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1、Preliminary draft Please do not quoteIntegration in an Integrating WorldYariv Brauner* Associate Professor of Law, Arizona State University College School of Law. I thank Adam Chodorow, Zohar Goshen, Jennifer MacDonald, and John Steines for their useful comments, assistance and support All mistakes
2、and inaccuracies are mine. I. IntroductionDuring the second half of the last century many countries gradually replaced their so-called classical corporate tax regimes, under which corporate earnings were taxed twice once in the hands of the corporation, and again when distributed to corporate shareh
3、olders as dividends with an integrated regime (imputation), which taxed such earnings only once. The driving force behind this trend was the expectation of significant efficiency gains. This clear and gradual trend has been abruptly reversed with the turn of the century. The phenomenon we call globa
4、lization, and in particular the proliferation of cross-border business and investment, has materially contributed to this dramatic sea change in the corporate tax world. The conventional wisdom was that imputation is unsustainable in a world whose markets integrate. This article argues that the aban
5、donment of imputation is partly a consequence of our essentially non-cooperative world in terms of tax policy coordination. It concludes that imputation does not have to be the victim of globalization it can be retained to the benefit of many countries, but only through enhanced international cooper
6、ation and coordination of tax policies.The common goal of integration is to alleviate the over (“double”) taxation of corporate profits, consequently reducing the effective tax rates on returns on investments through corporations. This could be achieved in various ways, with some different achieveme
7、nts, advantages and disadvantages in practice. This article focuses on the method that was considered the most accurate and popular of all integration methods full imputation, as elaborated below. For an extensive review and analysis of the various integration methods, see Michael J. Graetz and Alvi
8、n C. Warren Jr., Integration of the U.S. Corporate and Individual Income Taxes: The Treasury Department and American Law Institute Reports (Tax Analysts, 1998) New compilation of the early 1990s integration proposals of the Treasury department and the ALI. Perhaps the most popular method used for th
9、is purpose was the imputation method, which extended credits to shareholders for the corporate income tax paid by a distributing corporation “on their behalf.” I.e., with respect to their shareholding in the corporation and the distributions made to them out of corporate profits. The expectation of
10、significant efficiency gains from its adoption was comfortably supported by economic theory. Charles E. McLure, Jr., Must Corporate Income Be Taxed Twice (Brookings, 1979); “Colloquium on Corporate Integration,” 47 Tax L. Rev. 427 (1992); Graetz and Warren (1998). Note that most of the analysis was
11、conducted assuming relatively closed markets, which was appropriate at the time. See, e.g., Robin W. Boadway, The Economic Rationale for Integration, in Business Tax Reform, Corporate Tax Management Conference 1998 (Canadian Tax Foundation, 1998), 21:1 analyzing the international aspects of integrat
12、ion in the context of a Canadian tax reform evaluation. Today, in less than five years, most of the countries that adopted integration have reintroduced a second level of taxation on corporate profits. See, infra, Part II.C. This volte face does not reflect a rejection of the underlying economic pri
13、nciples supporting integration, but rather reflects a market change. In particular, increased international trade has created pressure to eliminate cross-border discrimination by extending, inter alia, the benefits of integration to foreigners and foreign investments. See Richard Vann, General Repor
14、t for the 57th. Congress of the International Fiscal Association, Cahiers de Droit Fiscal Internationale, vol. LXXXVIIIa (Sydney, 2003) 21, at 24; Reuven Avi-Yonah, Back to the 1930s? The Shaky Case for Exempting Dividends, Tax Notes Doc. 2002-27880 (Dec. 23, 2002); The imputation method, which was
15、popular in a domestic context, could not be sustained as a purely domestic measure in an economy that was increasingly international, and countries were not willing to extend its benefits across-borders. This unwillingness arose from the conventions of the international tax regime, which were premis
16、ed on the classical system, and therefore did not require such an extension, and from the understanding of some integration countries that unilateral extension of such benefits would amount to a transfer to the treaty partners fisc rather than the investors. See, infra, in particular the examples in part II.B. This pressure was primarily significant in the European Union (hereinafter “EU”), which institutions support harmonization (not only non-dis
