United States Tax Research Articles

REVIEW OF ASPECTS OF THE TRANSFER PRICING METHOD AT THE COCA-COLA COMPANY RELATED TO THE EMBEDDED ROYALTY ON THE SALE OF CONCENTRATES (CASE STUDY ON UNITED STATES COURT JUDGMENT)

The Australian Tax Office (ATO) imposed withholding tax on what is considered an Embedded Royalty implied in the purchase transaction of Pepsi Australia's concentrate to Pepsi Singapore based on the United States Tax Court Judgment Number 31183-15 where the Internal Revenue Service (IRS), the Tax Authority in America, won the case against The Coca Cola Company by correcting the subsidiary's profit level using a fair price level approach to the profits of other independent bottling companies. The purpose of this study is to examine the court's Judgment can have direct implications for companies that produce Coca-Cola drinks in Indonesia. the research method used is qualitative with a literature study, namely by analyzing books, documents, news articles, national and international journals, and laws that are directly related to the research theme. This research concludes that the purchase of concentrate contains Embedded Royalty which can be subject to Income Tax Article 26 of the Income Tax

Coca-Cola Transfer Pricing Dispute: United States Case Analysis and Tax Policy Lessons for Indonesia

Decision of the Coca-Cola transfer pricing dispute in the United States Tax Court, which resulted in tax underpayment, can be used as a lesson for Indonesia. This research method is doctrinal, with a law, case, concept and interpretation approach. The data studied is secondary data in the form of laws, cases and relevant references, which are analyzed to obtain conclusions and recommendations. Research shows that the court considered using the Comparable Profits Method by tax authorities to evaluate the profitability of The Coca-Cola Company's supply points, given the difficulty of valuing intangible assets directly and the need for disproportionate profit adjustments. To avoid similar problems, companies in Indonesia must use transfer pricing methods that are reliable and appropriate to local conditions, as well as ensure good intellectual property management and documentation transparency, while tax authorities must monitor transactions between affiliated entities by international standards and the Arm's Length Principle.

Federal Tax Deductions and the Demand for Local Public Goods

Abstract The United States tax system allows taxpayers to deduct local taxes from their taxable incomes. Using school district referendum results, we employ a continuous treatment two-way fixed-effects framework to provide causal evidence of a positive relation between the demand for local public goods and the share of residents deducting local taxes. We find that a one-percentage-point decrease in the share of residents deducting property taxes reduces tax and bond referendum approval rates by approximately 0.97 percentage points. Because these federal tax deductions disproportionately benefit higher-income individuals, they potentially widen disparities in public service provision across jurisdictions.

Do United States Tax Court judge attributes influence the resolution of corporate tax disputes?

Corporate taxpayers can have economically meaningful disputes with the United States Internal Revenue Service (IRS) that ultimately involve the federal judiciary. In an attempt to reduce the number of corporate tax disputes going to trial and reduce the amount of time between when corporate taxpayers file a petition with the United States Tax Court (USTC) and resolution of the case, politicians and judges have placed greater emphasis on negotiated settlements as opposed to Tax Court trials. In this paper, we investigate whether the personal attributes of the Tax Court judge assigned to the case (political ideology, tenure on the bench and professional experience) influence corporate taxpayers and the IRS to reach a negotiated settlement or proceed to trial. Overall, our results show that Tax Court judges who are conservative, have private practice experience, have governmental legislative experience, and have longer tenure on the Tax Court bench are more likely to preside over disputes resolved through a negotiated settlement as opposed to going to a trial.

A Qualitative Inquiry into Mission Creep at the Criminal Investigation Division of the Internal Revenue Service

ABSTRACT In the public administration literature, little exists on the criminal enforcement of the United States tax laws. Whereas many are aware of how the Internal Revenue Service (IRS) conducts the administrative function of selecting tax returns for audit, and about its power to assess interest and penalties for underpayment, the criminal enforcement of tax law presents itself as a world apart. Based on 30 interviews with current and retired IRS special agents, this study explores the choices they make in the furtherance of their self-interest and the public’s interest. Major insights include the documentation of “mission creep” that has taken the agency’s effort away from its primary purpose. Unlike other instances of this organizational phenomenon, this tendency has been driven by agents’ personal preferences and untempered by IRS management efforts.

United States Tax Rates and Economic Growth

American politicians aim to create economic activity that will expand the economy and provide opportunities for citizens. Today (in 2022), President Joseph Biden presents an ambitious tax plan to grow the economy and provide for more equal opportunities. With Biden’s aim for a tax increase, this research examines the impacts of tax and other economic variables on economic wellbeing. In turn, this research provides a timely update on contributing factors to economic growth. Previous academic research shows the impacts of tax rates and common economic variables related to U.S. economic growth. We gather data from 1960 to 2020 to explore U.S. real gross domestic product (GDP) per capita. Through a series of multiple regression models, we find that increases in the highest statutory corporate and personal income tax rates reduce real GDP per capita. Growth in net exports of goods and services, M2 money supply, multifactor productivity and cost, collectively increase real GDP per capita, while, the personal savings rate, and the market value of gross federal debt decrease real GDP per capita. We recommend that if Congress elects to raise tax rates, it should start with the personal income tax rate.

Equity and the Article I Court: Is the Tax Court’s Exercise of Equitable Powers Constitutional?

“Relieve the judges from the rigour of text law, and permit them, with pretorian discretion, to wander into it’s equity, and the whole legal system becomes incertain.”“Tax law is not based on equity and arguments of equity have little force.”To most lawyers, the “federal courts” are the courts created under Article III of the United States Constitution. However, the federal courts also include the United States Tax Court, the United States Court of Federal Claims, the bankruptcy courts, and the territorial courts – all “legislative courts” created by Congress under Article I of the Constitution. Several of these Article I courts have important jurisdiction and large dockets, and issue influential opinions with precedential value. Yet, scholars typically have not paid much attention to legislative courts other than the bankruptcy courts, which are courts adjunct to the Article III district courts. Since 1988, when Professor Richard Fallon of Harvard Law School published his important article, “Of Legislative Courts, Administrative Agencies, and Article III,” little has been published on the features and limitations of Article I courts.

International Corporate Income Tax Reform: Issues and Proposals

While details have changed from time to time, the basic treatment of foreign source income in the United States tax code has remained essentially the same as that in 1918, when the foreign tax credit was introduced. All worldwide income is currently taxed, with a credit for foreign taxes paid, but income of subsidiaries incorporated in foreign jurisdictions is not considered part of that worldwide income until it is repatriated. As a result of a revision in 1962, certain passive income of foreign subsidiaries is subject to current taxation under Subpart F of the Internal Revenue Code. This system produces a number of economic distortions as well as opportunities for tax avoidance. Those continuing issues, along with the increasing integration of the global economy, have led to proposals for reform. These proposals fall roughly into four categories: narrow proposals aimed at tax avoidance concerns, proposals to move the system towards a pure territorial (or source-based) system, proposals to move the system in the opposite direction towards a current world-wide tax system, or proposals to retain the current system but lower the corporate tax rate with revenue offsets.In evaluating these proposed tax changes, two issues, which are related but nevertheless not identical, should be considered. The first is the real effects of current law and of a revision on economic activity. When investment responds to tax differentials, it affects the allocation of capital which in turn has implications for efficiency and income distribution (the extent to which the tax burden falls on capital versus labor incomes). In a closed economy with a fixed capital stock, the burden of the corporate tax falls on capital income in general. If the U.S. corporate tax does not apply in the foreign jurisdiction, capital can flow abroad with the result that some of the burden on the tax falls on labor (depending on the mobility of capital).3 Thus, the international tax system has implications for the overall welfare of the United States, and the world, and for the division of that welfare between those with primarily labor income, who tend to have lower incomes, and those with primarily capital income, who tend to have higher incomes.

Relighting the Charitable Deduction: A Proposed Public Benefit Exception

"Let no man’s ghost say his training ever let him down."Throughout the country, firefighters risk their lives on a daily basis to keep the public safe. It is, therefore, imperative they receive the best possible training. One invaluable training method is live burn training, in which a structure is set on fire providing firefighters with “a level of realism that is unsurpassed.” Fire departments, both career and volunteer, as well as numerous municipal departments conduct various training exercises, including roof ventilation, domestic violence exercises, simulated meth lab explosions, room-to-room fire practice, firefighter survival techniques, arson investigation training, rescue techniques, and/or firefighter down techniques, through the donation of homes that are finally burned to the ground as part of live burn training.For over thirty-five years, relying on a United States Tax Court case, many believed a taxpayer could claim a charitable deduction for the donation of the taxpayer’s home to the local municipality for live burn training, while still retaining ownership of the underlying land (live burn donation). In 2004, however, the Internal Revenue Service (the Service) established a task force, charged with the sole purpose of extinguishing live burn donations, and requested that local municipalities not cooperate with taxpayers in executing the requisite paperwork in claiming a charitable deduction for a live burn donation. In 2009, the deductibility of a live burn donation was thrust into the public spotlight as the media publicized the Service’s attack on the charitable deduction claimed by Kirk Herbstreit, an ESPN commentator and former Ohio State quarterback, for the donation of his home to the local fire department. Soon after, in 2010, the live burn donation was back in the headlines as it was exposed that Oregon gubernatorial candidate, Chris Dudley, claimed a deduction on his 2004 federal income tax return for a live burn donation so he could build a new residence on the land. Consequently, in recent years, there has been much confusion and debate on whether live burn donations qualify for charitable deductions.

Access to Justice in the United States Tax Court

The authors, in this article, discuss the issues that taxpayers may encounter when taking a case before the United States Tax Court, and the efforts to assist pro se petitioners in obtaining free legal counsel.

Who Sells During a Crash? Evidence from Tax Return Data on Daily Sales of Stock

Abstract Using United States tax return data containing the universe of individual taxable stock sales from 2008 to 2009, we examine which individuals increased their sale of stocks following episodes of market tumult. We find that the increase was disproportionately concentrated among investors in the top 1% and top 0.1% of the overall income distribution, retired individuals and individuals at the very top of the dividend income distribution. Our estimates suggest that, following the day when Lehman Brothers collapsed, taxpayers in the top 0.1% sold $1.7 billion more in stocks than individuals in the bottom 75%. This difference is equal to 89% of average daily sales by taxpayers in the top 0.1%.

The Importance of Qualitative Research Approaches to Gig Economy Taxation

As the United States tax system continues to grapple with how to tax workers in the gig economy, it confronts a number of questions about the nature and composition of the sector as well as the tax issues confronted by its participants. Many of these questions have proven difficult to answer due to a lack of adequate information. But the answers are important and will shape how tax and other areas of law (such as employment law, labor law, and antitrust) respond to the gig economy. Thus, the question of how to obtain the data and information necessary to formulate sound policies for gig work is vital. This chapter discusses the limitations of quantitative empirical research on the gig economy and argues that incorporating more qualitative approaches will help generate a more comprehensive understanding of the tax policy issues involved. Adoption of a diverse set of research approaches is crucial because the administrative tax return and labor survey data are incomplete and are shaped by prior decisions of gig economy firms and participants. Many questions remain that such quantitative data, by its very nature, cannot answer. This chapter first identifies the key tax issues at stake in the gig economy, including tax administration, worker classification, and tax impacts on workforce decisions. It then discusses the key ways in which quantitative approaches do not fully capture the tax issues at stake. Finally, it details how qualitative research methods such as interviews and case studies can flesh out gaps in the quantitative data, can help interpret quantitative data, and can help answer questions that extend beyond the scope of quantitative data, yielding a richer account of gig economy tax issues than that provided by quantitative tax administrative and labor survey data alone.

The Impact of United States Tax Policies on Sectoral Foreign Direct Investment to Asia

How sensitive is inward foreign direct investment (FDI) from the United States (US) to developing Asia to corporate tax rates? This is a relevant question given the sweeping US tax bill effective in 2018, which provided incentives for US corporations abroad to repatriate profits. Using panel data at the country and sector level, we find that the effects are quite different across sectors, and that controlling for other factors such as market size, costs, openness, and the business environment, the corporate income tax rate differential is generally not statistically significant, including for global value chain-related FDI to developing Asia. It does have a small effect on service sectors such as financial intermediation and business services where sunk costs are small.

Offshore Paradise? Taxation of United States Citizens In Costa Rica and Tax Policy Commentary of Its Implications

This paper employs a hypothetical tandem application of both the Costa Rican and United States tax systems. It provides comments on the formalities of both, and considers the treatment of an individual who is subject to taxation under both regimes. The paper determines the benefits and detriments of having both systems apply regularly. Moreover, the author hypothesizes that Costa Rica should not be considered a tax haven. Throughout its sections, public policy comments and critiques are highlighted by the author.

Peculiarities of adjudication of tax disputes by the United States Tax Court

Currently, the United States has three judicial instances that are authorizes to contest the fact of bringing to responsibility for violation of tax legislation: Tax Court, Court of Claim, and district courts. The United States Tax Court is the most demanded authority among taxpayers that adjudicates over 95% of all tax disputes, which is substantiated by the fact that it is the only instance where a taxpayer can apply prior to paying taxes, penalties and fines. This article using the general scientific and special legal methods examines the previously uncovered in Russian legal literature peculiarities of adjudication of tax disputes by the United States Tax Court. Including the questions of formation of precedents in tax cases. As a result of the conducted research the author formulates the following conclusions: 1) a mandatory conditions of jurisdiction of the Tax Court is the notification on uncollected tax; if it is absent, the tax payer cannot appeal to the Tax Court; 2) only a small number of cases is considered by the Tax Court substantively, namely due to the fact that the parties listen to the verbal opinion of the judge, based on which formulate the settlement offer and submit for approval of the judge; 3) the opinion and decisions of the Tax Court should be differentiated, only certain categories of opinions are of precedent nature; 4) since the decisions of the Tax Court are subject to appeal to the thirteen Courts of Appeal, potentially there occurs a problem related to controversial case law on the same issues; 5) cases with an insignificant sum in dispute qualify under simplified procedure, which contributes to procedural efficiency; however, the opinion formed based on the results of such consideration would not be of precedential value.

A Preliminary Examination of the Use of Legislative History By The United States Tax Court

Using data from 1958-2017 divided into two thirty-year periods, this paper examines the use of legislative history by the United States Tax Court. The rapid increase of the use of legislative history from 1958-1987 is coupled with a near mirror-image reversal of its use from 1988-2017. The paper explores two key events which have may have caused this decline – 1) the Supreme Court 1984 decision in Chevron USA, Inc. v. NRDC and 2) the 1987 appointment of Justice Antonin Scalia to the Court. Data visualizations and analysis are provided to examine the impact of the Chevron effect and Scalia effect.

Minimizing the Tax Consequences of Debt Forgiveness and/or Cancellation of Indebtedness

The taxation of cancellation of indebtedness income is frequently litigated in low-income tax controversies. This article introduces readers to core concepts about the taxation of debt and Cancellation of Debt Income (CODI). Next, it discusses key forms required to be filed with the IRS regarding CODI, which information returns typically serve as the genesis of related litigation. Third, this article explores the nuances of valuing canceled debt, a necessary determination in virtually any CODI case. Then, this article explains the instances in which CODI will not be includible in the taxpayer’s gross income. Finally, this article explores how a taxpayer may dispute CODI issues, and the most common CODI issues litigated before the United States Tax Court (“Tax Court”), offering practical advice on how to resolve those disputes.

Corporate Behavior and the Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act of 2017 fundamentally altered United States tax law. TCJA supporters believed that the tax benefits afforded U.S. corporations would incentivize corporations to use their additional after-tax cash in ways beneficial to the U.S. economy. Our study, the first of its kind, uses corporation-by-corporation data from recent public filings to measure how the change in effective corporate tax rate affects various corporate behaviors. We find that the TCJA’s reduction in effective tax rate has no relationship to several corporate actions, including hiring new employees and making capital expenditures, two behaviors predicted by TCJA proponents. We do find, however, a small relationship between change in effective tax rate and both CEO compensation and total value of shares repurchased, two corporate behaviors anticipated by TCJA skeptics.

Global Corporate Tax Rate Competition - Who Pays the Bill?

Countries heavily rely on tax revenue for their welfare programs, which aim to reduce inequalities. Taxes are countries’ main sources of revenue and provide funding for governmental expenditures. A country’s spending is usually divided into categories: mandatory, discretionary, and interest on debt expenditures. These include assistance programs, such as the United States’ Medicaid program, the Supplemental Nutrition Program (so-called foods stamps), and the Temporary Assistance for Needy Families program. The United States lowered its U.S. corporate income tax rate from 35% to 21% in 2018, after the enactment of the United States Tax Cuts and Jobs Act. Similarly, members of the Organization for Economic and Co-operation and Development (OECD) lowered their corporate statutory tax from their 2000 average rate of 28.6% to 21.4% in 2018. In the international context, state-to-state tax arbitration is implemented by OECD members to provide multinationals with double tax relief. In contrast, individuals do not benefit from a similar tax reduction. The United States’ highest marginal income tax rate was reduced from 39.60% to 37% in 2018, whereas 0.5% was the average reduction implemented for individuals by OECD members from 2000 to 2017. This paper analyzes whether states expect private corporations to undertake more social responsibility when considering tax benefits. States’ examination of corporates’ social responsibility includes whether private social accountabilities align with corporations’ profit-oriented natures as well as state interest in public welfare. Furthermore, this paper examines states’ alternative sources of revenues that could balance out the effects of the reduction of corporations’ tax rates and other granted benefits, including tax arbitration for multinationals’ double tax relief.

Debate on the US Tax Reform and the EU ATAD: Can GILTI + BEAT = GLOBE?

The OECD is moving forward with consideration of a minimum tax as part of its solution to taxation of the digital economy. Part of a template for such a minimum tax may be the version enacted by the United States (US) in 2017 as an expansion of its Controlled Foreign Corporation (CFC) regime, known as Global Intangible Low Taxed Income (GILTI). But the OECD version will undoubtedly be different from the US iteration. It’s likely that it would also include some aspects of a minimum tax being proposed by other OECD members such as Germany and France, namely a tax on outbound payments, in addition to a CFC-type regime. The United States also enacted an outbound minimum tax in 2017, known as Base Erosion Anti-Abuse Tax (BEAT). The two-part minimum tax being pursued by the OECD – a minimum tax based on a CFC regime plus an outbound minimum tax that’s a variation on the BEAT – has been referred to as GLOBE (global anti erosion) (See S. Soong Johnston, Germany, France Explore GLOBE Proposal to Tax Digital Economy, 92 Tax Notes Int’l 782 (2018)). This article summarizes the two features of the US 2017 tax reform (known as the Tax Cuts & Jobs Act (TCJA) (The formal name is The Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018, Pub. L. No. 115–97.)) that may be incorporated into a global minimum tax, namely GILTI and BEAT, from the perspective of how such provisions might be adapted to work in a global setting. It considers the challenges to taxpayers and policy makers raised by the US law as enacted, and the attempts in recently issued regulatory guidance to address some of these concerns. It compares and contrasts the provisions enacted by the US Congress with a number of parallel European developments, including the EU Anti-Tax Avoidance Directive (ATAD)’s CFC rules and the German royalty deduction barrier. Adaption of the minimum tax components of the Tax Cuts & Jobs Act for worldwide use will require careful understanding of the policy choices, as well as the mistakes made, by the TCJA drafters in designing the regime, in order to ensure that they are not repeated.