Academic

Mason & Knoll on Tax Discrimination

By Lawrence Solum

Ruth Mason (University of Connecticut School of Law) & Michael S. Knoll (University of Pennsylvania Law School; University of Pennsylvania - Real Estate Department) have posted What is Tax Discrimination? (Yale Law Journal, Vol. 121) on SSRN. Here is the abstract:

Prohibitions of tax discrimination have long appeared in constitutions, tax treaties, trade treaties and other sources, but despite their ubiquity little agreement exists as to how such provisions should be enforced or defined. This has led prior commentators to conclude that tax discrimination is an incoherent concept. In this Article, we draw on both traditional and modern economic theory to develop coherent guidelines for interpreting tax nondiscrimination to require, in the alternative, locational neutrality, leisure neutrality, or competitive neutrality. Furthermore, we argue that in common markets, like the European Union and the United States, the best interpretation of the nondiscrimination principle is that it requires competitive neutrality, which prevents states from putting residents at a tax-induced competitive advantage or disadvantage relative to nonresidents. We show that, contrary to the prevailing view, maintaining a level playing field between resident and nonresident taxpayers requires neither tax rate harmonization nor equal taxation of residents and nonresidents. Our approach produces simple rules of thumb that provide states and courts with clear direction in writing tax laws and evaluating challenges to those laws.

Highly recommended.

Full post as published by Legal Theory Blog on March 31, 2011 (boomark / email).