Ius Gentium

University of Baltimore School of Law's Center for International and Comparative Law Fellows discuss international and comparative legal issues

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Getting Global Tax into Top Gear: Part III Formulary Apportionment in the Context of Bunker Oil Pricing Distortions

Julia Brent

In my two previous blogs (here and here), I defended a much-criticized theory of tax reform (“formulary apportionment” or FA), by examining tax dynamics in the oil industry in Russia and discussing FA broadly in the context of transfer-pricing regimes.   FA is a theoretical answer to the problem that multi-national corporations (MNCs) gravitate to low-tax areas and erode their tax base of origin.  This week, I examine the distortions in the Russian bunker oil industry that were likely brought about by the several tax regimes implemented in a short of period of time. I also assert that the ability to arbitrarily change tax rates on a whim is an entrenched feature for the Russian system.  The Putkin-led State Duma will likely find reasons to avoid FA, and a unitary system will not find its way to Russia, unless the theory takes hold in small increments.


The bunker oil market in Russia is a good industry to examine to see the effects of market distortion brought about by application of various tax structures.  Bunker oil is a product of initial crude oil extractions from the sub-soil.  Of all the products refined from crude (i.e. gasoline, kerosene, etc.), bunker oil quality is one of the most rough—just above asphalt.  It is used for marine fuel and in industrial heating units.[1]


In January, President Putin’s government increased the export taxes levied on bunker fuel under what was called the “Oil Tax Maneuver” (Nalogovyye Manevry Masla, нефтяные налоговые маневры).  The action forced lead bunker suppliers and exporters to significantly raise prices.  While the tax revenue total so far makes a solid contribution to the government need that has grown out of lowered oil prices, generally, the Russian bunker oil industry has taken a hit. Ports like Singapore, not under such a regime, can now offer marine fuel at a better price.  Unfortunately, bunkering traffic had just bloomed.  For example, the port of Nakhodka, Primorsky Krai, located in the Far East of Russia, had an increase in shipping from 600 vessels in 2013 to 1,800 vessels in 2014.   While most of these vessels called in port for cargo loadings, it is likely that all these vessels also bunkered (i.e. purchased marine fuel) at the same time.[2]  Provided all favorable factors fall into place, the region was on course to double its bunker sale volumes.[3]  Already in a price war with Malaysia,[4] Singapore is lining up to be a major bunker hub.  Suppliers are already using Singapore standards for operational standards and fuel quality.  Russia, meanwhile, in addition to raising the export tax on its own bunker oil, forbids “bunker-only” calls.  This has resulted in ship-owners buying small quantities of consumer goods, like mineral water, just to be able to call in port for, what was once, cheaper bunker fuel.  There are proposed regulations that would eliminate even this fix.  Russia is headed toward a significant decrease in the bunker fuel industry in the future because of these measures.  This is exactly the kind of market distortion that scholars and legislatures alike study to avoid, both on a state and international scale.

As discussed in my second blog, critics of FA state that the distortive effects of FA would be equal to that of properly designed transfer pricing regime, and for this reason claim that FA lacks legitimacy.  One proponent of FA states that an updated version would lead to formulary apportionment in the long-run.  However, a stable worldwide system is needed in the short-run to restore base erosions and prevent exploitation in the third world.[5]  At present, many other countries engage in need-of-the-moment legislation, as discussed in my first blog.  The dangers of this instability can be seen in the current bunker oil industry.

Constant change in a regulation system can create havoc, regardless of a regulation’s favorable or unfavorable nature.  In addition to complaining about the uncompetitive design, bunker oil traders are distraught, simply, at the multiple and arbitrary changes in the last few years.  One trader interviewed for this piece, Alain Georgiades, lives in Geneva and trades Russian bunker oil in the Black Sea.  “They are always issuing new regulations,” he said.  “It creates chaos.” Georgiades also pointed out that the industry is already twisted by the seasons.  “Shipping traffic thrives in summer but shuts down in winter when the Volga freezes,” he said.  “Now, they come in and grab their take in the summer when the traffic is the highest. We already struggling—unless a shipping company dominates the traffic, it’s very hard to squeeze in transportation during the summertime.”

JB Blog3 1

Gazprom Marketing & Trading’s (GM&T) newly delivered LNG carrier “Pskov” receiving bunkers (Heavy Fuel Oil and Marine Gas Oil) at the port of Nakhodka in the Primorskiy Region of Russia

SOURCE: http://www.gazprom.com/about/subsidiaries/news/2014/september/article200307/

This observation is important, not only to understand the impact of design and manner of execution, but also predict how likely Russia is to enter into bilateral or multi-lateral agreements instituting a unitary, apportionment structure.  Not only may Russia never formally adopt the new theory of FA based on its merits, but adopting any formal theory which would preclude an ability to be arbitrary may be out of the question.

The current tax structure in Russia was wrestled out of the grip of oligarchs under Putin’s leadership in the early 2000’s, continuing reforms that began in 1997.  The lack of a stable and predictable tax system was widely considered as one of the main reasons for the economic woes of the 1990s.[6]  Sweeping changes included a flat income tax reduced, from 30 to 13 percent, and a reduced corporate tax, from 35 to 24 percent.[7]  The government started applying the new tax laws to big enterprises, especially the oil and gas companies, which had previously enjoyed individually negotiated taxes.[8]  Many enterprises changed ownership, which revived them.  Senior owners were forced to sell to young, ambitious entrepreneurs for a song.[9]  The economy revived.  These changes were created, and helped create, a ruthless leadership.  The intensity of the current leadership is notorious.  A certain military leader said of Putin, “He’s ugly, he’s ruthless, he’s vicious, and I don’t like him at all, but he’s brilliant. He’s got a long-term strategy and his goals are clear.”[10]  Putin began running the country when corruption pervaded every business and top institution.  The country was filled with “parasitic companies and banks that split profits among themselves.”[11]  Now, not only does the current leadership strong-arm the system to match its current needs, the upheaval of the previous decade has set the tone.  The constant and sweeping change that preceded the current prosperity has made it easy and normal to make radical change, as evidenced in the bunker oil world, the very thing Putin sought to change at the beginning of his political tenure.  While FA may ultimately be consistent with Russia’s long-term goals, the path to FA in Russia will likely be uphill.

Julia Brent is a third year law student at the University of Baltimore, focusing on International Tax (candidate for J.D. 2016). Julia graduated from the University of Hawaii with a B.A. in political science. As a CICL student fellow, she is interested in the tax impact of cross-border transactions on medium to large businesses. Julia has extensive experience in the management of high volume cases, including handling distributions related to a multi-million dollar art estate and managing all expert witness contracts for the Savings & Loan (WINSTAR) litigation, a $30 billion dispute involving 125 cases, on-site at the Department of Justice.

[1] http://www.kittiwake.com/fuel_terminology

[2] http://www.platts.com/latest-news/shipping/petropavlovsk-kamchatsky/higher-export-taxes-on-russian-fuel-oil-to-impact-27225677

[3] http://shipandbunker.com/news/emea/873024-higher-fuel-export-taxes-may-lead-to-russian-bunker-price-hike

[4] http://shipandbunker.com/news/apac/898912-malaysia-takes-on-singapore-with-aggressive-oil-plan

[5] http://www.taxpolicycenter.org/briefing-book/key-elements/international/formulary-apportionment.cfm; http://www.taxjustice.net/wp-content/uploads/2013/04/TJN-Briefing-BEPS-for-Developing-Countries-Feb-2014-v2.pdf

[6] http://www.awaragroup.com/introduction-tax-guide/

[7] http://www.iie.com/publications/papers/paper.cfm?ResearchID=974

[8] Id.

[9] Id.

[10] http://insider.foxnews.com/2015/09/28/ralph-peters-vladimir-putin-ugly-ruthless-vicious-brilliant

[11] Bruno Sergi, Misinterpreting Modern Russia: Western Views of Putin and His Presidency Ch. 10 (1990).


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Getting Global Tax into Top Gear: Part II Formulary Apportionment in the Context of Transfer-Pricing Regimes

Julia Brent

In my first post, I defended a much-criticized theory of tax reform,[1] called “formulary apportionment (FA),” by examining two tax dynamics in the oil industry in Russia.  My conclusion was that the potential for market distortion when implementing a tax regime is so high that to cite that possibility as a weakness of FA is an over-generalized attack, and therefore invalid.  I also pointed out that the industry chose to reinvest in low-return crude oil rather than investing in refinery upgrades during the time taxes had been lowered on crude oil exports.  This example of “short term thinking” supports the premise of FA, namely that multi-national corporations (MNCs) gravitate to low-tax areas, even against their own long term interests.  This week, I address another attack leveled at FA: that FA is weak in comparison with a solid modificaiton of the current system that allows transfer pricing.  There are two variations of this critism, first in the form of a scholastic opinion from Professors at the University of Michigan Law. They say if the current system of residual taxation in the U.S. were properly applied, FA would not hold its own when stacked up against a “properly applied” worldwide regime.[2]  The second variation is in the form of an actual proposal by the OECD, which makes recommendations to modify, but still keep, the current separate entity approach based in transfer pricing.[3]  Credible advocates of FA cite the weakness of both the “properly applied” plan and the OECD proposal as efforts to ‘tweak’ a system that will still support aggressive profit-shifting.  Interestingly, some believe that implementation of the OECD proposal will actually result in an eventual adoption of FA.[4]

A few readers may be aware of the groundswell toward international reform driven by the highly-distortive market effects of transfer pricing.  If you aren’t, here is short version.  Business dealings across boundaries raise the question—what income will be taxed by which government? The current system for most MNEs is to employ “the arms-length” method, which permits transactions between parent and subsidiary companies (“transfer-pricing”), though located in different countries as independent, taxable events.

JB Blog2 1

Tax credits to prevent double taxation would apply in accordance with the applicable international treaties, and the tax bases can be aggressively affected as corporations seek to maximize after-tax profits by constructing the transactions in such a way that income shows up in low or zero tax countries.[5]  FA, a “unitary” system, regards a company as a single unit, and then formulates  a top-down division of its income into countries based on agreed-upon factors.[6]  The goal of the reform is to prevent base erosion and eliminate complexity.

Some scholars claim that if the U.S. had proper enforcement and clarity in the law regarding its residual tax, the value of low-taxed foreign-source income would be neutralized.  U.S. residual tax is the liability applied to the balance of income not covered by a foreign tax credit.  At present, deferral and cross-crediting features of the U.S. system allow its residual tax to be eliminated or substantially reduced.   Ideally, tax would be imposed on low-taxed foreign income of U.S. residents as the income was earned, thus removing the impetus to defer the repatriation of foreign income.  While still seeing some distortion, it cancels FA as a unique solution, since both (the well-enforced system and FA) would run about neck-in-neck with negative, distortive effects of base eroding deferrals and cross-crediting.[7]   A properly applied system, it is argued would make the U.S. a true “territorial” regime, whereas with deferrals, cross-crediting, and other features of the U.S. system make it so badly flawed that it is not a true worldwide regime.

However, Joseph Stiglitz, a Nobel-prize winner and one of the most outspoken critics of global economic inequality recommends scrapping the arms-length principle.  He argues that small tweaks will not prevent aggressive, artificial moves of earnings and profits to low-tax countries.  For example, the evolution of intangibles in a global, digital economy makes the arm-length pricing impossible.  Where the cost of a barrel of oil for the purpose of an arm’s length transaction can be determined using “comparables,”  one cannot fix a comparable for an iPhone in which the camera feature alone has 279 patents.[8]  Another downside, he states, is that countries who lack the ability to keep up with high-stakes profit manipulation are exploited.[9]  It is hard to imagine Eritrea coming out as a winner against a Pfiezer or a Siemens!

Drafters of the OECD current proposal for model rules and treaty creation doubt that FA’s formula-based system would encourage investment decisions that are more efficient and tax-neutral than under a separate entity approach.  The Secretary-General of the OECD states its  proposal will drain the motivation to shift profits by re-aligning taxation with economic activity and value creation and put an end to double non-taxation.[10]  For example, the proposal kicks-off negotiations towards synchronicity within the global network of bilateral tax treaties with the goal of implementing treaty-based BEPS measures.[11]

Critics of the OECD proposal argue that “Luxleaks-type” tax avoidance facilitated by tax rulings is still possible.  Implementation of the proposal will not only not eliminate the practice of using secret tax rulings, it will increase the complexity of the international tax system.[12]

Surprisingly, some experts claim that certain approaches called for by the OECD may have an unintended consequence:  specifically, regarding the proposed call for country-by-country reporting for taxpayers and that income be tied to “significant people functions” (a way to apply tax to non-financial services sector).[13]  These experts assert that these OECD proposals will incentivize a formulary approach among multinationals.[14]  To the extent a boots-on-ground implementation of the OECD requirements begins, we may see a move to a formulary system, even absent a comprehensive overhaul.

In my next blog I will discuss how the recent Russian bunker oil pricing continues the global tax reform analysis. Stay tuned!

Julia Brent is a third year law student at the University of Baltimore, focusing on International Tax (candidate for J.D. 2016). Julia graduated from the University of Hawaii with a B.A. in political science. As a CICL student fellow, she is interested in the tax impact of cross-border transactions on medium to large businesses. Julia has extensive experience in the management of high volume cases, including handling distributions related to a multi-million dollar art estate and managing all expert witness contracts for the Savings & Loan (WINSTAR) litigation, a $30 billion dispute involving 125 cases, on-site at the Department of Justice.

[1] J. Clifton Fleming, Formulary Apportionment In The U.S. International Income Tax System: Putting Lipstick On A Pig?, 36 Mich. J. Int. L. 1.

[2] J. Clifton Fleming, Formulary Apportionment In The U.S. International Income Tax System: Putting Lipstick On A Pig?, 36 Mich. J. Int. L. 5.

[3] http://www.oecd.org/ctp/beps-2015-final-reports.htm

[4] http://www.bna.com/voice-formulary-apportionment-b17179891148/

[5] http://www.taxpolicycenter.org/briefing-book/key-elements/international/formulary-apportionment.cfm

[6] http://www.bna.com/voice-formulary-apportionment-b17179891148/

[7] J. Clifton Fleming, Formulary Apportionment In The U.S. International Income Tax System: Putting Lipstick On A Pig?, 36 Mich. J. Int. L. 5.

[8] http://ip-science.thomsonreuters.com/m/pdfs/iphone-report.pdf

[9] http://www.bna.com/voice-formulary-apportionment-b17179891148/

[10] https://euobserver.com/economic/130565

[11] https://www.asil.org/insights/volume/19/issue/24/emergence-new-international-tax-regime-oecd’s-package-base-erosion-and

[12] https://euobserver.com/economic/130565

[13] http://www.pwc.com/us/en/transfer-pricing-strategies/assets/transfer_pricing_and_permanent_establishments_oecd_view.pdf

[14] http://www.bna.com/voice-formulary-apportionment-b17179891148/

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Governmental Media Regulation: U.S. vs. Bhutan

Raiven Taylor

As we all know, the media is used to spread the most recent news and current events. What many people do not know is that the media have rules and regulations they must follow in order to stay on TV and/or the radio. Many rules that regulate the media differ from country to country. Although the U.S. Constitution’s First Amendment guarantees the right to freedom of the press, usually with minimum regulations, other countries, such as Bhutan, which will be explored in this blog, do not have such freedom.

The U.S. gives most leeway to print media, such as newspapers, magazines, and flyers.[i] The only real regulation for print media is to deter defamation. [ii]  Defamation happens when untrue information is printed that may cause harm to someone.[iii] Defamation can be either written (libel) or communicated verbally (slander). Broadcasting media are a little more regulated than print.


Broadcasting media are also regulated against defamation. In fact, broadcasters and their networks can be sued for slander.[iv] Broadcasting is also heavily regulated by the Federal Communications Commission (FCC).[v] The FCC polices the content of the airwaves and has the authority to fine or revoke broadcasting licenses for violating any of the following: broadcasting obscene programs at any time, broadcasting indecent programs during certain hours, or broadcasting profane language during certain hours.

Having regulations on the media could eventually spill into social media. However, to date, the U.S. has only come up with basic regulations on social media, such as the right of privacy, how one may create social media policies, and protocols for marketing on social media.[vi] Because social media is a growing media source, it has been very hard for the government to regulate.


On the other hand, Bhutan has more restrictions on media outlets. Even though Bhutan claims to have a Constitution allowing free speech and opinion, Bhutan has an Act that prohibits criticism of the king as well as anything that may undermine or attempt to undermine the security and sovereignty of Bhutan.[vii] The government even restricts and censors topics that involve Nepali-speaking residents having to leave Bhutan.[viii] Many of the media outlets hesitate to push the limits of the regulations because the media depends on the government for funding and support.[ix]

Bhutan is a country that is far behind the times on Internet and television, both of which arrived in 1999.[x]  Even though Bhutan was behind the times, almost 10% of their population is on social media.[xi] Social media gives the Bhutanese an outlet to express their own opinions and views and changed the idea of criticizing the government, giving the younger generation an opportunity to have an opinion. [xii] However, due to the growth of social media and the presence of the population on social media in Bhutan, the government decided in 2014 to draft policy on the use of social media.[xiii]


The government agreed that a huge benefit of having a social media policy would be for the government to engage its citizens and officials in the use of social media to share government information as a developmental tool for social, economic, and political change.[xiv] Discussions concerning social media use in Bhutan have even led to the idea of incorporating curriculum in the schools to have a social media component.[xv] Even though the Bhutanese government may appear to support the idea of social media and is not trying to regulate social media, the government has created guidelines one must follow when using social media. These include the requirement to be accurate, to never post anything malicious or misleading, to respect the Constitution and all laws, and to act in good judgment.[xvi] These are many things that young people do not think of when posting their opinions.

Given an option between the United States and Bhutan, I would choose to use social media in the U.S. The U.S. may regulate TV, radio, and print, but it does not regulate it in a way that would affect one’s rights. The U.S. can write, state, or show on TV what’s going on in the government, even if they disagree with what the government is doing. On the other hand, Bhutan regulates its media outlets in a way that only shines light on the government’s positive aspects instead of the negative. The Bhutanese government does not allow its citizens to share their opinions if they disagree with what the government is doing. While beneficial to maintaining the status quo in Bhutan, this restriction of rights affects the rights of the media and Bhutanese citizens alike.

Raiven Taylor is third year law student at the University of Baltimiore School of Law and is completing her concentration in International Law. She has an undergraduate degree in Political Science from Bowie State University. She has studied abroad in London, England and Clermond-Ferrand, France. She is an Senior Staff Editor for the Journal for International Law as well as Secretary for the International Law Society. Additionally, Raiven is a Rule 16 student attorney in the Immigrant Rights Clinic. Her passion and interest in international law is human trafficking and international human rights law.

[i] http://study.com/academy/lesson/rules-governing-the-media-definition-examples.html

[ii] Id.

[iii] Id.

[iv] Id.

[v] Id.

[vi] http://blogs.forrester.com/nick_hayes/13-07-31-five_common_legal_regulatory_challenges_with_social_media

[vii] https://freedomhouse.org/report/freedom-press/2013/bhutan

[viii] id.

[ix] Id.

[x] http://www.bbc.com/news/world-asia-25314578

[xi] Id.

[xii] Id.

[xiii] http://www.undp.org/content/bhutan/en/home/presscenter/articles/2015/01/14/bhutan-forms-its-first-social-media-policy.html

[xiv] Id.

[xv] Id.

[xvi] http://www.gnhc.gov.bt/wp-content/uploads/2011/05/RGoB-Draft-Social-Media-Policy.pdf


Getting Global Tax Into Top Gear:  How Russia’s New Oil Tax Regime Supports the Case for an Old Reform Theory

Julia Brent

The global tax system needs an overhaul.[1]  The growth of international opportunity has created a danger for the economic health of many countries in the form of tax base erosion. Multi-national companies (MNCs) raise revenues by using domestic tax laws to shift profits in a system that puts investors in the dark, hinders compliance, and encourages peculiar, need-of-the-moment legislation.  Examples of such piecemeal legislation include the current U.S. Senate proposal for a temporary 6.5 percent repatriation tax holiday to fund highways[2] or Belgium’s 2016 proposed “Diamond Regime,” which eliminates the ability to carry forward losses of the MNCs of that industry.[3]

Reform is needed. One much-criticized theory of reform, called “Formulary Apportionment” (FA), still holds its ground in scholastic circles,[4] and this paper attempts to defray a criticism that FA potentially distorts the market, and therefore should be dismissed. FA would restructure a MNC’s taxes so that it pays income in a country based on a formula-based fraction of total income. The goal of FA is to repatriate income that has gravitated to low-tax countries and, in so doing, has undermined the local tax base.  Russia’s new tax regime weakens the criticism of FA in a surprising way: Russia’s recent attempts to create a growth-oriented tax system resulted in negative market distortion despite their best efforts.  This example negates dismissing the theory of FA reform out of hand on the basis of a difficulty faced by tax systems generally.  In addition, the reason for the market distortion in Russia supports FA, in that during the post-2000 tax regime, the oil industry went against its own interests and gravitated toward low-tax products, actions that would have undermined the industry base but for other factors. [5]

JB 1

FA reform is based on a formula-based fraction of total income (sales, payroll, and capital stock), with the fraction tied to the geographic point of sale.  In the U.S., MNCs currently determine their profits separately in each operational jurisdiction, while goods or services are sent all over the world.  A system of FA would replace this separate accounting method.  For example, a MNC would pay U.S. taxes only on the share from its total income that is allocated to the United States.

A move to FA would noticeably reduce incentives to shift economic activity or income to low-tax countries, and by treating similar firms in a uniform fashion, regardless of where they are incorporated, would eliminate much administrative complexity.  The theory, however, has been regarded as having many faults, most of which center around the hazards of applying the method in the current environment of different systems and different currencies.  One stand-alone criticism, and the subject of this blog post and the two subsequent posts over the next weeks, is that there would be problems in violations of a commitment to a growth-oriented tax system that minimizes the distortions of market signals (the stated OECD goal for tax reform among OECD nations).[6]  However, it could be argued that the FA method of taxing based on geographic location of sales would likely support growth because it allows for a “local” government, which is closer to the source income, to potentially promote the industry with careful tax design.

Russia’s new tax regime has such a goal for its oil industry; policy-makers’ desire to stimulate upgrades in its oil refineries. Russian refineries were originally built to satisfy the demands of the Soviet industry, and, as of 2000, produced large volumes of fuel oil, low-quality diesel, and low-octane gasoline.[7]  Its crude was mostly processed to be fuel oil for domestic heating needs.[8]  Now, the market has a permanent demand for the higher flashpoint fractions, i.e., high-octane gasoline, petrochemical feedstock, and jet fuel.[9]  In 2000, the government took on configuring a “growth-oriented tax system,” one that would not only encourage refinery upgrades, but also satisfy the needs of the government, since thirty-two percent (32%) of Russian government revenue comes from oil-extraction taxes.[10]

JB 2

To stimulate refining depth, Russia implemented the equivalent of a micro-version of FA when applied to the Vertical Integrated Oil Companies (VIOCs) (the “well to pump” large companies, like Royal Dutch Shell or Exxon).  The oil industry has two sectors generally, “upstream” and “downstream.” The first refers to all aspects of lifting crude from a field, and the second refining the crude (either by straight run or the more processing-intense ‘cracking’) to produce valuable products like gasoline.  Refineries, obviously, are part of the downstream sector.   Russia chose to structure its tax burden evenly between the upstream and downstream sectors, in the hopes of creating cross-subsidy between upstream and downstream segments, providing significant impetus to refineries, including primary processing plants.  This it did by lowering export duties on oil products, and pricing crude oil domestically as a function of export netback price.[11]  “Netback” subtracts the costs associated with bringing one unit of oil to the marketplace from all of the revenues from the sale of all the products generated from that same unit.  By basing the tax regime on the concept of “netback” and then working backward to figure tax on a fraction that is tied to sector, this is similar to the structure of FA when applied to the microcosm of a VIOC.

The result was that since the year 2000, the total output of Russian refineries has risen from 190 million tonnes to 302.5 million tons, with VIOCs accounting for 57% of increased volume.[12] In only eight years, from 2005 to 2013, total downstream investments by domestic VIOCs soared from US$1.4b to US$10b, with investments over the past three years rising by US$2.3b*.[13]

JB 3

An interesting aspect in this result was that the initial response by the VIOCs was to use the savings on exports to just do more of what they were already doing, i.e. producing low grade oil products.  Although dashing the hopes of Russian policymakers, the tax maneuver indirectly drove refinery upgrades as the extra funds were available as VIOCs responded to market pressure by ultimately upgrading the refineries.

Though the result appears to strengthen the criticism that FA results in negative market distortion, it actually undermines the criticism for two reasons. First, by virtue of the fact that distortions simply happen despite efforts to the contrary: a favorable tax environment was and is seen in Russia as a crucial driver of investment activity in the downstream segment.  A general attack discounting FA as a legitimate theory for this reason is inadequate at best, since FA is such a large system reform.

Second, the Russian cross-subsidy example supports the FA reform broadly in an unexpected way.  FA advocates assert that the current system generates a large tax incentive to earn income in low-tax countries, and multinational firms respond by earning disproportionate profits in low-tax locations.  In the Russian example, even though it was in the VIOC leaders’ best interests to upgrade refineries – and there were many upgrades that were financially feasible – when faced with the lowered duties on exported oil products, rather than upgrading, producers gravitated toward the low-taxed products in their own industry.

In my next blog I will discuss how the recent Russian bunker oil pricing continues the global tax reform analysis. Stay tuned!

Julia Brent is a third year law student at the University of Baltimore, focusing on International Tax (candidate for J.D. 2016). Julia graduated from the University of Hawaii with a B.A. in political science. As a CICL Fellow, she is interested in the tax impact of cross-border transactions on medium to large businesses. Julia has extensive experience in the management of high volume cases, including handling distributions related to a multi-million dollar art estate and managing all expert witness contracts for the Savings & Loan (WINSTAR) litigation, a $30 billion dispute involving 125 cases, on-site at the Department of Justice.

[1] http://www.cnbc.com/2014/01/21/global-tax-system-needs-overhaul-say-ceos-at-davos.html

[2] http://www.economics21.org/commentary/portman-schumer-international-corporate-tax-reform-07-20-2015

[3] http://www.pwc.be/en/news-publications/news/tax-reform.html

[4] http://www.taxpolicycenter.org/briefing-book/key-elements/international/formulary-apportionment.cfm

[5] http://www.irishtimes.com/news/world/europe/russia-forecasts-recession-as-oil-price-slump-takes-toll-1.2048933

[6] https://www.osler.com/en/resources/regulations/2013/oecd/oecd-g20-international-tax-reform-potential-impac

[7] http://www.ogj.com/articles/print/volume-98/issue-13/special-report/refinery-upgrades-essential-to-russian-recovery.html

[8] http://www.ey.com/Publication/vwLUAssets/EY-Russias-downstream-sector-sights-set-on-modernization/$FILE/EY-Russias-downstream-sector-sights-set-on-modernization.pdf

[9] https://www.iea.org/oilmarketreport/omrpublic/

[10] http://www.ey.com/Publication/vwLUAssets/EY-Russias-downstream-sector-sights-set-on-modernization/$FILE/EY-Russias-downstream-sector-sights-set-on-modernization.pdf

[11] http://www.ogj.com/articles/print/volume-98/issue-13/special-report/refinery-upgrades-essential-to-russian-recovery.html

[12] http://www.ey.com/Publication/vwLUAssets/EY-Russias-downstream-sector-sights-set-on-modernization/$FILE/EY-Russias-downstream-sector-sights-set-on-modernization.pdf

[13] http://www.ey.com/Publication/vwLUAssets/EY-Russias-downstream-sector-sights-set-on-modernization/$FILE/EY-Russias-downstream-sector-sights-set-on-modernization.pdf