In honour of Klaus Vogel, one of the most influential figures in international tax law, his annual honorary event at the Vienna University of Economics and Business Administration was held on 13 October 2023. In this context, the now alumni of the LLM program International Tax Law were presented with their Master’s theses, which were collected in books published by Linde.
The technical part of the event was themed „US source income“. After a short introduction by Professor Lang, Reuven Avi-Yonah (Professor at the University of Michigan) and Stewart Brant (Director Global Tax Policy, PWC) presented their thoughts on this topic. Dr Arne Schnitger (Partner of PWC Germany) then joined them for a panel discussion.
Professor Avi-Yonah started to give historical examples for tax systems and linked them to current global politics projects. In particular, he used the example of the US states to explain that a formula approaches based on salary assets and sales, which is also discussed nowadays, was already applied a long time ago. He then described the developments since the 1920s and explained the emergence of the concepts of permanent establishments and the arm’s length principle.
As a common problem with both concepts, he indentified that they are are not market-based. This could support tax abusive structures. Since consumers are difficult to move, they are suitable as a fixing point to alllocate income to and to prevent tax abuse. A good example where the issues can be well observed is the digital economy.
One solution for this problem is Amount A of Pillar One of BEPS 2, which distributes residual profits to market states. However, the rules of the project can only be implemented if the US agrees on its implementation. Here, Professor Avi-Yonah sees the problem that this might not be politically desirable in the US because the largest companies are from the US and it initially looks as if US companies in particular will be hit.
However, Professor Avi-Yonah pointed out that there was a risk that states would implement Amount A unilaterally if Amount A did not enter into force within the BEPS project. Most countries could implement treaty overrides in their domestic law and therefore implement similar rules as Amount A despite double taxation agreements. In other states it would be questionable whether there would then be a tax credit for the taxes on income based on Amount A and the risk would be double taxation of companies on a large scale.
Therefore, despite all the concerns, Professor Avi-Yonah sees chances that the US could agree. In particular, it must still be taken into account that the US has one of the largest markets and would also benefit from Amount A as a state.
Afterwards, Mr. Brant gave interesting insights into political processes and developments. He not only addressed the OECD level but also the UN level. Dr Schnitger moderated and steered the panel discussion in a sovereign manner.