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Globalization and Its Tax Discontents

Globalization and Its Tax Discontents: Tax Policy and International Investments

Edited by Arthur J. Cockfield
Copyright Date: 2010
Pages: 320
  • Book Info
    Globalization and Its Tax Discontents
    Book Description:

    Innovative, interdisciplinary, and comprehensive,Globalization and Its Tax Discontentssheds light on one of the last real policy battlegrounds of globalization.

    eISBN: 978-1-4426-6002-1
    Subjects: Business

Table of Contents

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  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-xii)
  3. Preface
    (pp. xiii-xiv)

    • 1 Introduction: The Last Battleground of Globalization
      (pp. 3-17)

      The topic of globalization and tax is an ancient one. Writings in the area date back at least 2,500 years to the work of Herodotus, the ancient Greek scholar who coined the term ‘history.’¹ InThe Histories, Herodotus tells us of an era when ancient peoples came increasingly in contact with one another through cross-border trade and investment as well as warfare. He was writing during the so-called Greek Enlightenment, a time of relative peace and prosperity for the Greeks who, a generation before, had successfully defended their lands against invasion by the Persians. Intensely interested in foreign developments, the...

    • 2 Taxing Foreign Direct Investment in a Non-cooperative Setting: Contributions by Alex Easson
      (pp. 18-34)

      Alex Easson’s scholarly contributions to the ongoing debate about the effect of tax law and policy on foreign direct investment (FDI) appear in a wide variety of articles, chapters, and books.¹ A theme running through many of these works is that, to discern optimal policy with respect to taxing FDI in a non-cooperative setting, tax law scholars should integrate into their policy analysis both the underlying economic theories and the relevant political, historical, cultural, or other realities. Accordingly, in this chapter, I develop the main theme of this volume and introduce a number of issues that are explored in greater...

    • 3 China’s Tax Incentive Regime for Foreign Direct Investment: An Eassonian Analysis
      (pp. 35-59)

      Tax incentives are commonly used as a policy tool to attract and retain foreign direct investment (FDI). As a report by the Organisation for Economic Co-operation and Development (OECD) puts it, tax incentives are ‘measures designed to influence the size, location or industry of an FDI investment project by affecting its relative cost or by altering the risks attached to it through inducements that are not available to comparable domestic investors.’¹ Alex Easson took a broader view, which we adopt in this chapter, explaining that tax incentives confer benefits on foreign investors in the form of tax expenditures that represent...

    • 4 Outbound Direct Investment and the Sourcing of Interest Expense for Deductibility Purposes
      (pp. 60-83)

      A major international tax policy issue is the recognition by residence countries (that is, the country in which an investor is considered to be resident) of the prior taxing right of source countries (that is, the country in which the income is considered to be earned). The choice is conventionally framed as one between a territorial system, under which foreign-source income is exempt, and a worldwide system, under which all such income is taxed by the country of residence either as earned or on repatriation, with a credit for source-country tax. Although somewhat of a simplification, concern over the competitiveness...

    • 5 Assessing the Foreign Direct Investment Response to Tax Reform and Tax Planning
      (pp. 84-114)

      In a globalized world with heightened cross-border investments, multinational firms increasingly are engaging in sophisticated international tax-planning strategies to lower their global tax liabilities. Accordingly, studies that try to estimate the effect of tax on cross-border investment decision-making need to take this tax planning into account.

      This chapter considers the use of ‘forward-looking’ effective tax rates to estimate the impact of corporate tax reform on flows of foreign direct investment (FDI), and signals the need to address increasingly common strategies multinationals use to minimize host-and home-country tax when attempting to model representative fi nancing and repatriation structures.¹ The chapter develops...


    • 6 Improving Inter-nation Equity through Territorial Taxation and Tax Sparing
      (pp. 117-137)

      The current international tax system allocates the taxation of cross-border income by reference to the residence of the taxpayer and/or the source of income. The governing rules are contained in domestic tax laws and bilateral tax treaties. As noted by Alex Easson, the current regime of allocation is not based on any real agreement between nations and cannot be rationalized by any ‘obvious principle of fairness.’ In fact, it is biased in favour of the capital-exporting nations that devised the rules of the game. In order to improve fairness, Easson considered it desirable to have some ‘redistribution’ in favour of...

    • 7 Harmonizing Corporate Income Taxes in the United States and the European Union: Legislative, Judicial, Soft-Law, and Cooperative Approaches
      (pp. 138-152)

      In an age of globalization, differences in national tax systems can distort cross-border investment decisions. This problem may be especially serious when countries are closely linked under regional economic integration.

      Indeed, the existence of 27 distinct national corporate tax systems based on separate accounting and the arm’s-length standard (SA/ALS) poses serious obstacles to the creation of a single market within the European Union (EU). These include complexity, manifested especially – but not only – in the need to document and monitor transfer prices, the possibility of double taxation, and the general inability to offset losses incurred in one member state against income...

    • 8 Missing Women: Gender-Impact Analysis and International Taxation
      (pp. 153-170)

      Tax law, like corporate, commercial, and regulatory law, speaks of ‘persons,’ ‘corporations,’ ‘states,’ and ‘taxpayers’ – but, particularly in international taxation, there are few real people anywhere in sight. Add to that the self-conscious gender neutrality of liberal legal discourse, and women merge conceptually with men in every legal category, be it ‘related persons,’ ‘spouses,’ or ‘parties not dealing at arm’s length.’¹ Because women continue to be disadvantaged in every country in the world,² it has become urgent to break through genderless depictions of issues and policy options to grapple with the ways in which women’s continuing disadvantages are perpetuated.


    • 9 Globalization and the Hong Kong Revenue Regime
      (pp. 171-186)

      When one thinks about globalization, one tends to consider it a post–World War Two phenomenon that has gathered truly significant pace as the communications technology revolution has unfolded over the past two decades. This modern version of globalization has deep foundations, however, within the type of integrated global economy that developed for well over a hundred years prior to World War One, during the colonial era. Primarily, the colonial era involved European-based colonizers and non-European colonized jurisdictions. In terms of scope and political and economic durability, the British Empire was the preeminent product of this period of world development...


    • 10 Canada’s Evolving Tax Treaty Policy toward Low-Income Countries
      (pp. 189-211)

      International trade and international flows of investment have mushroomed in recent decades, and an extraordinary amount of the world’s goods and services and annual investment capital flows across international borders. The tax treatment of almost all of the income that results from these cross-border transactions is affected by tax treaties. Well over twenty-five hundred bilateral tax treaties are now in force between the countries of the world; Canada alone has almost a hundred tax treaties in force. Tax treaties have thus become a major interest to legislators, tax practitioners, and tax scholars, and writing about them has become a cottage...

    • 11 Tax Treaties and the Taxation of Non-residents’ Capital Gains
      (pp. 212-238)

      One of the many significant contributions Alex Easson made to tax thinking looking forward to the twenty-first century was a renewal of skepticism of the benefit of double tax treaties.¹ He argued that if the key problem to be addressed in international taxation was, as the title of the treaties suggests, the avoidance of double taxation, the solution lay not in the treaties but in national tax legislation. Indeed, the treaties themselves were incapable of offering a direct solution – they could merely require signatories to provide relief by way of credit or exemption in domestic legislation. But this relief can...

    • 12 Tax Treaty Templates
      (pp. 239-254)

      In a 2001 article,¹ I put forward several proposals relating to a multilateral tax treaty. In this chapter, I develop further one of the proposals – namely, a multilateral template for bilateral treaties.² The template approach is designed to deal with several deficiencies of the existing bilateral treaty network. Nevertheless, it represents a more modest approach than the proposal for a multilateral treaty since it contemplates maintaining the bilateral structure of double tax treaties. It represents a way to clean up, rationalize, and simplify the network of bilateral tax treaties, and provides a framework for subsequently and periodically updating these treaties....


    • 13 Tax Discrimination and Trade in Services: Should the Non-discrimination Article in the OECD Model Treaty Provide the Missing Link between Tax and Trade Agreements?
      (pp. 257-279)

      The importance of trade in services became a focal point in world trade in the 1990s. The evidence can be seen in the General Agreement on Trade in Services (GATS), in regional trade agreements such as the North American Free Trade Agreement (NAFTA), and in bilateral investment agreements (BITS).1 Signatory governments made signifi cant commitments with respect to both national treatment and most-favourednation (MFN) treatment, as well as a host of other measures designed to ensure the free movement of services and service providers across national borders. The potential benefi ts of these trade commitments to services providers, however, have...

    • 14 The New Services Permanent Establishment Rule in the Canada-United States Tax Treaty
      (pp. 280-304)

      Canada and the United States enjoy highly integrated economies: investors from the United States, for instance, provide roughly two-thirds of the total investment in Canada. For this reason, changes to the tax treaty between the two countries can have important revenue and other consequences. The Fifth Protocol that amends the 1980 Tax Convention between Canada and the United States was signed on 21 September 2007 after many years of negotiations.¹ As taxpayers and their advisers had widely anticipated, the Protocol deals with hybrid entities and real estate investment trusts, eliminates the withholding tax on cross-border payments of interest, reduces the...

    • 15 Consumption Taxation of Cross-border Trade in Services in an Age of Globalization
      (pp. 305-328)

      In an era of heightened cross-border flows of investment and trade, the conceptual foundation is being laid for the rules on value-added tax (VAT) or, as in Canada’s case, goods and services tax (GST) that govern the tax treatment of cross-border trade in goods and services. These rules generally permit governments to apply their VAT or GST to goods and services that are ‘consumed’ within their borders, on the principle that consumption should be taxed where it occurs.¹ This seemingly self-evident proposition is widely accepted with respect to the proper place of consumption taxation of cross-border trade. Thus, in explicating...

  8. Contributors
    (pp. 329-330)
  9. Index
    (pp. 331-340)