Julie Roin

Taxation without Coordination

Traditional conceptions of the nation‐state have been challenged by the growth of the global economy. Increasingly, one hears calls for the “harmonization” of divergent national laws. Yet actual movement in the direction of such harmonization has been painfully slow. It may be that the benefits of harmonization are less than they appear to its proponents. Alternatively, this continuing diversity may be an example of special‐interest groups prospering at the expense of the general public. The article looks at one context in which the case for international coordination has been pressed by academics, the definition of income for income tax purposes, as a case study in the general problem of public choice influences on the harmonization process. It identifies potential winners and losers, explicates their roles in the political process, and suggests methods for possibly ameliorating the undue influence of potential losers.

Transfer Pricing in the Courts: A Cross-Country Comparison

One open question in formulary versus “arm’s length” transfer pricing debate is the extent to which countries have already achieved some of the goals of formulary methods by accepting the use of “profit split” methodologies within their “arm’s length” pricing regimes. This paper analyzes the last ten years of transfer pricing cases in four English-speaking jurisdictions to see whether courts have used profit split methodologies to reach results similar to those that would be reached under a formulary system. The results of the survey are somewhat surprising. First, the use of profit split methodologies seems to have decreased rather than increased over time. Taxpayers have learned how to structure transactions to make these methodologies less relevant. Second, their use rarely if ever overcame the effects of taxpayers’ initial allocations of functions (including risk) among related entities. In short, the fears of those initially opposed to the use of profit split methodologies – as well as the hopes of some of their proponents – seem in retrospect to have been overblown. Whether that is good news or bad news depends on one’s perspective. One lesson that can be drawn from these cases is the difficulty of affecting tax outcomes absent the consolidation for tax purposes of related entities.