Tax scholarship produced abroad frequently offers a unique perspective on the same knotty domestic and foreign tax issues with which we wrestle here in the United States. A case in point is the recent article from Maarten de Wilde of Utrecht University, the Netherlands, which combines original thinking with elements of Dutch tax law in proposing a solution to perhaps the most perplexing problem in taxation today; namely, how to allocate the right to tax income between and among competing, sovereign jurisdictions, each of which asserts legitimate residence–or source–based claims to tax the global income of multinational enterprises (MNEs).
The current formula for global tax allocation attempts to assign a source to business income that reflects the physical location in which the income was produced. As de Wilde observes, however, the formula was developed in the 1920s, when there were far fewer MNEs, Europe was decades away from being economically integrated, and technological advances had not produced “e-commerce” and the bewildering array of intangible assets and financial products that are an integral part of the global economy and that have become increasingly difficult to source. Complicating the essential sourcing problem are state tax systems that are not only internally inconsistent in their treatment of income from domestic and foreign transactions, but also differ among one another in their choice of rates, taxable units, tax bases, treatment of deductions, definitions of particular entities, and a host of other matters. As a result, much business income is either subjected to double taxation, or to the extent MNEs are able to successfully arbitrage the differences among tax systems, no income taxation at all. Continue reading "Slicing the Global Tax Pie"