The Supreme Court’s decision not to review a major Ninth Circuit ruling that went against tech companies gave the Treasury Department a win, and could offer the department some hope as it faces increasing scrutiny of its tax regulations. The circuit court’s decision in Altera v. Comm’r upheld regulations that Apple, Google, and Facebook claimed would cost U.S. companies billions of dollars. That high-stakes win for Treasury demonstrates a potential limit to lawsuits alleging that the department didn’t follow proper procedures when issuing regulations. Experts still caution, though, that Treasury should be careful at a time when it faces increasing oversight...Stephen Shay, a senior lecturer at Harvard Law School and former Treasury official, cautioned, however, not to read too much into Treasury’s win. He pointed to Altera as well as a decision dealing with Treasury regulations from the 1960s in SIH Partners, LLLP v. Comm’r, as demonstrating that Treasury can win against challenges to regulations that were issued before the more modern understanding of how the APA applies. “But I’d be leery—I think agencies should be careful in what they would say is irrelevant,” he said. “One of the things that’s induced by this whole emergence, or reenforcement, of the Administrative Procedure Act process is that you’re better off at least touching most comments unless you’re very clear they’re off the wall.”
Pandemic Vexes Debate On Digital Taxes, Unprofitable Cos.
April 27, 2020
Discussions about how to tax online commerce were complicated enough during the economic expansion of the past 10 years, when the internet behemoths were assumed to be hugely profitable. The chaotic economic fallout from the novel coronavirus pandemic will turn that debate on its head, and it will force governments to accept that to raise revenue from digital activities, they'll also need to account for economic losses when those activities become unprofitable. Despite questions about whether governments can focus energy amid the crisis, the Organization for Economic Cooperation and Development remains committed to forging an agreement among nations on the issue by the end of this year. The pressure on countries to reach a deal, even as the task seems to grow more difficult by the day, has only increased as countries go deep into debt to fight the disease — and look to digital taxes as a way to climb out... “A tax on rents is designed to be a kind of painless tax, if there is such a thing,” said Stephen Shay, a tax professor at Harvard Law School. “The notion is that it taxes excess profits, which make them sound like they are not needed by the taxpayer. They increase the government's share when things are going well — and they go away when things are going badly.” Steep drops in revenue pose a larger threat to poorer countries and could make this new system less attractive to them, Shay said. “The countercyclical feature is great for rich countries that can borrow to cover fiscal deficits,” he said. “The feature for rich countries is a problem for poor countries that have no access to global capital markets and only can borrow from the World Bank and [International Monetary Fund].”
OECD director, tax experts, explore proposed “unified approach to pillar one” for taxing multinational groups
October 21, 2019
The OECD Secretariat’s proposed “unified approach to pillar one,” designed to encourage agreement among countries on how to rewrite the international tax and transfer pricing system to better account for digital business models, was the focus of the sixth annual Tax Sunday event, held October 20 in Washington, D.C. The meeting, co-sponsored by the International Monetary Fund and the World Bank Group, featured presentations and discussion by leading tax experts from OECD, government organizations, civil society, business, and academia. ... Professor Stephen E. Shay, Senior Lecturer, Harvard Law School, said it is a “fantasy” to believe the tax rewrite “is a 2020 process.” Shay said the OECD’s pillar one unified approach is devoid of details except that it does not apply to extractive industries. Thus, it is not possible to talk about any policy implications. The process should be slowed down so that policymakers can “get it right” for developing countries, Professor Shay said. He also said that each country should determine its own threshold for physical presence and should give away taxing rights only by tax treaty. Further, he noted that although extractive industries are excepted from the rules, these industries can also make use of tax havens.
Altera Asks Ninth Circuit to Revisit Landmark Tax Case
July 23, 2019
Altera Corp. is asking the Ninth Circuit to revisit a dispute with the IRS over taxes on assets shifted overseas, the latest development in a case that could have billion-dollar implications for multinational companies. The Intel-owned company is seeking an en banc review of a June 7 decision from a Ninth Circuit panel, which sided with the government. The three-judge panel found the Internal Revenue Service was able to require Altera to include stock option compensation to employees in a cost-sharing arrangement with its foreign subsidiary. ... Stephen E. Shay, a senior lecturer at Harvard Law School who focuses on international tax issues, said he doesn’t think the case merits an en banc review. “There is nothing new, unique, or obviously flawed in the panel’s application of the APA that would justify en banc review,” he said, referring to the Administrative Procedure Act.
The Internal Revenue Service is providing some relief for companies facing looming tax bills after they stockpiled trillions of dollars offshore free of U.S. income tax. A timing quirk in the tax overhaul seemed to give companies such as Apple Inc., Microsoft Corp. and Cisco Systems Inc. -- all of which began their fiscal years before Jan. 1 -- the chance to reduce the foreign cash they’ll accumulate this year and lower their taxes. A press release issued by the IRS on Monday indicates that “if done in the ordinary course of business,” the move won’t be considered as tax avoidance, according to Stephen Shay, a tax and business law professor at Harvard Law School. “The light is green for this planning, not red,” said Shay, a former top Treasury official. “It is great for those whose years beginning before 2018 are still open for the planning.”
Global Shipping Business Tied to Mitch McConnell, Secretary Elaine Chao Shrouded in Offshore Tax Haven
February 5, 2018
On June 6, 206, Majority Leader Mitch McConnell joined his wife, Elaine Chao, now the U.S. secretary of transportation, at a ceremony on the Harvard Business School campus to dedicate a new building emblazoned with the Chao family name. Funded by a $40 million gift from the Chao family and its foundation, the building would serve as a new hub for Harvard’s Executive Education program. But the family’s generosity appears to have come at the expense of taxpayers — the money, it turns out, would already have been in the public treasury had it not been sheltered from the government in complex offshore tax havens...The Marshall Islands’ corporate registry list both companies as still active. Stephen Shay, a tax expert and professor at Harvard Law School, said he does not believe that there would be anything illegal about a foundation’s public tax forms listing an offshore contributor at the address of its U.S. domestic parent company, although such a move “would not seem usual.”
A loophole in the new U.S. tax law could allow multinational corporations like Apple Inc to avoid paying billions of dollars in taxes on profits stashed overseas, according to experts...By manipulating their foreign cash positions, a determining factor under the new law, a U.S. multinational could potentially save money by shifting profits to the lower rate from the higher one, according to Stephen Shay, a senior lecturer at Harvard Law School...“This is clearly the result of rushed legislation,” said Shay, formerly a top Treasury Department tax official.
In Indiana, Missouri and Pennsylvania, President Trump used the same promise to sell the tax bill: It would bring jobs streaming back to struggling cities and towns...The bill that Mr. Trump signed, however, could actually make it attractive for companies to put more assembly lines on foreign soil...“Having such a low rate on foreign income is outrageous,” said Stephen E. Shay, a senior lecturer at Harvard Law School and a Treasury Department official during the Reagan and Obama administrations. “It creates terrible incentives.”
Trump promised ‘America First’ would keep jobs here. But the tax plan might push them overseas.
December 15, 2017
On the Friday before Thanksgiving, Kenny Johnson left the Nelson Global Products plant in Clinton, Tenn., for the last time. Having devoted nearly 13 years to making tractor-trailer exhaust pipes, Johnson, 41, spent some of his final weeks at the plant watching Mexican workers train to take his job...This was the kind of economic dislocation that President Trump vowed to prevent with his “America First” policies...“This bill is potentially more dangerous than our current system,” said Stephen Shay, a senior lecturer at Harvard Law School and former Treasury Department international tax expert in the Obama administration. “It creates a real incentive to shift real activity offshore.”
Republican Haste Warps Tax Bills
November 29, 2017
Any major tax bill has unintended consequences and hidden loopholes. But the current Republican tax effort just bristles with such potential miscues. It's a slipshod product, legislated with minimal transparency and analysis and with a premium on partisan politics. The Senate is slated to vote this week on a tax bill that's similar to the one the House passed on Nov. 16. Both call for huge tax cuts, primarily for corporations and upper-income individuals, with little, sometimes nothing, for many middle-class taxpayers. Both parade as tax reform, but do little to reorganize the tax system as the last real tax reform did in a bipartisan measure passed in 1986...Stephen Shay, a Harvard University law school lecturer, tax lawyer and former Treasury official, has predicted that the rushed legislation "will be rife with undiscovered loopholes that increase the windfalls and scope of the deficit." The Finance Committee did hold an Oct. 3 hearing, he noted, but it lacked substance and was "irrelevant except to permit the committee majority to say a hearing was held."
Haste on Tax Measures May Leave a Trail of Loopholes
November 14, 2017
“Slow down” is the last thing that supporters of the Republicans’ proposed tax overhaul want to hear...But the rush to “get it done” — particularly on the business side, where the most sweeping changes are planned — is alarming tax specialists who warn that new and unforeseen complexity, loopholes and glitches could come back to haunt tax collectors and taxpayers. “All of this is happening in an incredible rush, and frankly it’s absurd and incredibly poor governing to push a bill of this significance in the time frame they’re doing,” said Stephen E. Shay, a senior lecturer at Harvard Law School who worked in the Treasury Department during the Reagan and Obama administrations.
Leaked documents expose secret tale of Apple’s offshore island hop
November 7, 2017
...The ICIJ showed the findings from its investigation to J. Richard Harvey, a Villanova University law professor, and Stephen Shay, senior lecturer at Harvard Law School. In 2013, both of them gave detailed testimony on Apple’s previous Irish structure to the U.S. Senate committee’s investigation. They both told the ICIJ it appeared likely the iPhone maker had transferred intangible assets to Ireland...Shay added: “By using Irish intangible property tax reliefs, Apple likely will pay little or no additional Irish tax for years to come on income at Apple Operations International.”
Experts Plumb Complexities of International Tax Policy
October 19, 2017
Questions over the taxation of multinational corporations are putting strain on the relationship between the United States and the European Union, experts said at a Center for European Studies event Wednesday...The future of dialogue between the United States and the EU on tax issues has become more fraught in the wake of new international policies promoted by President Donald Trump’s administration, according to Stephen E. Shay, a senior lecturer at the Law School. “I think there is a lot of room for dialogue and for improving U.S. tax relations, but I’m not sure that the current administration is particularly interested in investing a lot of time and energy doing it,” Shay said.
One key question looming over the Republican tax proposal is how it will keep companies from fleeing the U.S., the same problem that has pressured Republicans and Democrats to seek action and that President Trump has frequently pledged to fix. The uptick in corporate "inversions" and foreign takeovers, turning U.S. companies into Canadian, Irish and English businesses, has proved the top incentive for Congress to take on the monumental effort of overhauling the tax code...Stephen Shay, a Harvard Law School tax expert and former corporate tax lawyer, noted that if the global minimum tax is applied to corporations' total overseas profits, multinationals could game the system..."People like myself in my prior career can blend high and low rates, and in some cases this will incentivize foreign investment," Shay told senators.
European Union regulators’ tax crackdown on Amazon.com Inc. -- like the EU’s case against Apple Inc. -- should spur U.S. policy makers to address companies’ aggressive offshore tax-avoidance strategies before it’s too late, experts said...The rate and formula for that tax haven’t been set, but experts note that the framework calls for it to be applied “on a global basis,’’ minus credits for foreign taxes paid -- suggesting that companies could blend their results from high-tax countries like Germany with low-tax countries like Ireland to even out their global effective rates. That wouldn’t do much to prevent profit shifting to tax havens, according to Harvard Law professor Stephen Shay, a former top U.S. Treasury Department official during the tax overhaul of 1986. Instead, Shay said during an appearance before the Senate Finance Committee Tuesday that a minimum tax should be calculated on a per-country basis, preferably at 80 percent of the corporate rate.
House tax chairman confident on reform, others less so
August 22, 2017
The top tax law writer in the U.S. House of Representatives insisted on Tuesday that tax reform will happen this year, despite concerns among some experts that a tax code overhaul could drag into 2018, or even collapse altogether. President Donald Trump is still seeking his first major legislative achievement and has focused on tax reform. But he has done little to advance it recently, amid constant distractions over Russia, North Korea and race relations..."The Republicans all agree on lower tax rates, just not on how to pay for them," said Stephen Shay, a Harvard Law School lecturer who advised on tax policy at the U.S. Treasury under former Democratic President Barack Obama. Shay put the odds of tax reform occurring before the November 2018 midterm congressional elections at 50-50.
Focus and Perspective in Taxation: Tom Brennan receives the Stanley S. Surrey Professorship of Law
April 13, 2017
In a lecture marking his appointment as the Stanley S. Surrey Professor of Law at Harvard Law School, Tom Brennan ’01 delivered a talk titled “Focus and Perspective in Taxation," which addressed the issue of defining economic ownership and also the issue of uncertainty in future tax rates.
Eight weeks ago President Donald Trump said he would be releasing a “phenomenal” tax plan within two or three weeks. But there’s no sign of a plan yet, and mixed signals from the White House are imperiling Republican promises of speedy action. The administration hasn’t yet publicly answered the most basic questions about what a possible tax reform plan would look like. Will it pay for itself with offsets or add to the deficit? Trump hasn’t said...“I don’t think there’s clarity yet on who’s running the train,” said Stephen Shay, a senior lecturer at Harvard Law School, who was a senior tax official at Treasury during the last big tax overhaul under President Ronald Reagan. Referring to the current administration, Shay said “there’s nobody inside who has the knowledge base to put together tax reform.”