Wolters Kluwer Law & Business

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1 The Proper Tax Base Structural Fairness from ah International and Comparative Perspective Essays in Honor of Paul McDaniel Edited by Yariv Brauner Martin James McMahon, Jr. Wolters Kluwer Law & Business

2 Summary of Contents Preface xiii Parti Tax Expenditures 1 Chapter 1 The Staff of the Joint Committee on Taxation Revision of Tax Expenditure Classification Methodology:, What Is To Be Made of a Change That Makes No Changes? 3 Paul R. McDaniel Chapter 2 Taxing Tax Expenditures? 17 Martin J. McMahon, Jr. Chapter 3 The Tax Expenditure Concept Globally 47 Miranda Stewart Chapter 4 Tax Reform and Tax Expenditures in Australia 87 Richard J. Vann Chapter 5 Tax Reform Paul McDaniel Style: The Repeal of the Grantor Trust Rules 107 Laura E. Cunningham & Noel B. Cunningham

3 Summary of Contents Part II The Fair Tax Base and International Tax Reform 119 Chapter 6 Horizontal Equity Revisited 121 James Repetti & Diane Ring Chapter 7 What Is This Thing Called Source? 139 v Lawrence Lokken Chapter 8 Formula Based Transfer Pricing 149 Yariv Brauner Part III A Comparative Perspective 177 Chapter 9 The EU proposed CCCTB Some Tax Treaty Issues 179 Kees van Raad \ Chapter 10 Shared Legal Orders: Some Thoughts about the Influence of EU Case Law on International Tax Law Rules of the EU Member States 187 Irene J.J. Burgers Chapter 11 Intra Group Loans A Swedish Perspective 211 Bertil Wiman Chapter 12 * European VAT and Jurisdiction to Tax 223 Antonio Vazquez del Rey VI

4 Preface xiii Parti Tax Expenditures 1 Chapter 1 The Staff of the Joint Committee on Taxation Revision of Tax Expenditure Classification Methodology: What Is To Be Made of a Change That Makes No Changes? 3 Paul R. McDaniel 1.1 Introduction Methodology Historically Used To Classify Code Provisions The Tax Base Tax Rates The Taxable Unit Accounting Rules International Tax System Tax Administration Methodology Adopted by JCT Staff Tax Subsidies Tax-Induced Structural Distortions The 2008 Tax Expenditure Estimates Critique of the Reasons for the JCT Staffs Changes Conclusions 15 s

5 Chapter 2 Taxing Tax Expenditures? 17 Martin J. McMahon, Jr. 2.1 Introduction "Tax Reform" Versus "Spending Reform" The Failure of Criticism of Tax Expenditure Analysis ^ Taxing Tax Expenditures Determining Which Tax Expenditure Subsidies Should Be Taxed ^. _ Determining How to Tax Taxable Expenditure Subsidies Taxing Tax Expenditures is Unadministrable Revenue Enhancement, Spending Reform, and Tax Reform Curbing Tax Expenditures Tax Expenditures Are Both Inefficient and Inequitable Tax Expenditures Are of Questionable Efficacy The Case for Curbing Tax Expenditures Conclusion 44 Chapter 3 \ The Tax Expenditure Concept Globally 47 Miranda Stewart Introduction Global r trends in Tax Expenditure Reporting Country Case Studies Purpose Conclusion India Chile South Africa and Challenges of Tax Expenditure Reporting Purpose Tax Expenditure Management as an Effective Element of the Budget Process Two Challenges Chapter 4 Tax Reform and Tax Expenditures in Australia 87 Richard J. Vann 4.1 Introduction The Approach to Tax Reform Taxation of Labor Income 93 vm

6 4.4 Saving and Taxation of Investment Income Pension Plans and the Family Home Conclusion 104 Chapters Tax Reform Paul McDaniel Style: The Repeal of the Grantor Trust Rules 107 Laura E. Cunningham & Noel B. Cunningham 5.1 Introduction v The Grantor Trust Rules The Intentionally Defective Grantor Trust Basic IDGT Transaction IDGT Installment Sale Transaction The Argument for Repeal Conclusion 117 Part II The Fair Tax Base and International Tax Reform 119 Chapter 6 Horizontal Equity Revisited 121 James Repetti & Diane Ring 6.1 Introduction Why HE and VE Lack Normative Content? Efforts to Sustain a Design Role for HE Critique of the Assertion that HE Lacks Normative Content HE as a Process Requirement HE as Even-Handed Enforcement Conclusion 136 Chapter 7 \ What Is This Thing Called Source? 139 Lawrence Lokken Introduction The Model Applications of the Generally Interest Interest Conclusion Model Income by Analogy IX

7 Chapter 8 Formula Based Transfer Pricing 149 Yariv Brauner 8.1 Introduction The Current Debate Over the Desirability of a Formula Based International Tax Reform Formulaic Reform Proposals The Main Arguments in the Debate Economic Based versus Arbitrary Taxation The Three Factor Formula Unilateral versus Multilateral Solutions Costliness Simplicity, Compliance and Enforcement Distinguishing the Debate over Formulaic International Tax Reform from Transfer Pricing Reform The Logic of Our Transfer Pricing Regime and the Domination of Arm's Length Arm's Length in the United States The Universality of Arm's Length Defense of Arm's Length Critique of Arm's Length The Design of a Formula-Based Transfer Pricing Regime Unilateral Adoption of Formulaic Transfer Pricing "A Bilateral Approach A Multilateral Solution Conclusion 176 Part III A Comparative Perspective 177 Chapter 9 The EU proposed CCCTB Some Tax Treaty Issues 179 Kees van Raad 9.1 Introduction A Very Brief Outline of the Proposed CCCTB rules Some Issues Under Tax Treaties Introduction A CCCTB Company Receives Interest Income from Outside the EU Double Taxation Treaty Application by the Third-Country State O Treaty Application by CCCTB States MS Cl and MS C2 183

8 9.3.3 Third-Country Company Corporation O derives Income from CCCTB States MS-C1 and MS-C No Issue in Case of Income from Single Business Activity Multiple Active Income Items Passive income Conclusion 186 Chapter 10 Shared Legal Orders: Some Thoughts about the Influence of EU Case Law on International Tax Law Rules of the EU Member States 187 Irene J.J. Burgers 10.1 Introduction Standards Developed by the ECJ Concerning the Powers of the Member States The Exemption with Progression Method and EU Law: The German Experience Introduction Case law of the ECJ Lidl Belgium Krankenheim Case Law of the German Federal Finance Court (BFH) BFH, February 3, 2010, I R 23/ BFH, June 9, 2010, I R 23/ Case law of the ECJ regarding third countries: Stahlwerk Ergste Westig GmbH Evaluation Change in Dutch Exemption Method as from January 1, 2012 ' Transfer Pricing Rules and EU Law: The Belgian Experience * ' Introduction SGI Evaluation Wrap up of ECJ Standards, Principles and Tests Some Thoughts on Transplanting the ECJ Standards, Principles and Tests in the OECD Commentary Introduction The "Always-Somewhere Principle" The Commercial Justification Test and the Burden of Proof Conclusion 209 XI

9 Chapter 11 Intra Group Loans A Swedish Perspective 211 Bertil Wiman 11.1 Introduction RA2010ref Pricing of Cross-Border Loans Conclusions 221 Chapter 12 ^ - _- European VAT and Jurisdiction to Tax 223 Antonio Vazquez del Rey 12.1 Place of Supply: Relevance and Underlying Principles The Place of Supply of Goods Overview General Rules Special Rules Generically Applicable to International Trade Specifically Applicable to Intra-Community Trade Chain Transactions The Place of Intra-Community Acquisitions of Goods Overview :2 Chain Transactions The Place of Supply of Services Overview General Rules Supply of Services to Taxable Persons Supply of Services to Nontaxable Persons Special Rules General Exceptions Particular Exceptions Forthcoming Modifications Use and Enjoyment Rule The Place of Importation of Goods 256 xn

Table of Contents. Part One Introduction. Part Two VAT/GST Double (Non-)Taxation and Possible Remedies. Chapter 2: VAT/GST Double (Non-)Taxation 27

Table of Contents. Part One Introduction. Part Two VAT/GST Double (Non-)Taxation and Possible Remedies. Chapter 2: VAT/GST Double (Non-)Taxation 27 Table of Contents Foreword List of Abbreviations vii xvii VAT/GST Model Tax Convention 1 Part One Introduction Chapter 1: Introduction 21 Part Two VAT/GST Double (Non-)Taxation and Possible Remedies Chapter