Call for Papers: “Reshaping Work in the Platform Economy”

By: Diane Ring

Last October, the international conference “Reshaping Work in the Platform Economy” was held in Amsterdam. I blogged about the two-day event that explored a wide range of legal, business and social issues here and here.  The call for papers for the Fall 2018 conference (October 25 & 26, 2018, Amsterdam) has just been issued:

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Diplomacy, or the Art of the Tax Deal 2.0?

The Republican-led passage of the Tax Cuts and Jobs Act may have evoked a Marx Brothers movie for some, but when it comes to international competition for the capital investment of foreign multinational enterprises (MNEs), the reform seems to fall squarely into President Trump’s 2016 campaign promise, “America First.”

After a decades-long rise of free trade agreements and the automation of manufacturing jobs, United States political sentiment seems to be shifting away from international cooperation.  (Hence the barrage of tariffs?)  The new law, rather than seeking to harmonize international taxation (which could decrease the outsized role of tax in decision-making), instead casts the United States as Rocky making a comeback in the global fight for capital investment.  In other words, from an America First perspective, efficiently allocating capital investment to create the most value for the global economy is less important than bringing that investment into the United States, even though it might be less productive here.  The reform’s tax competitive stance is likely to be politically palatable because most voters neither understand nor care that the Trump administration’s fight for a larger United States share of the worldwide economy might result in a smaller worldwide economy overall.

Indeed, foreign-based MNEs are likely to benefit from increased capital investment in the United States going forward.  At an event hosted on March 5 in Vienna by IFA Austria, one panelist noted that at least three large foreign manufacturers—Daimler, BMW, and Siemens—expect to see initial benefits in the hundreds of millions of Euros.  In fact, the United States reform has prompted the EU to request an OECD investigation of whether the new law violates international standards on harmful tax practices.

The United States’ forward-leaning stance is somewhat (or some might say almost entirely) unhinged from typically applicable diplomatic constraints, both formal and informal.  In particular, Congress seems to have disregarded potentially applicable WTO prohibitions on export subsidies. (For more on this point, read my OSU colleague Ari Glogower and others here and here.)   Given the United States’ long history of these types of violations (you may recall the DISC, the foreign sales corporation, and the extraterritorial income system), this new WTO fence-jump cannot easily be viewed as accidental.  Already several EU finance ministers have already lodged complaints about it with members of Congress  and the U. S. Treasury.

It is difficult, then, not to think that the new law was written in part to provoke a worldwide competitive response.  Particularly in light of the president’s move toward tariffs, the new tax law reads like a catch-us-if-you-can grab for capital.  Christian Kaeser, global head of tax for Siemens, described it as a “showcase of protectionism.”  German newspaper, Die Welt, ran an editorial headline that translates, “Europe Dreams of a Tax Fortress- Trump Acts.”   Ralf Kronberger, Head of the Department of Financial, Fiscal and Trade Policy at the Federal Austrian Economic Chamber, said of the EU, “We have to be in the game and create an attractive environment, and tax policy must contribute its share.”  He added that while countries like Austria may be forced to compete with the United States for capital investment, “tax and trade war are not beneficial for anyone.” (Would someone please tell that to the president?)

So how will Europe react?  Corporate tax policy in the European Union generally assumes that coordination within Europe and cooperation under BEPS will be sufficient to protect the tax base.  Coordination, though, may not be compatible with competition, which the new United States law seems deliberately designed to provoke.  Casually, tax folks here in Europe have been wondering aloud whether increased pressure to compete will further strain the effectiveness of the European Union’s effort to curb base erosion or whether it may put pressure on the alliance itself.  If nothing else, economists and political scientists should be having a moment.  The new law sets up a credible natural experiment for the observation of tax as a factor in capital mobility.  And if viewed as a tool to encourage renegotiation of trade deals and bilateral tax treaties, it is an exciting (frightening?) opportunity to see what happens when a world power brings a business approach to statecraft at a time when states cannot be as facile as businesses in their response.

Follow me on Twitter @profhoffer.

Taxing R2-D2? ABA Tax Section Panel on Automation and AI

Kerry Ryan
Associate Professor
St. Louis University School of Law

I had the pleasure of attending the midyear meeting of the ABA Tax Section this past weekend in San Diego. The Tax Policy & Simplification committee organized an interesting panel entitled: “Taxing R2-D2: How Should We Think About the Taxation of Robots and AI.” The panel was organized and moderated by Surly’s own Leandra Lederman, and panelists included Shu-Yi Oei (Boston College), Roberta Mann (Oregon Law), and Robert Kovacev (Steptoe & Johnson LLP).

For those of you who read Shu-Yi’s post, you know that she is “deeply skeptical” of the “robot tax” frame. At best, it is misleading—no one is attempting to impose a tax on a “robot” (whatever that is?) per se. As Robert Kovacev succinctly put it: “robots don’t pay taxes, people pay taxes.” The key question is which people: owners, workers, and/or consumers? Roberta linked this question to the long-standing debate about who ultimately bears the burden of the corporate income tax.

At worst, the “robot tax” terminology captures (and perhaps amplifies) the fear (“the robots are coming!”) and angst driving much of this discussion. The underlying concern relates to the potential negative impact on labor of increased utilization of technology/artificial intelligence (AI)/automation in the production process. Experts disagree about whether, over the longer term, automation will reduce the number, or merely the type, of human workers. The unanswered question is whether this is just the next in a long line of technological shifts in the economy dating as far back as the Industrial Revolution, or whether AI/machine learning truly represents a technological tipping point.

What is clear is that the transition to this new automated workplace may lead to worker displacement (particularly for those in manual/routine jobs). Mass unemployment could negatively impact the tax base—fewer workers mean fewer taxpayers. Notice that any revenue loss would hit at the same time as funding demands increased for re-training and/or social protection programs (existing and/or proposed universal basic income) for displaced workers.

Assuming you believe there is a problem(s), what is the policy prescription? While most of the panelists agreed that tax has a role to play here, they disagreed as to the contours of that role. Should we plug the hole in the income tax base by shifting more of the tax burden onto capital, as opposed to labor? Do we attempt to tax work completed by robots in the same manner as comparable work by employees (see Bill Gates proposal)? Should we raise the overall level of taxation (under existing or new tax structures)? Do we view automation as imposing negative externalities on the labor market and impose some type of Pigouvian tax? Should we attempt to slow the pace of technological development, rather than workplace implementation, by reducing either direct funding or tax incentives for R&D and innovation (see South Korea)?

Many interesting questions with no easy answers. At the very least, we must resist allowing zeitgeist to drive the policy response, while at the same time affirming the legitimacy of the underlying concerns and working to minimize their negative consequences on workers and their families.

The Law With No Name or the “2017 Budget Reconciliation Act”

Victor Thuronyi

Legislative drafting conventions are conservative, and it is traditional for a bill to have a long title which describes the purposes of the bill in technical detail, and then to include in the first section a short title which provides a more user friendly name.  The short titles of Acts used to be fairly straightforward (e.g., the “Revenue Act of 1939”) but by the late 70s or early 80s, they tended to get cute and political, so now we have names like the “PATRIOT Act” and the “Affordable Care Act.”

The tax bill just passed by both houses of Congress introduces a new and somewhat unprecedented variation.  There is no short title.  There used to be: the “Tax Cuts and Jobs Act” (TCJA).  However, at the last minute, it was stripped out of the bill because the Senate Parliamentarian ruled that it was extraneous to the bill’s purpose of affecting revenues, which is what a reconciliation bill is limited to.  Hard to argue with that – the name of the law does not have an effect on revenues.

As a result, it would not be accurate to refer to this piece of legislation as the TCJA.  Opponents have been referring to it as the Trump Tax Scam, and likely will continue to do so.  It is probably too much to ask the media and tax advisors to refer to it that way, since that does seem overtly political.  The “2017 Budget Reconciliation Act” perhaps would work (BRA for short).  Several pieces of legislation enacted through reconciliation procedure have been called “Omnibus Budget Reconciliation Act of 19xx” so there is precedent.  So calling it a Budget Reconciliation Act is a correct generic description in the absence of an official short title.  I believe that calling it a tax reform act would also be political, since it falls far short of reform.  Budget reconciliation is perhaps as neutral as one can get.  An additional argument for this is that the bill contains not only tax provisions but also provisions on Alaska drilling, which are not tax related, but are related to budget reconciliation.

 

Potential Effects of Tax Reform on Work (Guest Posts @ On Labor Blog)

Shu-Yi Oei

Diane Ring and I were invited to write a guest post for the On Labor blog, to explain the potential effects of tax reform on work arrangements for a labor law audience. There was some interest in tax reform among labor law experts in light of the New York Times article that ran on December 9, titled “Tax Plans May Give Your Co-Worker a Better Deal Than You.”

We wrote a pair of posts, describing the potential effects of tax reform on work arrangements (including decisions to form a passthrough or to classify oneself as an independent contractor).

Something that struck us in our attempt to translate the policy issues for a non-tax legal audience was the sheer complexity of some of the new provisions in the new proposed provisions and the difficulty of discussing them with integrity–maintaining nuance, not oversimplifying or being hyperbolic, but still being understandable. As others have noted, the creation of the proposed tax legislation and the subsequent commentary on it have both happened very quickly. Our attempt to explain clearly the proposed legislative provisions to a non-tax legal audience and to discuss the policy issues at stake really highlighted for us the complexity of these proposed laws, the policy pitfalls, and the perils of operating at high speed.

In any case, here are the posts:

Work-Related Distortions in the Tax Reform Bills: Understanding the New Proposed Provisions (Part 1 of 2)

…The goal of this two-part blog post is to summarize for a labor law audience how the proposed tax legislation creates these outcomes and to highlight the important policy issues that observers and commentators might be concerned about. This Part 1 focuses on the statutory provisions, and Part 2 will discuss the key policy conversations that are taking place….

Work-Related Distortions in the Proposed Tax Bills: Understanding the Policy Conversations (Part 2 of 2)

This post follows up on our prior post, which focused on the complex provisions of the proposed Senate tax bill. This post discusses some of the key concerns that have been expressed about the new tax bill. (Again, we focus here on the Senate version of the proposed legislation. The specifics of the analysis may change once we get the Conference version, though the broader policy and design questions are likely to persist.)

 

Paradise Papers: Day 2

By: Diane Ring

The most recent big financial data leak, dubbed the Paradise Papers, is now in full swing in the media. On Monday, Shu-Yi Oei blogged the initial release and its immediate takeaways (including the revelation that U.S. Commerce Secretary Wilbur Ross continued to hold investments in a shipping business that had business connections to key Russian figures). But each passing hour brings new information and individuals into the public spotlight – and in the process sheds light on how such information is likely to be used and what the media and the public seem to find most noteworthy.

So what did Day 2 bring? . . .

Continue reading “Paradise Papers: Day 2”

Some Initial Thoughts on the Paradise Papers Leak

Shu-Yi Oei

Another data leak broke on Sunday, November 5, while I was on a plane home from Bergen, Norway. Coincidentally, Diane Ring and I were in Bergen presenting our Leak-Driven Law paper at a tax conference organized by Max Planck Institute for Tax Law and Public Finance, Norwegian Centre for Taxation, and Notre Dame University.

This new “Paradise Papers” leak involves a set of 13.4 million records from 1950 to 2016.

From the ICIJ’s website:

“The new files come from two offshore services firms as well as from 19 corporate registries maintained by governments in jurisdictions that serve as waystations in the global shadow economy. The leaks were obtained by German newspaper Süddeutsche Zeitung and shared with the International Consortium of Investigative Journalists and a network of more than 380 journalists in 67 countries.”

The two offshore services firms in question are the offshore law firm Appleby and Asiaciti Trust, an offshore specialist headquartered in Singapore. Over 7 million of the records came from Appleby and affiliates.

Diane and I argued in Leak-Driven Law that (1) the high-salience and shocking nature of tax and other leaks and (2) the interventions of the press and other actors in processing, framing, and generating publicity about these leaks are important features that can affect how legal responses and reactions occur in the aftermath of a leak. We’ll be keeping track of how events unfold in the aftermath of this latest leak and how it fits or doesn’t fit with the observations in our paper:

Some initial notes and reactions:

This was at Least in Part a Cyber Hack.

Most of the news coverage I’m seeing is focused on the content on the leak, but it’s worth noting that at least with respect to Appleby, this new leak was in part a result of a cyberattack on Appleby that happened last year. I haven’t seen anything to suggest that this was a data theft by an insider (e.g., employee) turned whistleblower. In its response to the leak, Appleby defended itself and noted the challenges of cyber-crime for individuals and businesses.

The Appleby Hack Occurred in 2016.

Continue reading “Some Initial Thoughts on the Paradise Papers Leak”

ABA Tax Section 5th Annual International Tax Enforcement and Controversy Conference (Washington, DC, Oct. 27, 2017)

 By: Diane Ring

Yesterday my frequent co-author, Shu-Yi Oei, and I attended the ABA’s conference on “International Tax Enforcement and Controversy” in DC. The panels and discussion covered a range of interesting intersecting issues. These included: (1) the relationship among international organizations and bodies (such as the OECD, UN, World Bank, IMF and G20) in directing the shape of international tax law content and enforcement; (2) the place of developing countries in the evolving international tax system; (3) competing goals of finance ministers and tax ministers in various countries and the impact of that conflict on taxpayers; (4) the consequences of and responses to limited IRS resources; and (5) continuing benefits to enforcement from the Swiss Bank Program.

But probably the most significant theme that ran through the day’s discussion was the role of data, especially “big data”. . . .

Continue reading “ABA Tax Section 5th Annual International Tax Enforcement and Controversy Conference (Washington, DC, Oct. 27, 2017)”

International Sharing Economy Conference: Day 2 Takeaways

By: Diane Ring

Yesterday I blogged about Day 1 of the international sharing economy conference, titled “Reshaping: Work in the Platform Economy.” Today the Conference resumed in Amsterdam and included a fascinating roundtable with representatives from some of the platform firms alongside some sharing economy workers. Each offered their experience/perspective on the sector, posed questions to each other, and took questions from the audience.

Not surprisingly, just as there are a range of business models and niches in the sector, there are also a variety of reasons why workers participate in and do platform work. What workers seek from the platforms (beyond good pay) may differ from worker to worker. For example, a sharing economy worker may desire contact with other workers, a sense of community, predictability, or worker dignity. Building on the Day 1 discussions, several themes emerged by the close of the Conference:

Continue reading “International Sharing Economy Conference: Day 2 Takeaways”

Tomorrow’s Ninth Circuit Oral Argument in Altera

By: Leandra Lederman

Susan Morse and Stephen Shay have blogged today on Procedurally Taxing about the Ninth’s Circuit oral argument tomorrow in Altera Corp. v. Commissioner, as has Dan Shaviro on his blog, Start Making SenseAltera is the transfer pricing and administrative law case involving the Treasury’s cost-sharing agreement regulation. The Tax Court invalidated the regulation under the Administrative Procedure Act, as arbitrary and capricious. That is because the Tax Court accepted the taxpayer’s argument that it need not share stock-based compensation costs under a qualified cost-sharing agreement because arm’s length parties would not do so. The Tax Court found that Treasury had inadequately addressed evidence in the notice-and-comment process that parties not under common control did not share stock-based compensation costs, although Treasury explained in the Preamble to the regulation that cost-sharing agreements between uncontrolled parties are not sufficiently comparable to those in controlled-party transactions.

Altera raises an important administrative law question about what is required of Treasury for its regulations to be valid. Susie and Steve spearheaded an amicus brief in the Ninth Circuit in favor of the Commissioner, in which I joined, along with Dick Harvey, Ruth Mason, and Bret Wells. An amicus brief prepared by another group of professors also supports the Commissioner. There are also amicus briefs by business groups on the other side. See Susie and Steve’s blog post for more detail. And for prior coverage on the Surly Subgroup, see this post on our amicus brief, explaining why the Ninth Circuit should reverse the Tax Court’s decision invalidating the regulation.