Tax Cases Research Articles

Letter to the Editor

Letter to the Editor The Journal has recently published two competing articles relating to the claim made by Justice Douglas thirty-five years ago that he wrote both the majority and minority opinions in Meyer v. United States, 364 U.S. 410(1960), a decision that the official reports show Justice Whittaker writing for the majority with Douglas in dissent. Professor Craig Alan Smith concluded in his 2014 article in this Journal that Douglas’s claim was “pure fabrication.” Professor David J. Danelski undertook to rebut Professor Smith in a 2015 Journal article. Those who accepted the Douglas claim saw it as testimony to Douglas’s skills, an indication of Whittaker’s inadequacy, or both. As a former Whittaker clerk, I believe the correct answer is none of the abcve, because the Danelski rebuttal only partially succeeds in hitting its target. Surprisingly, Professor Danelski makes no serious attempt to defend the claim that Douglas literally wrote both opinions in the case. Instead, he suggests that a proper interpretation of Douglas’s claim is that “Douglas had written a draft that was the basis ofthe opinion Whittaker handed down.” Danelski further suggests that “Whittaker revised the language but not the substance of Douglas’s draft before he circulated his majority opinion.” But not even those modi­ fied observations are fully supported by Danelski’s own analysis. Meyer was a federal estate tax case from the Second Circuit, heard by the Court because of a conflict with the Third Circuit. The case was argued on October 12, 1960. The original vote was 5-4 for reversal in favor of the petitioners. Douglas was assigned the majority opinion and circulated a draft on November 2. Whittaker circulated a short, two-paragraph dissent on November 3. Justice Frankfurter, then Justice Harlan, switched their votes. Ultimately, the lineup went from 5-4 Douglas to 6-3 Whittaker. As a result of the vote switches, the majority opinion in Meyer was officially assigned to Whittaker on November 15. Douglas visited Whittaker that day and found Whittaker quite upset because he was unable to start writing his majority opinion. Douglas offered to provide a draft and Whittaker accepted the offer. According to Douglas, the draft was in Whittaker’s office within an hour. As Professor Danelski notes, however, both Frankfurter and Harlan had also provided material for Whittaker to consider, with Harlan focusing on the legislative history of 124 JOURNAL OF SUPREME COURT HISTORY the statute involved. Whittaker circulated his majority opinion on November 17, two days after the Douglas visit. Professor Danelski views this short turnaround as significant because of his view that “Whittaker, unlike Douglas, did not write quickly or easily.” Although Danelski correctly notes that Whittaker did not use his clerks to draft opinions assigned to him, Whittaker actually had been quite productive in the October-November time frame. Aside from his dissent in Meyer, he had in that same period also circulated majority opinions in McPhaid v. United States and Aro Mfg. Co. v. Convertible Top Replacement Co., as well as a dissent in United States v. Hoitgham. That level of activity seems to contradict any suggestion that Whittaker was slow in producing opinions at that time. The final Whittaker opinion in Meyer was handed down on November 21. It consisted of only eight paragraphs. Although Professor Danelski apparently could not locate a copy of the November 15 Douglas draft, he shows that the first paragraph of the Whittaker opinion is attributable to Douglas by referencing Douglas’s earlier November 2 majority draft recirculated on November 4. Danelski then contends that paragraphs two through five of the Whittaker opinion are a mix of Douglas and Whittaker. None of the first five para­ graphs is consequential. They merely set out the history of the case, the undisputed facts, and the petitioners’ arguments. Professor Danelski then acknowledges that paragraphs seven and eight are “almost identical” to the two paragraphs that com­ prised Whittaker’s original dissent, with two additional sentences. These two substantive paragraphs are central to the opinion. They address and refute the petitioners’ main argument and explain how the majority interpreted the relevant statute to refute the petitioners’ statutory argument. Notwithstanding his discovery...

The Australian Taxation Office perspective on work-related travel expense deductions for academics

This paper includes a case study of my own experiences as a personal taxpayer being audited by the Australian Taxation Office (ATO) as well as a legal analysis of Australian tax cases relating to the deductibility of travel-related expenses. The personal case study explains Australia's tax system of Pay As You Go (PAYE) income tax deductions followed by annual tax return submissions (using an honesty-based system) plus occasional subsequent tax audits if deductible expenses claimed in tax returns are deemed excessive. The case describes how the ATO initiated and handled my tax audit in 2013 to 2015 and the arguments put forward by the ATO officers as to why my research-related tax deductions should be disallowed. The next part of the paper reviews the tax law cases in Australia's past which have either allowed or disallowed work-related travel expense deductions. This discussion concludes with the Payne case of 1999 to 2001. Judges have now polarised themselves into two discrete camps, those for deductibility looking at the composite income-earning activities of the taxpayer (viewed in a holistic way) with those against deductibility arguing that travel between two unrelated places of employment or business is equivalent to travel between home and work.

Calling Power to Account: Law, Reparations, and the Chinese Canadian Head Tax Case, David Dyzenhaus & Mayo Moran, eds. (Toronto: University of Toronto Press, 2005)

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Dutch Mutual Funds: To Be or Not To Be?

This article addresses some Dutch civil law differences between a Dutch mutual fund (FGR) and a Dutch general partnership in relation to recent tax case law, and some conclusions are drawn from that case law.

Boxing and Martial Arts Company, A Tax Case

AbstractA tax case is developed examining a private Canadian sports company. This case simulates a real‐world start‐up company in the area of Canadian Controlled Private Corporation taxation. The client, Boxing and Martial Arts Co., is a medium‐sized, rapidly growing sports promotion business. It operates in an environment where cash payments are common, especially towards foreign workers. Students must research issues involving tax deductions and revenue recognition. The learning objectives include: reinforcing taxation concepts that most students learn in introductory courses (i.e., revenue recognition, allowable business expenses) as well as improving students’ tax research skills for more complex issues (e.g., international tax treaties).

Non-Discrimination à la Cour: The ECJ’s (Lack of) Comparability Analysis in Direct Tax Cases

The ECJ’s discrimination analysis in direct tax cases is inconsistent. It sometimes creates discrimination, condemns non-existent discrimination or fails to address discrimination. Only one comparability standard makes sense: to be (subject to tax) or not to be (subject to tax). The ECJ is not competent to require Member States to (selectively) assert taxing power where they symmetrically and sovereignly have decided not to. There is also only one relevant justification for differential tax treatment: tax base integrity.

A Comprehensive Analysis of ECJ Case Law on Discriminatory Treatment of Cross-Border Inheritances – Part 1

In this two-part article, the author provides a comprehensive analysis of 13 ECJ decisions on the discriminatory treatment of cross-border inheritances. Part 1 categorizes the cases, examines the most common EU freedom at stake and outlines the first step of the ECJ’s analysis of the concept of restriction, as well as “indirect discrimination”. Part 2, to be published in European Taxation 12 (2015), will discuss the requirement for a direct link between debts and immovable property, provide an overview of the justifications invoked by Member States and the possibility of such justifications being accepted by the ECJ in EU/EEA and third-country scenarios and explore the role of the proportionality principle. A comparison of ECJ case law on inheritance taxation with personal and corporate income tax cases is also given.

Personal Genuine Links under Domestic Inheritance Tax Rules in the Light of International and European Standards

The first section of the article deals with the characterization of genuine links in general, and the comparative analysis of personal genuine links present in the selected national inheritance tax statutes. The aim of this section is to show the diversity and incompatibility of personal genuine links, which may lead to dozens of cases of international double (or even multiple) taxation of cross-border inheritances. This is followed by an attempt to talk about international and European standards in respect of personal genuine links in national law as well as to comment on the comparability between the personal genuine links depicted in the first section with the aforementioned standards. The article is finished with a plea for adequacy in describing conflicts of genuine links in inheritance tax cases and for more impact of the European legislator on potential harmonization mechanisms.

Political Institutions and the Policy Process in Ghana: The Case of the Value-Added Tax (VAT).

This paper seeks to explain differences in policy outcomes even when political institutions remain unchanged over time. It studies the making of Ghana’s most important fiscal policy after its transition to democracy in 1993. This study focuses on the making of the Value Added Tax (VAT) policy at two different time periods. In spite of unchanging political institutions, each episode, in 1995 and 1998, had a different outcome. This paper explores the extent to which the preferences of institutional actors can account for policy changes under the constraints and opportunities created by those same political institutions within the policymaking process. The paper employs George Tsebelis’ veto player theory, which emanates from the rational choice institutionalist school and argues that, when political institutions remain unchanged over time, changes in veto players’ preferences can account for changes in the policy outcome of the VAT.

The Price we Pay for a Specialised Society: Do Tax Disputes Require Greater Judicial Specialisation?

In recent years, a review of the Judicature Act 1908 and the introduction of the Judicature Modernisation Bill have enlivened the debate over the structure and character of the New Zealand court system. A key issue that the recent review and reforms have brought to the fore is whether greater judicial specialisation is advantageous at the High Court level. This article considers whether tax cases, in particular, warrant greater judicial specialisation. The article draws from experiences of specialised tax adjudication in foreign jurisdictions and evaluates the efficacy of existing specialisation in the New Zealand system, as well as considering whether the nature of tax law lends itself to specialisation. The conclusion is that greater judicial specialisation in respect of tax cases is undesirable.

The Case for a Destination-Based Corporate Tax

In 1993, I published a paper advocating a destination-based corporate income tax (DBCT) (Avi-Yonah, 1993). Under DBCT, multinational enterprises (MNEs) would be treated as unitary businesses and taxed based on where they sell their goods or services, i.e., on a destination basis rather than (as in current corporate taxes) primarily on an origin basis. I have subsequently elaborated on this proposal with Kim Clausing and Mike Durst (Avi-Yonah, Clausing and Durst, 2009).In recent years, DBCT has attracted some support by economists, such as Alan Auerbach and Mike Devereaux (Auerbach, Devereux and Simpson, 2008; Devereux and de la Feria, 2014). While the economists tend to advocate a cash flow DBCT, i.e., a corporate tax that is more consumption than income based because MNEs will be allowed to expense capital outlays, both types of taxes apply to corporate rents in the same way. Moreover, the economists’ proposals raise similar issues as mine, e.g., in regard to compatibility with treaties or with WTO rules.These proposals have attracted significant critiques, e.g., from Rosanne Altshuler, Harry Grubert and Susan Morse (Altshuler and Grubert, 2010; Morse, 2010). I would like to use this opportunity to restate the case for DBCT and reply to some of the common objections to it.

Taxing Carbon: What, Why, and How

The case for a carbon tax is strong. A well-designed tax could efficiently reduce the emissions that cause climate change and encourage innovation in cleaner technologies. The resulting revenue could finance tax reductions, spending priorities, or deficit reduction — policies that could offset the tax’s distributional and economic burdens, improve the environment, or otherwise improve Americans’ well-being. But moving a carbon tax from the whiteboard to reality is challenging. To help policymakers, analysts, and the public address those challenges, this report examines the what, why, and how of implementing a carbon tax and using the revenue it would generate.

When Simplificationn is a Trojan Horse for Great Harm

In this article, Johnson argues that simplification is sometimes used as a cover for terrible tax policy. A flat tax, for instance, will increase harm by shifting the burden of tax from Uncle Scrooge, who can bear tax on a dollar without much loss in value, to the Little Match Girl, who cannot. Flat tax does not accomplish substantial simplification. An add-on VAT is not a simplification, but another level of complication. So too, expensing of inventory, repeal of net operating loss carryover limitations, and repeal of straddle rules are not are not well illuminated by calling them simplification and are not justified by simplification. Johnson recommends 10 proposals to simplify the law while improving its efficiency and fairness. He suggests repealing all qualified pension plans, and that withholding would depend on the amount paid. Johnson also recommends simplifying partnership tax law and that partnership tax should be computed and collected at the entity level. He further suggests disallowing deductions for the cost of tax planning, and would require tax liens to be filed via the internet. Moreover, he would require capitalizing prepayments, and he recommends ways to reduce valuation disputes in both charitable deductions and estate tax cases.

Climate change and economic crisis: How to reduce both

Today we have several preventive economic policies that are designed to reduce emissions of greenhouse gases (GHG). The existing literature usually defines these policies as cost-efficient for they can achieve a significant reduction in emissions without having to incur in a very high cost. Likewise, these policies are also cost effective provided that they not only achieve significant cuts in emissions of the most released gas in the atmosphere, but also other greenhouse gases. For example, increasing energy efficiency not only reduces carbon dioxide emissions but also other gases that highly contribute to global warming. In addition, greater efficiency can make industries and countries become more competitive in international markets. In the current context of economic crisis the level of efficiency becomes even more important. We need to be efficient to save on costs and to produce with more sustainably but this goal cannot be achieved without changing the current production model. The carbon tax is an incentive that has a double advantage. First, it is an efficient option to palliate climate change as it is able to achieve emission reductions without incurring in excessive costs. Second, is in itself, an incentive to achieve a gradual change towards a more sustainable production system, which is no doubt a claim for the current crisis. The purpose of this paper is, therefore, to analyze the case of the carbon tax, for being the incentive that implements greater efficiency in the market and for constituting an effective option for palliation the current global crisis negative effects.

불완전한 환경세 사용에 따른 잠재적 후생 손실

지난 30년간 환경세나 배출권과 같은 경제적 정책도구들이 환경정책의 영역에서 꾸준 히 각광을 받아왔다. 경제적 환경정책도구들은 저마다 특성이 다르고, 각국 정책당국이 직면한 환경문제의 구조적 제도적 배경이 상이하기 때문에, 교과서적인 의미에서의 피구세(배출세)와 같은 정책도구는 널리 사용되지 못하는 상황이다. 오히려 산출물이나 소비 등에 부과하는 환경 관련 조세를 부과함으로써 피구세 사용에 수반되는 한계와 어려움을 회피하려는 경향이 강하다. 즉, 피구세(배출세)를 사용하지 못함으로써 이미 상당한 후생손실을 감내할 수밖에 없는 것이다. 특히 개발도상국들에서는 구조적 제도적 제약들이 선진국에 비해서 더 많고 크기 때문에, 제대로 된 피구세(배출세)를 사용하지 못함에 따라 입는 후생손실이 훨씬 커질 수 있다. 본 논문에서는 이 점을 보여주기 위해서, 이론적인 일반균형모형을 통해 노동에 대한 과세가 존재하는 차선의 상황에서, 피구세 및 산출세 수준을 최선과 차선의 경우에 계산하고, 각종 구조적 제도적 제약을 모형 내의 파라미터로 표현한 사회후생 수식을 통해 도출해낸다. 그리고 피구세에 대한 불완전하지만 현실적인 대안으로 산출세를 이용하여 환경문제를 해결하려 하는 경우, 후생증진의 차이가 얼마나 벌어지는지 살펴본다. 또한 미국과 중국의 예를 들어, 환경 차원에서 불완전한 산출세를 사용함으로써 겪는 후생손실이 개도국의 경우 산업국가에 비해서 무려 6배나 벌어질 수 있음을 시뮬레이션을 통해 보여준다. In environmental policy areas, a greater use of economic instruments (EIs) has recently been observed in many countries. However, EIs are heterogeneous policy tools. The textbook case of a Pigouvian tax is far from widely used, mainly due to the information requirements and other structural and institutional constraints. The successful implementation of EIs might heavily depend on pre-existing structural and institutional conditions. Moreover, these institutional conditions are particularly unfavorable in developing countries. Using a simple analytical general equilibrium model, this paper examines how these constraints affect the welfare gain from the introduction of environmental taxes in developing countries. First, this paper solves for the second-best optimal Pigouvian tax and output tax in the presence of a distortionary tax on market use of labor. The result confirms that an environmental output tax achieves a socially-efficient level of emissions in the least-cost manner only if the nature of the linkage between the tax base and the environmental damage is fixed. Second, incorporating structural and institutional constraints into the model through a set of parameter values from China and the US, this paper calculates the net welfare effects of either using the ideal Pigouvian tax or instead using an output tax. The numerical simulation results show that the net welfare gain from the use of an ideal Pigouvian tax could be more than six times larger than that of an output tax in developing countries. On the other hand, the welfare gain is only 50 percent in developed countries. This means that the potential welfare disadvantage from using output taxes instead emissions tax for environmental purposes could be much greater in the case of developing countries.

Unilateral consumption-based carbon taxes and negative leakage

We investigate the performance of a consumption-based carbon tax – implemented by full border carbon adjustment – as an instrument of unilateral climate damage mitigation in a two-period two-country general equilibrium model with a finite stock of fossil fuel. The implementation of that tax in the first period reduces the first-period emissions in the taxing and non-taxing country (negative within period leakage) if income effects are sufficiently weak. Otherwise, it increases the first-period emissions in both countries (green paradox). That result contrasts with the case of a unilateral production-based carbon tax, in which the leakage rate is always positive and possibly exceeds 100%.

The Simple Economics of Motor Vehicle Pollution: A Case for Fuel Tax

The volume of pollution produced by an automobile is determined by driver's behavior along three margins: (i) vehicle selection, (ii) kilometers driven, and (iii) on-road fuel economy. The first two margins have been studied extensively, however the third has received scant attention. How significant is this 'intensive margin'? What would be the optimal policies when it is taken into account? The paper develops and analyzes a simple model of the technical and behavioral mechanisms that determine the volume emissions produced by a car. The results show that an optimal fuel tax would provide drivers with appropriate incentives along all three margins and that only public information is needed for a fuel tax to be set optimally. In contrast, an optimal distance tax would require private information. Lastly, relative to the optimal fuel tax, a simple uniform fuel tax is shown to be progressive. Thus, being already deployed worldwide, a uniform fuel tax is an attractive second-best policy. These findings should be accounted for when designing new mechanisms to alleviate motor vehicle pollution.

2015 Trying Times: Important Lessons to Be Learned from Recent Federal Tax Cases

2015 Trying Times: Important Lessons to Be Learned from Recent Federal Tax Cases

Tax Principles and Tariff-Tax Reforms

This paper develops a two-country general-equilibrium model to examine the welfare effect of tariff-tax reforms that fix the world price. We show that this reform improves welfare if a production tax is adjusted, but that it reduces welfare if a consumption tax is used. Moreover, this result is reversed in the export tax case. In short, the proposed policy reform improves welfare depending on whether imports and exports are taxed, as well as on tax principles.

Carbon emissions in a multi-echelon production-inventory model with lead time constraints

We develop a deterministic optimization model that incorporates carbon emissions in a multi-echelon production-inventory model with lead time constraints. We impose that each customer order must be delivered within the due date fixed by the customer. The quantity that cannot be delivered on time is a lost sale. We consider a multi-echelon supply chain with different external suppliers, different manufacturing facilities, and different distribution centers. We adopt a general inventory policy. Indeed, we do not impose any constraints on the stock level that must be kept for each product in each facility in each period and on the procurement order quantities in the different facilities. Carbon emissions are associated with the decisions of manufacturing of intermediate and final products, ordering (transportation) from external and internal suppliers, and inventory positioning of the different products in the different stages of the supply chain. We first deal with the case of carbon emissions tax and then turn to the case of carbon emissions cap.We use the model to provide a series of insights that would be of interest for firms and policy makers. Such insights would be difficult to obtain with classical production-inventory models. For instance, the integration of lead times permits to show how the amount of carbon emissions is non-monotone with the variation of customer lead time and orders frequency. Also, the consideration of a general inventory policy permits to show how some particular policies (such as the base stock and the fixed order quantity) leads to increasing emissions. In addition, we capitalize on the multi-echelon aspect of our model in order to study the effect of individual emissions caps on each facility with comparison to a global cap on the entire supply chain. For instance, we demonstrate that individual caps can achieve significant lower emissions but can paradoxically lead to increasing the per unit emissions. We also show how a share of emissions can improve per unit emissions without deteriorating total emissions.