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Making Sense of Profit Shifting: Edward Kleinbard

28 min readBy: Erik Cederwall

Edward Kleinbard is the Ivadelle and Theodore Johnson Professor of Law and Business at University of Southern California.

Professor Kleinbard is a leading expert on international taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. issues related to corporate tax avoidance and profit shiftingProfit shifting is when multinational companies reduce their tax burden by moving the location of their profits from high-tax countries to low-tax jurisdictions and tax havens. . As the originator of the concept of “stateless income,” his research on multinational firms’ tax planning activities has substantially contributed to the foundation for understanding the mechanics and drivers underlying profit shifting and international tax planning, particularly from a legal point of view. Professor Kleinbard’s research on stateless income is regarded by many as the intellectual impetus or inspiration behind the OECD’s Base Erosion and Profit Shifting project.

Professor Kleinbard's scholarship primarily focuses on the taxation of capital income, international tax issues, and the political economy of taxation. He is a prolific writer and commentator, frequently cited in well-known media outlets.

Professor Kleinbard served as the Chief of Staff of the Joint Committee on Taxation during years 2007-2009. Prior to that appointment, he was a partner in the New York office of Cleary Gottlieb Steen & Hamilton LLP for over 20 years. Professor Kleinbard received his J.D. from Yale Law School, and his M.A. in History and B.A. in Medieval and Renaissance Studies from Brown University.

In this interview with the Tax Foundation, Professor Kleinbard provides an examination of profit shifting with a particular focus on the mechanics and underlying drivers of the phenomenon. In addition, Professor Kleinbard discusses the role of multilateral cooperation in addressing profit shifting and suggests ways to improve the U.S. corporate tax system to address concerns related to profit shifting. This interview is part of our 2015 Tax Foundation Forum series and has been edited for clarity and length.

Tax Foundation: What is known about profit shifting?

Edward Kleinbard: At the outset, it's important to emphasize that there are two kinds of profit shifting that U.S. multinationals engage in. One is shifting profits out of the U.S. to lower-taxed foreign jurisdictions, either by situating expenses in the U.S. that are global in nature or international in nature, or by shifting the income from the returns to U.S. projects to foreign affiliates, typically through intangibles pricing.

In addition, we have profit shifting from high-tax foreign countries to low-tax foreign countries and that second set of profit shifting was the principal contribution of the Stateless Income series of papers.

So we have two things going on, and here's what we know. We know that U.S. firms today have over $2 trillion—but the last estimate was $2.1 or $2.2 trillion—in recorded low-­‐taxed foreign earnings that they have identified as permanently reinvested outside the U.S. There are additional low-tax foreign earnings that are not visible from public financial statements because they are not designated as PRE, permanently reinvested earnings, which is a financial accounting concept. So it’s entirely possible simply to choose not to designate as PRE, but nonetheless have a low current tax rate and that's harder to tease out.

We also know that the cash component of that is about $1 trillion. Therefore, we know from this that we're not talking simply about foreign investment in real foreign assets because somewhere in the neighborhood of $1 trillion is in cash and cash equivalents. Finally, we know a good deal about the tax rate on those foreign earnings.

Grubert and Altshuler have done work, which is visible on the face of the IRS’s Statistics of Income data, that shows the total effective tax rate on all foreign subsidiaries of U.S. firms is about 16 percent—way below the average rate in major jurisdictions around the world in which firms do business.

We know that firms are growing their share of income that is reported outside the U.S. much faster than they are reporting their investments in real investment outside the U.S. or in employees outside the U.S.

So, when you look at effective tax rates of foreign subsidiaries in the aggregate, which includes some very high-taxed ones like the oil companies, for example, or when you look at returns to equity, you find a wholly disproportionate return to affiliates in low-taxed foreign jurisdictions, infinitely higher returns compared to assets, employees, or whatever other sort of objective metric.

As I joked about in one of my early papers on this, Irish subsidiaries… of U.S. firms were typically on the order of magnitude of three times more profitable than non-Irish EU affiliates, and it cannot be simply the luck of the Irish that explains the systematically higher returns in low-tax Ireland relative to the rest of the EU, nor is it explained by in fact greater physical investment or greater number of employees.

We have got lots of data showing that income is being moved disproportionately to employment and disproportionately to investment to low-tax jurisdictions, whether it's in the Caribbean, whether it's Ireland, whether it's Luxembourg.

TF: If we look at this phenomenon as one realm of the known and one realm of the unknown, and then we juxtapose those two, what’s in the realm of the unknown right now with respect to profit shifting?

Kleinbard: I think it's much easier to look at profit shifting in the aggregate than to be confident in how much is being shifted from the U.S. and how much is being shifted from a high-tax foreign jurisdiction. Both are clearly happening but exactly the division between the two is probably more difficult to tease out.

Is there anything else that you see as the key unknown at this point?

I don't. When I think about this from the perspective of policy makers and ask, “Do policy makers have enough data to make useful policy in the real world relative to all the other information that they have available to them for decisions that have to be made?” My answer to that is, “yes.” In fact, we have plenty of information. What we don't have is action. So, we have plenty of information on which to base reasoned action.

Let’s go a little bit more into the weeds and discuss the dynamics of profit shifting. What are the unique factors or drivers underlying the profit shifting phenomenon?

There are several. In general, profit shifting is easiest when intangibles can be identified or when intangible assets are a core driver of profitability.

Microsoft reports on its financial statements an effective foreign tax rate on its international income in the order of magnitude of 4 percent, and that's because its non-­‐U.S. rights are purportedly owned by an Irish affiliate and other firms are similar.

Intangible assets tend to be the drivers of big income shifting at the top line in terms of shifting gross incomeFor individuals, gross income is the total pre-tax earnings from wages, tips, investments, interest, and other forms of income and is also referred to as “gross pay.” For businesses, gross income is total revenue minus cost of goods sold and is also known as “gross profit” or “gross margin.” . One of the contributions of my case study of Starbucks, which is called, "Through a Latte, Darkly" is that I demonstrated how a company like Starbucks, which on its face is not a company whose core assets are intangibles, like a Microsoft, or an Amazon, or a Google, and which is a face-to-face business, nonetheless purports to have created intangible assets that are licensed separately to its own affiliates, in the UK in particular. In doing so, income earned from UK customers is split into two streams as sort of an operating, ordinary return stream and a high-value return to intangible assets where the income comes to rest in a lower-taxed jurisdiction.

Intangible assets are the drivers of the top line gross revenue shifting. That's easiest, of course, to see in the case of a company whose central core assets are themselves intangibles, like a Microsoft or a Google. But as the Starbucks paper demonstrated, it's perfectly possible for the tax accountants to create intangibles out of ordinary business operations and business methods and strip that income to a low-tax jurisdiction in that manner.

On the expense side, firms use earnings stripping techniques to strip income from high-tax foreign countries to low-tax foreign countries and from the U.S. to low-tax foreign countries.

In what way?

So you load up expenses, for example, interest expense. The U.S. parent will essentially pay the interest expense on the debt borrowed to run the global operations of a multinational group.

The foreign subsidiaries in low-tax countries will be overcapitalized with equity. And affiliates in high-tax foreign countries will be capitalized with internal leverage, debt from loans from a low-tax affiliate, the purpose of which is to strip income from the high-tax country to the low-tax foreign country. And you can view a certain amount of what goes on with royalties in respect of intangibles as having a similar quality of stripping income. So those are some of the straightforward techniques. On top of that, there's a third level down.

The U.S., by virtue of its insistence looking only to U.S. law or tax law principles to determine what's going on inside a multinational group and in particular the check-the-box regulations, can cause income essentially to disappear. So if a foreign subsidiary of a U.S. firm forms a second-tier subsidiary, and that second-tier subsidiary elects to “check-the-box,” it’s treated as a nothing from a U.S. tax point of view. It's just an extension of the top CFC [controlled foreign corporation].

But it's treated as real for local tax purposes and therefore interest or other expenses paid from the second-tier company to the first-tier company are effective as deductions in the jurisdiction of the second-tier company. But from a U.S. point of view, they are nothings and don't give rise to income in the hands of the first-tier CFC.

If the first-tier CFC is located in a low-tax jurisdiction, then income has been stripped out in a fashion that’s essentially invisible to the U.S. tax system.

Let's peel back one more layer of the onion. Why is there an opportunity for firms to shift profits?

Well, I don't view this as having any moral component. Firms are in business to be in business and to make money. So I don't view there to be a moral component to anything we're discussing except to the extent that you can blame Congress. You can blame legislators for falling down on their job.

The reason it happens is because firms save on cash taxes today and because of financial accounting of income that’s successfully shifted outside the U.S. to a low-tax country. As a general matter, that income not only reduces the cash tax liability of the multinational group, but it also reduces the effective tax rate of the group for financial statement purposes.

Financial statements, of course, are the lenses through which we actually see public companies. If you have two companies with the same top line revenues and different effective tax rates from a financial statement point of view, the company with the lower effective tax rate is going to have higher earnings for the same revenues and therefore appear to the public as the more attractive company.

How does profit shifting alter the behavior of firms?

In theory, if profit shifting is understood as situating real business operations in low-tax countries, it would affect corporate decision-making as to where to situate the next plant or other facility, and it would affect M&A decisions in respect of foreign target companies. But something more is afoot.

I think that the data are consistent with my story. Here's where the Stateless Income papers were particularly helpful in demonstrating that, if anything, there’s unintended preference for investment in high-tax foreign countries, which sounds perverse.

The reason is that, if you believe economic theory, post-tax normal returns should be in equilibrium around the world. Otherwise, a place where you could just get more for the same risk would attract more investment and that would drive down returns.

Given that most countries are open economies so that international investment can flow in and flow out, the normal place for most public finance economists working in the area to start is to assume an equilibrium after-tax rate of return.

To get to an equilibrium after-tax rate of return, that means you need different pre-tax rates of return in different countries. In particular, in a high-tax country, you need a higher pretax rate of return to get the same clearing market price after-tax rate of return. The effect of higher taxes is not to lower returns but to lower investment. Only those deals that clear a higher pretax hurdle get done, but their after-tax yield is the global yield.

Most public finance economists begin with that. If that story is right, and you then layer on the earning stripping strategies, what it means is that by investing in high-tax foreign countries, U.S. multinationals have the opportunity to then strip those high pretax rates of return, strip them out of the high-tax country to a low‐tax country and thereby capture what I call “tax rents.”

That is, to capture above market risk-adjusted rates of return by taking high pretax earnings from a country where the contingent assumption was that returns will be subject to a high tax and moving them to a place where there's no tax in the simplest example.

The consequence is that you have captured, in effect, the entire amount of pretax return that was mentally reserved to pay local high taxes and the result is that you're better off by investing in a high-tax foreign country than you’re investing in a low-tax foreign country. And you're also better off investing in a high-tax foreign country than you’re investing in the U.S. because, just as a mechanical matter, it's easier from a U.S. tax point of view to shift income from one foreign country to another foreign country than it is to shift income from the U.S. to a foreign country.

Does profit shifting matter?

Yes, I think it matters a lot, for the reasons I've just said. It does distort decision-making, number one, and number two, it erodes the U.S. tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. . It does that not simply by profit shifting in the sense of moving top line revenues out of the U.S., but by dumping global expenses, particularly interest expense, on the U.S. parent company as the still highest marginal taxed company in the group. The consequence is that from both directions, from whatever top line revenue shifting is going on but also from dumping global expenses onto the U.S. firm, we are very substantially eroding the U.S. domestic tax base.

Those are two reasons why we care.

If we approach this from a global perspective, for whom does profit shifting matter the most?

From a global perspective, all high-tax countries are exposed to both of the phenomenon I described. That is essentially because the global markets are so tightly integrated and every country is both a host country and a residence country.

The U.S., I think looking at things from its point of view, can fairly worry that U.S. multinationals' investment decisions are distorted, and it can worry that U.S. multinationals leave their global expenses in the U.S. while the revenues are outside the U.S.

But if you shift and look at things from the point of view of a Germany or a France, exactly the same is true. French multinationals or German multinationals see the U.S. as a source country and when they invest in the U.S. they strip income out of the U.S. the same way U.S. firms strip income out of Germany and France by loading up internal leverage through management fees, through royalty charges, for what in fact is integrated business operations or the business plant.

Every country, by virtue of the fact that it’s both a residence country and a source country, if it has a significant corporate tax rate, which is to say the U.S., the EU with the exception of Ireland, Luxembourg—even China, which has a 25 percent rate, every one of them is vulnerable from both directions, both as a jurisdiction with their own home country multinationals looking outward and also as a host country for foreign multinationals to invest inward.

From both directions all high-tax jurisdictions are the losers. By high-tax I mean every country that has a significant corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. . Firms are the net winners. Firms have lower global effective foreign tax rates.

Multinational firms generally do have lower effective foreign global tax rates than would be implied by looking at a weighted average of the tax rates of the countries in which they're actually doing business. I have an example in my Stateless Income paper of Philips Electronics, because Philips has the decency to do that very calculation and say, “The weighted average tax rateThe average tax rate is the total tax paid divided by taxable income. While marginal tax rates show the amount of tax paid on the next dollar earned, average tax rates show the overall share of income paid in taxes. of the countries in which we do business is x, and our global effective tax rate is actually x minus y.”

It will be great to have more data done directly in that fashion because it makes the point that both host countries and residence countries are finding their tax revenues depleted. And that's a bad thing, not a good thing, because it means that domestic firms are facing a disproportionately high tax rate compared to multinational firms.

That's distortive and unfair to domestic firms generally because they're picking up the slack, and/or to individuals who are then asked to pick up the slack in one tax revenue measure or another.

Has profit shifting increased over time?

Clearly it has and clearly the 2004 Act is the principal culprit here. In 2004, we had an Italian-style tax amnesty for offshore retained earnings, where we had a one-time, never-to-be-repeated tax holiday, in which firms could bring back their foreign low-tax earnings and pay a U.S. tax rate of five and a quarter percent minus some tax credits. So the effective U.S. rate on those repatriations was in the order of three and a half percent.

What we have seen is exactly what the staff of the Joint Committee predicted in 2004, which is that the consequence of a one-time, never-to-be-repeated tax holiday at a discounted rate led U.S. firms to double down on their international stateless income planning to put themselves in the best position for the second never-to-be-repeated tax amnesty. And we have seen it in the lobbying—which has been going on since 2007—for another tax holiday.

There are absolutely clear kinks in the curve of the volume of permanently reinvested earnings that obviously went down for the $310 billion of incremental earnings distributed in 2004, but it went back up at a much steeper slope.

What you see is firms reacting to the potential for a second, or a third, or a fourth repatriationTax repatriation is the process by which multinational companies bring overseas earnings back to the home country. Prior to the 2017 Tax Cuts and Jobs Act (TCJA), the U.S. tax code created major disincentives for U.S. companies to repatriate their earnings. Changes from the TCJA eliminate these disincentives. holiday by doubling down on their stateless income strategies to have the biggest possible pot of low-tax earnings available to repatriate in the amnesty period.

So are you saying that both the absolute dollar value of profits shifted has increased and that multinationals have become more aggressive profit shifters?


What is the best estimate of profit shifting out of the U.S.?

I don't distinguish between profit shifting out of the U.S. and profit shifting out of high-tax foreign countries because both of them end up in the same place, which is permanently reinvested earnings.

Further, it's very hard, because are we talking about shifting of top line revenues or are we talking about shifting of net income? Because where you leave expenses as I've described before is a principal tool in income shifting. So often when people think about income shifting it’s how much gross revenues would have been booked in the U.S. and are not being booked in the U.S. It doesn't really matter if, in fact, there's no revenue shifting, but global expenses are being paid in the U.S.

It has the same effect. It's very hard to capture which is going on. Where we do have good data are on the questions that I began with: The effective rate that foreign subsidiaries are paying, the relationship between profits booked in low-tax countries and the capital invested in those countries or the number of employees in those countries, and the volume of permanently reinvested earnings.

In terms of revenue losses for the U.S. treasury, what is a range of what that could be?

The trouble with answering the question is: Compared to what? Compared to what tax regime? Compared to worldwide taxation of the worldwide profits of U.S. firms? Well, then you're talking about an extremely high number. Then you're talking a number that could easily be $100 billion a year.

But most people would argue that that's not a plausible counterfactual of worldwide taxation at a 35 percent tax rate.

I'm a little bit unsure how to answer the question without knowing what anyone would imagine to be a plausible tax system in which those profits that were not shifted would be taxed. If the counterfactual is 35 percent worldwide taxation, then as I say, the number would be many tens of billions for a certainty, and it’s perfectly plausible to imagine $100 billion. That's roughly a third of total corporate tax revenues.

But, if you say, "Look, the alternative is a tax regime like that proposed by the president in his budget, a territorial system but with a 19 percent minimum tax that operates in very complicated ways,” well then they have a revenue estimate for that right in the budget.

You note in your papers that there’s not a competitiveness issue with the current tax system. Can you explicate on that?

It is surprising. I appreciate that this sounds surprising to people, but the reason is a point that I've made earlier. First, from a cash tax point of view, U.S. multinationals have an amazingly low effective tax rate on their foreign income. The Microsoft example is 4 percent. There's no country where they do business where that's the tax rate.

If you look at it from an actual cash tax perspective, U.S. multinationals have global effective tax rates on their non-U.S. income at rates way below the rates of the actual countries in which they're doing business.

Then if you look at it from a financial accounting point of view, which as I said before is the lens through which people see a company, again, because those earnings are designated as permanently reinvested earnings, the picture one gets from financial statements is the same: That U.S. firms have very low global effective tax rates.

Finally, it is true that firms end up with sort of an oddly bloated capital structure with lots of cash outside the U.S., borrowing in the U.S. in order to fund dividends and to create a tax shield against their high-tax income in the U.S.

Financing rates are so low in the U.S. right now and the debt markets are so open and liquid that it's just not plausible to say that the kinds of firms we're talking about, which is the few hundred large multinationals that are the beneficiaries of all this income shifting, have any kind of financing constraints on their ability to get cash in the U.S. through borrowing, which in turn has a great advantage of functioning as a constructive, tax-free repatriation.

What is missing for a better understanding of profit shifting? Is it perhaps data or models, or do you think that we already have a pretty good grasp of this phenomenon?

I think we have a good grasp. I really do. At this point, what's much more important is to move to a more stable corporate tax system that is robust to stateless income planning of all varieties, whether it's top line revenue shifting or expense misallocation. I think we have some pretty good ideas how to do that. I've recommended a lower U.S. corporate tax rate and to apply that to a worldwide base of income in a manner consistent with how financial accounting is done. Also, to give full foreign tax credits for foreign taxes actually paid.

If the tax rate is 25 percent and global headline rates in most other large economies are in that order of magnitude, it's very hard for me to see the basis for objection by people who are not constitutionally invested in their claims to income shifting as some privilege. That would be a system that would be robust to gaming.

The president's approach, tax rates in the 20s, territorial system in general but with a U.S. minimum tax, is in fact a combination of a territorial tax in high-tax foreign countries and a residence-based tax system for income in low-tax countries, because the U.S. minimum tax would apply on a country-by-country basis.

The consequence would be sort of what I think of as a messier combination of a territorial tax when you're in a high-tax country and a residence-based tax when you're in a low-tax country. It's not clear to me what the advantage of it is over simply having a worldwide residence-based tax everywhere with tax credits so that you can use your taxes in one country to offset any potential U.S. liability in respect to lower taxed income in another country.

Continuing on the theme of a worldwide versus a territorial tax systemA territorial tax system for corporations, as opposed to a worldwide tax system, excludes profits multinational companies earn in foreign countries from their domestic tax base. As part of the 2017 Tax Cuts and Jobs Act (TCJA), the United States shifted from worldwide taxation towards territorial taxation. , I would like to bring in a quotation from your paper, "The Lessons of Stateless Income": "The U.S. today faces a Hobson's choice between the highly implausible, a territorial tax system with teeth, and the manifestly imperfect, worldwide tax consolidation.” Elaborate on that.

Well, in the end, those are the only two stable places to be. The Starbucks research I did in the Starbucks paper convinced me that it’s just not possible to imagine a world where you can identify the fair return to intangibles in a multinational enterprise, which exists by definition for the synergies that come from doing things within the firm. If you think about the theory of the firm, in the Ronald Coase sense, if you think about the theory of why we have big firms and not just a bunch of little companies contracting with each other, it's because of the increase in efficiency, the reduction in costs that would otherwise be attendant on contracting with each other all the time. Firms exist to capture global synergies.

Things like trademarks—not just what I think of as hard intangibles like patents—but soft intangibles like the Starbucks experience, to capture those in a global platform, given that markets are global and open, given that the drivers of firm profitability are exportable, it’s simply impossible to imagine a world in which we can correctly identify the relative contributions to firm profitability of activities on a geographic basis.

Therefore, I think efforts to make arm's length pricing better or to somehow price royalties on intangible assets more accurately are all collectively doomed. And I feel pretty strongly about that. As the article suggests, you're left with two sort of plausible places. One is a place similar to where the president ends up, which is a territorial system that has teeth in the form of a strong anti-abuse rule, and the alternative is a worldwide tax based on the residence of the top company in the multinational group but with foreign tax credits.

The question is not which is more perfectly aligned with economic theory, because neither is, but rather which is the more plausible to be enforceable and stable for an extended period of time.

Could lowering the corporate tax rate be a possible solution for the U.S.?

It's part of the solution. It's unquestionably part of the solution for the U.S. I make the point in my papers that you cannot imagine a worldwide tax systemA worldwide tax system for corporations, as opposed to a territorial tax system, includes foreign-earned income in the domestic tax base. As part of the 2017 Tax Cuts and Jobs Act (TCJA), the United States shifted from worldwide taxation towards territorial taxation. without also envisioning a lower U.S. tax rate. I think that's good for the U.S. It, in fact, brings investment into the U.S., whether it's domestic investment or foreign investment.

A lower effective tax rate on U.S. domestic income and a somewhat higher tax rate, because you can't get any lower than 4 percent, on foreign income is in fact a good trade for America.

How do you see multilateral coordination and cooperation as a solution to profit shifting?

We have this in trade, and it's always been kind of remarkable that we have not been able to get something similar going in the tax arena.

It would be wonderful if we did, but the great advantage of both solutions that I just outlined is that they can happen without regard to explicit coordination. There will be conscious parallelism in the actions of tax jurisdictions around the world.

Every jurisdiction is desperate for revenue. The Great RecessionA recession is a significant and sustained decline in the economy. Typically, a recession lasts longer than six months, but recovery from a recession can take a few years. has left countries hustling for revenue. In that world it cannot be acceptable that multinational firms enjoy such systematically lower rates than wholly domestic competitors. Not just as to the U.S. but, again, as to Germany, France, or anybody else.

There will be conscious parallelism even if we don't express GATT-type solutions, but the U.S. has to move first. We are the elephant in the room. We're so much larger as an economy than any other single economy that the U.S. has to be the first mover.

So what is your view on BEPS, the OECD's Base Erosion and Profit Shifting initiative?

I’m a fan of the impulse. I wish them the best, but I think that they've made their lives very hard for themselves by insisting on the arm's length principle as an untouchable sort of axiom because I don't think there are ways in which one can fairly price internal intangibles inside a multinational group. The multinationals exist for the purpose of being integrated, for the purpose of creating synergy that would not be obtainable through a series of arms' length contracts. It’s nonsensical to chase a model that is inconsistent with both reality and with the best economic theory of the firm. The Ronald Coase theory of the firm remains the dominant view.

To me, it's a noble effort that will lead to some positive outcomes, particularly in the tax transparency and reporting arena. I'm not convinced that it can accomplish everything that the G20 hopes for it to do. Of course, it has to be implemented in every country. It doesn't automatically implement itself.

What major developments do you expect in the next 1-2 years?

I think one part of BEPS that’s certain to happen is the increase in multinational corporate tax transparency to the tax jurisdictions in which the firm does business. So some kind of consistent reporting mechanism that improves the transparency of firms' activities from the perspective of all the countries in which they do business. That certainly is going to happen, as it should.

The reason why the BEPS project has gone with such urgency is, I believe, that the OECD understands that they are at risk of losing control over the international tax consensus.

You already see that with the UK, moving to adopt its “Google Tax.” So to me the biggest risk over the next year or two is that countries will become dissatisfied and act unilaterally, which can lead to random double taxationDouble taxation is when taxes are paid twice on the same dollar of income, regardless of whether that’s corporate or individual income. . I think that's a much more reasonable concern than anything else.

In the U.S., I have a paper coming out called, "Why Corporate Tax Reform Can Happen." I think that, in fact, contrary to everyone else, the stars are aligned such that if the two parties decide that it’s a priority, it’s in fact possible to get to corporate tax legislation that substantially lowers the rate and reforms international taxation.

I would like to think that it will happen in the next year or two, but I recognize that I’m in the minority.

Professor Kleinbard’s paper, “Why Corporate Tax Reform Can Happen” was published shortly after this interview was conducted.

What are some of your own favorite papers or resources related to profit shifting?

I’m for some strange reason fond of my own work. And the Stateless Income series, "Stateless Income," "Lessons of Stateless Income," and "Through a Latte, Darkly," which is the Starbucks case study, work together quite well to explain what's going on from both a practical and theoretical perspective.

The OECD work on BEPS has been very high-quality. And so is the work of Harry Grubert, Rosanne Altshuler, Kimberly Clausing, and Daniel Shaviro. These are all serious people who are looking at this issue in good faith trying to figure out what's best from an economic efficiency point of view and what's best for the country. I would add Michael Graetz as well.