Published by De Gruyter

Volume 11 Issue 2 - Comparative Tax Law and Culture

July 2010

Issue of Theoretical Inquiries in Law

Contents
Journal Overview

Article

June 27, 2010

Introduction

Page range: 469-473

June 27, 2010

An Examination of Convergence and Resistance in Global Tax Reform Trends

Kathryn James

Page range: 475-496

Abstract

The worldwide rise of the Value-Added Tax (VAT) over the last half-century is emblematic of the paradox in modern tax systems: their remarkable similarity in the face of divergent political, cultural and social systems. However, efforts to introduce VAT-style taxes have frequently been accompanied by fierce localized resistance. The histories of VAT reform in Australia, Canada and the United States encapsulate the tension that arises from a tendency among developed tax systems to converge against frequent and often fierce localized opposition. This tension speaks to a key debate in the public policy and comparative law literature concerning the transferability of policy ideas or legal instruments across jurisdictions. The Article details the history of VAT reform in Australia, Canada and the United States over a period of four decades, 1965-2005, where the global uptake of the VAT was at its highest, but where VAT reform in each jurisdiction was highly controversial. The Article concludes with an assessment of the factors that contribute towards tax policy convergence and localized resistance.

June 27, 2010

The Public Control of Corporate Power: Revisiting the 1909 U.S. Corporate Tax from a Comparative Perspective

Ajay K Mehrotra

Page range: 497-538

Abstract

The origins of U.S. corporate taxation are often associated with the 1909 corporate excise tax. Scholars who have investigated the beginnings of this levy have mainly focused on the legislative history of the 1909 corporate tax to argue that it was either an expression of the Progressive Era impulse to regulate large-scale corporations or an attempt to use corporations as remittance devices to collect taxes aimed at wealthy shareholders. This Article broadens the conventional historical accounts of the emergence of American corporate taxation by revisiting the 1909 U.S. corporate tax from a comparative perspective. The aim is to look both below and beyond the American nation-state to determine how and why U.S. state governments and other Western industrialized nations tried to tax corporations at the turn of the twentieth century. This Article investigates a small slice of subnational and transnational comparative examples: corporate tax laws and policies in a few representative nineteenth-century industrializing American states, and in turn-of-the-century England and Germany. Building on the well-known insights of comparative business history, this Article contends that historically-determined political interests, social ideas, and cultural beliefs help explain the American obsession with disciplining large-scale business corporations through the use of nominally punitive tax laws and policies. Comparative-historical analysis shows how differences in the organizational structures of big businesses across place and time have led to variations in political economy that were ultimately expressed in the legal ideas and cultural attitudes toward corporate capitalism. These variations, in turn, shaped the transnational distinctions in corporate tax law and policies. Greater attention to the comparative-historical development of law and political economy may help us understand the stubborn persistence of American corporate taxation, particularly in the face of recent global changes and the relentless economic critiques of the double taxation of corporate income.

June 27, 2010

From Mumbai to Shanghai, with a Side Trip to Washington: China, India, and the Future of Progressive Taxation in an Asian-Led World

Michael A Livingston

Page range: 539-560

Abstract

Progressive taxation has historically been discussed primarily in the context of developed, Western nations. This Article considers its application in two developing, nonwestern economies, emphasizing the differences in political, economic, and (especially) cultural contexts and their effect on the progressivity equation. In India these differences include long-standing attitudes, such as the Hindu tradition’s historic ambivalence towards utilitarian arguments, and shorter-term institutional arrangements, such as the division of power within India’s federal system and the tax exemption for agricultural income. In China they include the legacy of Marxism as well as a more long-standing tendency to resolve legal and policy issues based on notions of communal rather than individual welfare. Both countries have limited administrative resources and (by Western standards) a relatively small middle class, so that the income tax remains a relatively small albeit growing source of national revenues. In this Article I consider the impact of these factors, and conclude by asking whether a similar "tax life cycle" will apply to both countries or political and cultural differences will result in divergent tax patterns. Furthermore I also evaluate the progressivity problem as a case study in comparative taxation and assess the need to develop a more sophisticated methodology for dealing with institutional, attitudinal, and other cultural differences.

June 27, 2010

The Social Norm of Tipping, Its Correlation with Inequality, and Differences in Tax Treatment Across Countries

Yoram Margalioth

Page range: 561-588

Abstract

In a previous article I argued that tipping facilitates tax evasion, hurts employees’ financial security in the long run, and is a form of negative externality imposed by wealthy people on the rest of society. In this Article I try to understand the reasons for the greater popularity of the norm in the U.S. compared to other countries, suggesting it may be related to the U.S. cultural preference for linking redistribution with work requirements, relatively high income inequality and consumerism. To that end, I further develop the negative externality argument suggested in the previous article by looking at trends in income inequality in the U.S. and by interpreting the global distribution of the norm through the prism of my inequality/negative externality argument. I then look at the tax treatment of tips in various countries in search of a pattern that supports the differences in social norms.

June 27, 2010

Ordinary People, Necessary Choices: A Comparative Study of Childcare Expenses

Tsilly Dagan

Page range: 589-630

Abstract

This Article uses comparative analysis of childcare deductions in the U.S., Canada and Israel in order to expose the non-technical nature of the distinction between business and personal deductions. The comparative analysis reveals significant differences in the ways courts in the three jurisdictions have interpreted the distinction in the context of childcare expenses. Courts in these countries have dealt with the question in different eras and faced different legislative environments. The differences in time and legislative background not only help explain some of the differences among the courts’ decisions in the three jurisdictions, but also expose the normative foundations of the seemingly technical distinction, demonstrating that the issue of childcare deductions in fact raises a question of baseline-setting. In allowing or disallowing the deduction of childcare, courts actually determine what counts — and more importantly what should count — for income tax purposes in general and deductions in particular. By exposing the baseline issues underlying questions of deduction, the Article demonstrates why it is preferable to explicitly use normative considerations in lieu of the so-called technical distinction between business and personal deductions. The comparative analysis further raises an institutional consideration; as shown, precisely because this is a baseline issue, legislatures, who enjoy a larger doctrinal tool box than courts, can offer greater flexibility as required when a variety of normative considerations should be taken into account.

June 27, 2010

Wedded to the Joint Return: Culture and the Persistence of the Marital Unit in the American Income Tax

Marjorie E Kornhauser

Page range: 631-653

Abstract

The United States, unlike most developed countries, continues to use the marital couple as the taxable unit for its income tax. This continued use of the marital unit— like its original establishment —rests on cultural preferences. This Article suggests that the roles of marriage, religion and taxation in America are essential factors in America’s retention of the marital unit. Part I examines the distinctive contribution marriage — especially the traditional single-earner breadwinner marriage — makes to the political life of the country. Part II explores the similar role of religion. Part III describes some congressional efforts over the past two decades to aid, ostensibly, married couples through the income tax. Part IV concludes that although these actions have not been the most effective or efficient means of helping married couples, they nevertheless serve an important expressive purpose. Tax has been the arena for many political issues since the founding of the nation. Consequently, congressional actions and rhetoric regarding the income tax’s "marriage penalty" reinforce the marital unit/joint return and reaffirm — even if only symbolically — a national commitment to marriage as instrumental to American democracy.

June 27, 2010

Tax Transplants and Local Culture: A Comparative Study of the Chinese and Canadian GAAR

Jinyan Li

Page range: 655-685

Abstract

This Article discusses, compares, and analyzes the transplanted General Anti-Avoidance Rule (GAAR) in China and the GAAR in Canada. It demonstrates the similarity between the GAARs on paper and the divergence between the GAARs in action. It argues that the divergence is largely attributable to the differences between Canada and China in the general legal system, legal institutions, judicial and taxpayer attitudes towards tax avoidance, and the ideology of tax avoidance.

June 27, 2010

Globalization and Modernization as Drivers for Tax Reform in the Socialist Market Economy

Li Jin, Richard Krever

Page range: 687-723

Abstract

The unprecedented economic changes taking place in China over the past three decades have led to significant new fiscal pressures for the central and provincial governments. The relative decline of public ownership and rise of the private sector has forced governments to substitute revenues from new taxes for the funds formerly provided by public enterprises. The shift from profit distribution to tax revenues has led to a realignment of power between local governments and the central government while the growing disparity in wealth between have and have-not provinces has increased the pressure on the central government to further consolidate control over tax revenues and to apply the enhanced revenues to fund fiscal redistribution transfers. At the same time, modernization of the economy and the influx of foreign investment have created pressure to revamp tax laws and tax administration so both resemble more closely western market economy norms. These processes may lead to an irreversible shift of fiscal power from provincial governments to the central government and a consequent consolidation of political power, changing forever the political economy of modern China.

June 27, 2010

Is Tax Law Culturally Specific? Lessons from the History of Income Tax Law in Mandatory Palestine

Assaf Likhovski

Page range: 725-763

Abstract

Tax law is a technical area of law which does not seem to be culturally specific. It is thus seen as easily transferable between different societies and cultures. However, tax law is also based on definitions and notions which are not universal (the private sphere, the family, the gift etc.). So, is tax law universal or particular? Is it indeed easily transferable between different societies? And in what ways does tax law reflect ethnic or cultural rather than economic differences? This Article seeks to answer these questions by analyzing one specific example — the history of income tax legislation in Mandatory Palestine. This history reveals the dual nature of income taxation. On the one hand, the Income Tax Ordinance which was enacted by the British in Palestine in 1941 was based on a one-size-fits-all colonial model, and the lawyers involved in its enactment, in Palestine and in the Colonial Office in London, made relatively little effort to adapt it to local conditions. On the other hand, other actors — the officials, politicians and businessmen involved in the initial debate about the imposition of income taxation in Palestine in the 1930s, and the administrators involved in the application of the specific rules of the Ordinance after it was enacted in the 1940s — were aware of the need to adapt the law to the specific conditions of Palestine. Thus, while on a formal level the Ordinance seems to represent a process in which the tax law of Palestine converged with that of other British colonies (and ultimately, with English income tax law), once we expand our framework and examine not just law in the books, but also law in action, and actors such as politicians and administrators, we discover that particular local conditions were an important factor in the enactment and application of the Palestine Income Tax Ordinance. The study of the process of transplantation, the Article concludes, should therefore focus not only on the formal norms being transplanted, but also on the role of the different non-legal actors involved in the process.

June 27, 2010

Comparative Taxation and Legal Theory: The Tax Design Case of the Transplant of General Anti-Avoidance Rules

Carlo Garbarino

Page range: 765-790

Abstract

Among the different approaches to comparative tax law the one adopted here views comparative taxation as a descriptive tool conducive to tax design, a tax policy approach grounded in an evolutionary concept of tax change. Comparative taxation should be based on the functions of tax rules, with the goal of identifying similarities and differences between domestic tax systems, and should indicate potential alternative solutions to common policy issues by looking at how the basic elements of tax law-in-action interact. The Article develops a theoretical framework for comparative tax research and uses examples drawn from a comparative study on the General Anti-Avoidance Rule (GAAR) in Canada and China, thus endeavouring to provide a crosscultural inquiry into tax transplants across the divide of Western and non-Western legal traditions. It is claimed here that a common model of tax systems should be adopted for the purpose of comparing them, and that legal theory is needed to pursue this task. The use of legal theory as a critique of municipal tax ideas is discussed in Part I, while Parts II and III deal with how legal theory can be used to describe the structure and evolution of tax systems by relying on concepts of legal hierarchies and chains of productions of tax rules. Part IV concludes with practical applications of legal theory in comparative tax research in respect to tax transplants and tax design issues by providing an explanatory framework of General Anti-Avoidance Rules in Canada and China.

June 27, 2010

Tax Levels, Structures, and Reforms: Convergence or Persistence

Neil Brooks, Thaddeus Hwong

Page range: 791-821

Abstract

One of the central issues in comparative law and political economy is whether the forces of globalization will result in the convergence of public policies across countries. Noting in particular that taxes collected still cover a considerable range across industrialized countries — from a low of 20% of GDP to a high of 50% — some have argued that globalization has not resulted in a loss of tax sovereignty. However, following a review of the evidence, in this Article we conclude that globalization has had significant but subtle effects on tax levels and structures. Moreover, these pressures will make it increasingly difficult for countries to raise revenue to finance new public needs and to structure their tax systems in order to achieve a more socially acceptable distribution of income than what market forces dictate. Tax levels in most countries have remained essentially flat over the past twenty years, but there is a host of reasons for thinking they would have continued to rise were it not for the pressures of globalization. Statutory corporate tax rates have declined dramatically and, although corporate tax revenues have remained robust, this has been due to factors unrelated to deliberate tax policy choices. Personal marginal tax rates have also declined sharply and tax revenues have been increasingly raised by regressive consumption taxes. These trends stem from tax competition brought on by the forces of globalization, not from changing ideas or other political variables. In this Article we conclude that in order to prevent tax competition from completely eroding the ability of countries to fashion their own tax systems, there will have to be considerable cooperation among the major countries and some harmonization of aspects of their tax systems, particularly as they apply to footloose factors of production.

About this journal

Theoretical Inquiries in Law is devoted to the application to legal thought of insights developed by diverse disciplines such as philosophy, sociology, economics, history and psychology. The range of legal issues dealt with by the journal is virtually unlimited, subject only to the journal's commitment to cross-disciplinary fertilization of ideas. We strive to provide a forum for all those interested in looking at law from more than a single theoretical perspective and who share our view that only a multi-disciplinary analysis can provide a comprehensive account of the complex interrelationships between law, society and individuals.

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At present, Theoretical Inquiries in Law is ranked third for "impact factor" by the Washington and Lee most cited legal periodicals list in the "Jurisprudence and Legal Theory" category, ahead of such journals as Law and Social Inquiry, Law and Society Review, Legal Theory, Canadian Journal of Law & Jurisprudence and Oxford Journal of Legal Studies.