors (sales, employees and assets), but would give extra weight to the sales factor.

"This book offers an excellent analysis of the topic and it is especially helpful to non-US tax lawyers. One of its main strengths is that while it shows a wealth of knowledge of public finance, the writing is plain and understandable to those not well versed with public economics. Apart from the bold—but practical—suggestions made for reform, the book also identifies issues that need further examination. It provides an excellent benchmark for further research to be undertaken.

"Rather humbly, Shaviro closes the book 'with the hope that you, at least—the current reader—have found new ideas here that will stimulate further reflection'. Most open-minded readers will certainly do so."

1 comment:

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