Episode 3: Taxing Big Tech and the Future of International Tax

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RISA GOLUBOFF: Hi and welcome to Common Law, a podcast from the University of Virginia School of Law. I'm Risa Goluboff, the dean.

LESLIE KENDRICK: And I'm Leslie Kendrick, the vice dean. This is the third episode of our new podcast. And as we've mentioned before, we're devoting this season to the future of law. Today, we're here with a special tax season episode. And that's because as you may or may not know, we happen to be at a turning point in tax law that could have big implications for the future.

RISA GOLUBOFF: That's right, Leslie. And as we'll see, that turning point concerns international taxes that are or as is often the case not levied on big corporations. I'm talking about tech giants like Google, Facebook, and Apple, who recently have found creative ways to use international subsidiaries to maximize their profits by minimizing the taxes that they're required to pay.

For a long time, this seems to have worked out fine not only from their perspective of avoiding taxes but also for governments in the countries where those companies were doing business. There was something in it for them too. But that happy arrangement started to change when about a decade ago, the financial crisis hit.

LESLIE KENDRICK: Fast forward to this spring, when representatives of countries from around the world have been meeting in Paris to try to work out a new and potentially fair way of arranging international taxation. They're doing this under the auspices of the Organisation for Economic Co-operation and Development or OECD, which is composed of 37 member countries that include the United States. At the same time, some European countries have been making changes to their own tax laws to target big, multinational companies.

RISA GOLUBOFF: Many of which, of course, happen to be US companies.

LESLIE KENDRICK: That's right.

RISA GOLUBOFF: So there's a lot in play here. And fortunately, we have a guest today who is extremely knowledgeable about these matters. She's on our faculty here at UVA Law. And she's here with us today to help us understand what's at stake. Ruth Mason is an expert in cross-border taxation and especially EU taxation, European Union taxation. At UVA, she teaches courses in international and comparative tax law. And she's been following the OECD negotiations. And she recently published an article on TaxNotes co-authored with Leopoldo Parada on some of the tax proposals coming out of individual European nations.

LESLIE KENDRICK: Ruth, thank you so much for being here.

RUTH MASON: I'm happy to be here, thanks.

RISA GOLUBOFF: So let's begin with what's happening now. What are all these countries doing in Paris this spring other than enjoying Paris in the spring?

RUTH MASON: OK, so the countries go to Paris because that's where the OECD is and--

RISA GOLUBOFF: And the good food.

RUTH MASON: And the good food

[LAUGHTER]

RISA GOLUBOFF: And croissants.

RUTH MASON: And so representatives of the OECD member countries meet there to, we hope, agree on how to modify the international tax system for a new century. So the international tax regime we're working with now originated in the 1920s. I'm not a historian. But I don't think you need to be one to know--

RISA GOLUBOFF: That's a long time ago.

RUTH MASON: Right? Things have changed. The global economy has changed since the 1920s. In the 1920s, the rules they set up then made sense then. So the basic rule that's at issue now is the rule that governs the taxation of business profits. So if you're a US company, and you have some kind of operation abroad, when does the other country get to tax? And the answer to that that was given in the 1920s was that the source country, the country where the operations are, gets to tax but only if there's nexus.

LESLIE KENDRICK: What's nexus?

RUTH MASON: Yeah, so nexus required physical presence, which in 1920 made sense.

LESLIE KENDRICK: And when you say physical presence, you mean in 1920 terms, it's a store front, an actual operation, not your products but part of your business functions?

RUTH MASON: Yeah, so a sales agent, a factory, an office, some physical manifestation of your enterprise in that source state.

RISA GOLUBOFF: Now we live in a digital world? [LAUGHTER]

RUTH MASON: Fast forward, and you can have companies that are deeply integrated into the economies of states without having any physical presence there. Google, Apple, Facebook, Amazon, Apple has stores, right? But Google doesn't have any stores. Facebook doesn't have any stores.

And so the nexus requirement being tied to physical presence just doesn't seem to fit the global economy anymore. So one question is how can we change that? How can we change that nexus rule? And I think there's pretty widespread agreement that that rule has to change. And then there's a second question, which is suppose we change the rule. How do we attribute profits to the presence that's there?

LESLIE KENDRICK: Yeah, I mean, what are we defining as a presence now? If it's not the old rule, what is it that we're going to replace it with?

RUTH MASON: So now that is an open question. We don't have an answer to that question. But it could be things like a certain amount of sales. Europeans are looking to Wayfair, which is a case decided by the US Supreme Court last term.

RISA GOLUBOFF: Yeah, so tell us about that case.

RUTH MASON: Europeans love Wayfair because they take it to stand for the proposition that the US Supreme Court is on board with the idea of taxing non-resident companies that lack a physical presence in a particular state. So that's not actually an entirely accurate reading of the Wayfair case.

The Wayfair case was about whether out-of-state companies that lacked a physical presence in a state could be required to collect sales taxes on behalf of the consumer. So the liable person for a sales tax is the consumer. But you can't-- if the consumer-- if Amazon doesn't collect the tax on a sale into a state, that tax just doesn't get collected at all. The consumer is not going to file a use tax return to report the tax that it owes on its Amazon purchase. So it's really important--

RISA GOLUBOFF: So the regulators are dependent on the companies to collect those taxes.

RUTH MASON: Completely.

LESLIE KENDRICK: And Wayfair sells like furniture and stuff like that. Is that right?

RUTH MASON: Yes.

LESLIE KENDRICK: It's like an online sales outlet. And so the question was whether they had to collect the sort of state sales tax on its sales in places where they don't have a presence.

RUTH MASON: So the decision in Wayfair is that it does not violate the Dormant Commerce Clause for a state to require an out-of-state seller to collect sales tax at least given the particular features of this state's rule, which was that you had to have a certain amount of sales in the state. So these kinds of thresholds, Europeans are looking at these thresholds as a potential new nexus rule.

RISA GOLUBOFF: So Europeans are looking at Wayfair as a model for how you can identify nexus in the absence of physical presence.

RUTH MASON: Potentially.

LESLIE KENDRICK: So before we get to that how they might actually end up doing all this, let's take a step back and talk about how they got here. Can you talk to us about what motivated governments to sit down in Paris and finally try to take on corporate tax avoidance?

RUTH MASON: So the immediate cause is the 2008 financial crisis. But this controversy has been brewing for a long time. So before the crisis, basically countries' attitude towards corporate tax avoidance was one of indulgence. So the United States is a big residence country, lots of corporate headquarters here, lots of companies reside here. The US attitude was it's OK if you defer your taxes.

LESLIE KENDRICK: And when you say defer, what do you mean by that?

RISA GOLUBOFF: What do you mean?

RUTH MASON: Yeah, so the US ostensibly has a tax rate, at this time, a worldwide tax rate of 35%. It's a very high rate. It doesn't have that a high rate anymore [INTERPOSING VOICES] after the 2017 reform. But in 2008, we had a 35% corporate tax rate, which is really high compared to our trading partners. And that tax applied to profits that were earned in the United States or profits earned abroad if they were remitted back, for example, to the parent company as a dividend or if they were certain kinds of passive income that were presently taxable in the United States.

But active foreign source income has always been exempted. So sort of the first job of every corporate tax director was avoid the US, right? That was job number one. And so you would do this by shifting income from the United States to other countries. So take a concrete example. Suppose you're Apple. Apple would establish a subsidiary abroad and transfer to the subsidiary IP and--

RISA GOLUBOFF: Intellectual property.

RUTH MASON: Intellectual property. And intellectual property is earns income. And if the intellectual property is outside the United States, then under US law, so is the income, that active income. And it's deferred from US tax until the subsidiary distributes in the form of dividends the profits up to the US company.

RISA GOLUBOFF: And Apple gets to decide when that happens and so thereby defer taxes as long as it wants.

RUTH MASON: Indefinitely. So you had all these US companies that were shifting their intellectual property offshore thereby shifting their income offshore, typically into very low tax states. And so if you're a company like Apple-- but this is typical-- you would put the rights to your intellectual property that corresponded to the rest of the world in say an Irish incorporated company. So you would still be liable in the US for your US sales. There's no way to avoid that. But your sales for the rest of the world can at least be earned offshore in the first instance.

So that was job number one. Get income out of the United States. Then a second-- it's the second problem of the tax director. The second challenge is how do you get the income out of all the other relatively high tax states and into your lowest tax subsidiaries. So step one is shifting the intellectual property, shifting the profits abroad. Step two is base erosion.

LESLIE KENDRICK: What's base erosion?

RUTH MASON: So base erosion is suppose you sell an iPhone in Germany. Well, Germany's got a real tax rate. You'd like to avoid it. So your income consists of the sales price that the final consumer paid for the phone. That's a fixed market price. You charge as much as you think the market will bear for that phone. That's fixed. So you work on the other end, your deductions. The higher your deductions, the higher your costs of goods sold, the less income you leave in Germany.

LESLIE KENDRICK: So that's the base erosion.

RUTH MASON: That's the base erosion. So your German subsidiary buys that phone from your Irish subsidiary. The cost of the phone you sold should be high for your German subsidiary because that has the effect of shifting income into Ireland, which has lower taxes. But if you're Apple, you might think, well, Ireland's taxes are lower than Germany's taxes. And they're lower than the taxes in the United States. But it's still 12 and 1/2%.

RISA GOLUBOFF: I still don't want to pay Ireland's taxes either.

RUTH MASON: Can we do better. [LAUGHTER] So what Apple did to do better than 12 and 1/2% was, remember, the US tax residence rule is place of incorporation. The Irish tax residence rule is where are you managed and controlled. So Apple incorporated companies in Ireland but managed and controlled them from the United States.

RISA GOLUBOFF: Thereby not having tax liability in either country.

RUTH MASON: Bingo.

LESLIE KENDRICK: Well, that sounds like a loophole. [LAUGHTER]

RUTH MASON: Stateless companies.

RISA GOLUBOFF: And unlike stateless individuals, that's a good thing.

LESLIE KENDRICK: Exactly. So Apple figured out a way not to have to pay tax in either place. But it sounds like for a while, everyone was more or less fine with that. Is that right?

RUTH MASON: So some part of this could be they didn't know. That is each country knew what tax it was collecting. But nobody had the global view. Every country is kind of looking out for its own tax system, its own taxpayers. But at the same time, there are many tax systems functioning at the same time. So motivated by crisis, countries start bringing in corporate executives to talk about tax planning, right?

Because they're facing budgetary shortfalls. They're looking for more tax. And ordinary people are feeling the pain of the crisis. And so if they're going to get more tax, they want it to be from corporations. So the US Senate investigates not only Apple but several other companies. And the UK Public Accounts Committee investigated Amazon and Starbucks. And so you had all these corporate executives being called before parliament and before the Senate and being ask direct questions about their tax planning.

RISA GOLUBOFF: So we have a clip of that. So let's listen. We're going to hear the CEO of Apple, Tim Cook, and he's being questioned by the late Senator John McCain. You'll hear them referring to AOI and AOE and ASI. And all those are Apple subsidiaries.

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- Can you please state for the record where AOI, ASI, and AOE is a tax residence?

- Yes, sir. My understanding is there's not a tax residence for either-- for any of the three subsidiaries that you just named.

- Does that sound logical?

- Well, again, as I look at it, the ASI and AOE are paying Irish taxes. And so I'm not-- I personally don't understand the difference between a tax presence and a tax residence. But I know that they fill out Irish taxes and pay those. AOI, because it's just a holding company, the interest-- it only makes investment income. And all of that investment income is taxed in the United States at the full 35% level.

- When you look at that avoidance or relief of a 35% tax burden, which I'm sure that we are in agreement is way too high and now the highest in the world, I understand, but you said the purpose of AOI is to ease administrative burdens. But are there certain US tax burdens-- isn't it obvious that you are not bearing the same tax burden as if you were bearing in the United States, which then gives you some advantage over corporations and companies which are smaller, which are strictly located in the United States of America? I'm not saying that's wrongdoing. But I think you would agree that it gives you a significant advantage.

- Sir, I have tremendous respect for you. I see this differently than you do, I believe.

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RISA GOLUBOFF: So Tim Cook says he doesn't know the difference between presence and residence. What's the difference?

RUTH MASON: OK, so what Tim Cook seems to be talking about when he talks about tax presence is the idea that these Irish subs incorporated subsidiaries of Apple are paying tax to Ireland. But they're only paying tax to Ireland on their Irish source income. And on that, it's paying Ireland's 12 and 1/2% rate. So a company that's present in a state, that is that meets its nexus threshold, has to pay tax but only on income associated with that nexus.

In contrast, a tax resident company typically has to pay tax on all their income. So if you're these Irish incorporated Apple subsidiaries, and you have 70 billion in profits, but you have only 25 million in Irish source profits, the question is are you reporting 25 million or are you reporting 70 billion.

RISA GOLUBOFF: So the difference to presence and residence turns out to be really, really big. [LAUGHTER]

RUTH MASON: Tens of millions of dollars.

RISA GOLUBOFF: $69 billion, $75 million.

RUTH MASON: So when Tim Cook says he doesn't know the difference between tax presence and tax residence, well, I can assure you his tax director does. So this answer that Tim Cook gives to Senator McCain is front page news. And perhaps more importantly, it sort of wakes up the European Union's sleeping giant, the Directorate General for Competition, DG COMP. [LAUGHTER]

So the competition authority in the European Union has enforcement power over their state aid rules, their anti-subsidy rules. And the commission brought an investigation not against Apple but against Ireland, arguing that Ireland allowed Apple to pay too little tax. That is instead of letting Apple declare the 25 million, Ireland should have required Apple to declare the 70 billion. And the parties contest that.

So the ultimate result of that investigation was that the commission held that Apple owes Ireland $14 billion in tax. And then that case is disputed by Apple and by Ireland. And it's working its way through the EU courts. What nobody disputed in that case was the legality of the statelessness of the Apple subs. Everybody agreed--

RISA GOLUBOFF: So what Apple is doing was fine.

RUTH MASON: Perfectly legal. That's a problem, right? So Ireland-- you can see how it happens, right? Ireland has its rules. The US has its rules. If they don't coordinate, that creates a gap. And these kinds of gaps were all over the [INAUDIBLE]

RISA GOLUBOFF: So Apple is not alone in taking advantage of these gaps.

RUTH MASON: No, I mean, the Apple tax plan is brazen.

LESLIE KENDRICK: A little on the aggressive side.

RUTH MASON: It's aggressive. But other companies were doing similar things and so countries got together motivated by popular dissatisfaction, right? So these investigations happen in the Senate. They happen in the UK Public Accounts Committees. But then they're reported in every newspaper. So the UK parliament investigated Starbucks. British people protested Starbucks out on the streets for not paying enough tax. So corporate tax avoidance became an issue that voters cared about, especially in Europe.

RISA GOLUBOFF: Politically salient, politically important issue.

RUTH MASON: Right. So that meant that essentially, politicians could no longer take this indulgent attitude towards corporate tax avoidance.

RISA GOLUBOFF: Did they take the indulgent attitude because they weren't pressed for funds, and they weren't looking for that and so that after the crash when that changes, and they're more pressed so even-- or did they kind of think it's fine that the corporations don't pay? I mean, did they sort of wink, wink, nod, nod that this is an OK thing?

RUTH MASON: I think it's a combination of things. So before the crisis, countries were content. So the US attitude was look, most of the tax avoidance is foreign tax avoidance, right? So when Tim Cook says that Apple is not avoiding US tax, there's some truth to that. Apple's avoiding German tax by making these base-eroding payments into these Irish incorporated subsidiaries. So why should the US care about that is one way of thinking about it, right? If foreign corporate tax avoidance makes US companies more competitive, and so US shareholders benefit, and their pension funds grow, what's the problem?

RISA GOLUBOFF: All to the good.

RUTH MASON: Right. And then from the EU perspective, Germany says, well, we've got investment. We've got productive factors here. We don't want to scare them away. A certain amount of base erosion is tolerable. And from an Irish perspective, we wouldn't have anything unless we were accommodating facilitating this whole tax plan. So you have this problem of the gaps. The solution to the gaps was the G20 tasking the OECD, the world's best tax nerds, [LAUGHTER] with the job of finding the gaps and closing them.

And there was a real commitment there to closing some of these gaps that just wasn't there before the crisis. And so the OECD member countries set for themselves what seemed to be an impossibly short deadline to come up with proposals. And yeah, many people, maybe most tax people, thought nothing would come of this base erosion and profit shifting project, this BEPS project. But to everybody's surprise, the OECD met its deadlines and made lots of recommendations, including some mandatory recommendations to the OECD countries and the G20 countries.

And also it's called the Inclusive Framework, which is a group of over a hundred countries that are on board with this idea of stopping BEPS. So basically, you have the whole world coming together at the same time to say, this corporate tax avoidance is a problem. And there are solutions that we can implement. So this is not a specific part of the BEPS project.

But Ireland was pressured to change its tax residence rule. So now the Irish rule says, you're tax resident where you're managed and controlled. But if you're incorporated in Ireland, and you're not tax resident anywhere else, you're tax resident here. So basically, you have the countries just being practical about what's possible here, how can we make things better, how can we grow the revenue pie by closing the loopholes.

RISA GOLUBOFF: And even though what you said before about US corporations having more profits is a good thing for the US, you can see how growing the pie is good for most everyone, right? OK, so slicing maybe there are going to be differences of opinion.

RUTH MASON: So slicing is more problematic because slicing is zero sum. And so that's what countries are disputing about right now as in this spring in Paris.

LESLIE KENDRICK: So what happens next?

RUTH MASON: There's a question facing the countries, which is suppose we agree that there should be a lower standard for nexus, some kind of non-physical nexus standard. How do you attribute the profits? And one proposal is that this is a rule that should only apply to digital companies, social media companies, companies that provide a marketplace-- think about Airbnb, a two-sided marketplace-- and that the tax should be related to the users in the state. So you're France or Germany, your residents log onto Facebook. They provide content to Facebook.

And then Facebook monetizes that content by selling it to companies that buy ads. So Facebook's customers are the companies that buy the ads. They don't have to be in France. They don't have to be in Germany. They can be anywhere. And more importantly, the sale can take place anywhere. So as long as the sale takes place outside of France or outside of Germany, France and Germany don't have a way to tax the user's contribution to Facebook. The international tax system as it's currently formulated does not provide a way for France and Germany to tax profits based on user participation.

LESLIE KENDRICK: But you could say, maybe that's fine. So I'm trying to think of an analogy. And what I'm coming up with is newspapers that are like free, weekly circulars where you have users who pick them up. They don't pay anything for them. Their revenue comes from advertising. People pay to put ads in the papers. And then they think that readers are going to respond to them.

I don't think back in the day we would have thought it was a problem that what's going to get taxed is the transaction with the advertisers. And we wouldn't say, oh my gosh. You should be paying tax based on the number of people who pick up your free newspaper, right? But now suddenly, we feel like we should do that because of the power of all these different companies or what? What's the impetus?

RUTH MASON: OK, so those are great questions. And Leslie, you said back in the day, people wouldn't have thought that this newspaper should have been taxed. Well, in the present day, plenty of people think that Facebook ought not to be taxed on the basis of user contributions. And the way that the tax system, our international tax system, is currently formulated, France doesn't get to tax that user participation. We don't tax inputs into companies production.

So one, you asked about the power of the companies. I think that's part of it, right? So these social media companies seem to wield a lot of power. They have a lot of influence over our lives and we now know our elections. So that might be part of it, sort of a disillusionment with social media companies and a lack of trust for them. But then there's also just this simple question of who gets the revenue. And there's this sense that users are providing real value and that their countries ought to be remunerated for that in some way.

And so what they're going to decide, what countries are going to decide, in Paris or otherwise if they can't agree in Paris, is should, this kind of remuneration for the contributions of the user, should it be widespread or limited only to a narrow band of companies like these social media companies? So the US position on this is that yes, we should change the nexus rule. Yes, there should be some kind of tax in the, in this case, user's state.

But it shouldn't apply, this rule shouldn't apply, only to social media companies. It should apply across the board. So France gets to collect tax from Facebook. But the US should also get to collect tax from Gucci. That is marketing intangibles, trademarks, people's good feelings about brands, exist in the states where the consumers or users are. And that's where they should be taxed. And that should be done across the board rather than just for particular kinds of companies, just for social media companies. So the scope of the project is something about which the countries are debating.

RISA GOLUBOFF: What are your views? I mean, where do you come down on all these questions?

RUTH MASON: I think that we have a unique opportunity to change the international tax system. I mean, it's looked like this since the 1920s. Now is the moment. Everybody agrees. Now is the moment for change. In my view, we should see this moment as the opportunity that it is. And we should formulate a rule that we think will be good indefinitely into the future [INTERPOSING VOICES] for another hundred years.

No, we don't know when we're going to get to do this again. If we just talk about social media companies, we just talk about Facebook, if Facebook doesn't exist in 10 year-- Uber is 10 years old. We do not know what the economy is going to look like 10 years from now, much less a hundred years from now. So the more generally we can formulate our response to this real problem, the better I think. And the other thing is you don't want to have sectoral discrimination, right? You don't want to have different taxes for one kind of company.

RISA GOLUBOFF: Have other US policies changed that have an impact here? I'm thinking obviously of the 2017 changes to the tax code. How does that all interact with these international rules?

RUTH MASON: So the US tax reform is a real game changer. Think what you will about the 2017 tax reform. The place where it really was a reform was international. So the most important for our discussion, the most important change that the US implemented, was a minimum tax on US companies foreign source income. So now, you can shift your income wherever you like abroad. But if you don't pay enough tax on that foreign source income, you're going to have to pay tax in the US, whether income is distributed back to your US headquarters or not.

LESLIE KENDRICK: So no longer a distribution requirement. This is a change from the kind of deferral practices that we had pre-2017 where countries, even though technically hypothetically they had to pay taxes on their worldwide income, in practice, they could largely defer a lot of that liability.

RUTH MASON: Exactly.

LESLIE KENDRICK: So now, what do they have to do?

RUTH MASON: The upshot is if you don't pay a certain percentage abroad, just over 13%, you're going have to pay the difference to the US. So that discourages some amount of foreign shifting. But it also means that the US attitude is different when it goes to Paris. Now that US companies are going to be taxed on their foreign activities, the US has an interest in making sure other countries' companies are also taxed because the US companies are going to compete in the same markets with these other countries' companies.

So in BEPS 1.0, the US only could lose. But now, there's a sense that the US might be able to benefit too. So the US, of course, is a major residence state. It's the home of the world's largest companies. But the US also has a huge wealthy market. And so if more tax is going to be assigned to market jurisdictions, it's not obvious that the US loses from that.

RISA GOLUBOFF: Because we have so many consumers who spend so much money on companies that might be from other countries.

RUTH MASON: Exactly. And then the other thing is that other countries may emulate the US minimum tax. So when a large economy like the United States makes a major change like that, it has effects for everybody. So it ripples out. So and we'll see. This is all up in the air. We don't know exactly what's going to happen. But it may be that more countries go to this minimum tax model. And that would have the effect of neutralizing the tax havens.

RISA GOLUBOFF: So it's another way of closing the gaps.

RUTH MASON: Exactly.

LESLIE KENDRICK: So domestically, this operation of this new law, how is that working out? Or do we know yet? Because at the same time that this happens, the corporate tax rate was greatly reduced. It's no longer 35%. It's 20%. And you're saying now, they have to pay taxes, a minimum tax of 13% on profits worldwide. But the corporate tax rate has gone down domestically. And it's not clear to me how much of the 13% is actually coming home to the United States versus going other places. So on net, how is this working out domestically?

RUTH MASON: OK, so we have to see is the short answer. But the rates don't match. So the US rate is 20%. And then the minimum rate on the foreign source is only 13. So there's still an incentive to shift income out of the United States. But it's greatly reduced, right? So it used to be you could pay 35 or you could pay nothing.

RISA GOLUBOFF: You could pay nothing. [INTERPOSING VOICES] between 13 and 20 is a lot closer. But still far enough apart that one would think you'd still see incentives to continue not to pay the US tax.

LESLIE KENDRICK: Right. So the OECD countries are working this out right now. And they've been talking about this in Paris this spring. So what do you expect to see happen as they continue to hash this out?

RUTH MASON: So we're at a major crossroads in international tax. And it's both exciting and scary. It's exciting because there are lots of possibilities. And it's a great time for ideas, even radical ideas. But at the same time, it's scary because if the countries don't agree, the international tax system that has been remarkably stable since the 1920s could unravel.

So I hope that countries will work together at the OECD because uniformity, consistency, and predictability are the paths to growth, whereas protectionism, double taxation, unilateralism, instability, these all retard cross-border investment. But I still think that there is reason for optimism. The success of BEPS 1.0 built a lot of trust among the people involved in making tax policy and faith in our international organizations, particularly the OECD, to guide us through difficult decisions.

RISA GOLUBOFF: So I think most people would say we're in a time of heightened populism and nationalism and protectionism. And it kind of sounds like what you're saying is that the impetus to act in those ways in the tax context might actually lead to consistency, predictability, uniformity, in a positive way, which is different from the story that we hear when people are talking about democracy and rule of law, which is those impulses lead to a breakdown.

And what I hear you saying now is those impulses could lead to a breakdown. But a lot of what we've been talking about this hour is countries acting in their own self-interest in ways that are coordinated and actually productive and positive. So it seems like tax is a little bit in a unique position with regard to these really disheartening global trends that we're seeing.

RUTH MASON: I think international tax has always been that way. Countries are always pursuing their own self-interest, which is to be expected. But because you can grow the pie, cooperation can lead to everyone being better off.

LESLIE KENDRICK: Thank you so much for joining us. We learned so much.

RUTH MASON: My pleasure. I'm glad to be here.

RISA GOLUBOFF: Thanks, Ruth.

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LESLIE KENDRICK: We've been talking with Ruth Mason, one of our colleagues at the University of Virginia School of Law. You can find links in our show notes to some of her writing on international taxation, including a paper she recently co-authored in the digital publication TaxNotes.

[MUSIC PLAYING]

So Risa, every time I talk to a tax expert, I think tax is where all the action really is. This is what everything really comes down to. Who has to pay for what, how we're going to get them to do it, it's about distributive justice, it's about economics and incentives. Tax has something for everybody, whatever their perspective is.

RISA GOLUBOFF: I couldn't agree more. When I was in law school, I went to ask for advice from a mentor about what classes I should take. And he said, if you really want to change the world, take tax. So that is exactly my perspective.

LESLIE KENDRICK: Completely, it's all the levers, right? It's all the gears and levers all in one place.

RISA GOLUBOFF: And it's so amazing to talk to someone like Ruth who has the capacity to keep all those gears and levers in her head all at the same time, not only domestically, but internationally as well.

LESLIE KENDRICK: That's right and to have the grasp on these particularized issues but also see how they relate back to that bigger picture, which is something that I really appreciate. These are big questions about how we try to think about these large, multinational corporations, how we think about social media, how we think about an information economy, and who has to internalize what in that economy.

RISA GOLUBOFF: Exactly, and they also relate back to politics, right? So you see these are not only financial and economic decisions. They're also really political decisions. And they're being swayed by politics and in very different ways than we see the politics operating in other realms, right? We talk a lot about the negative implications of a kind of populism that we're seeing today. And in the tax realm, it's really operating differently. And it's calling to account these governments to make sure that they call to account the multi-national corporations.

LESLIE KENDRICK: It was really interesting talking with Ruth. And one thing I came away from was that, was that there might be this political dimension that actually is creating incentives for a better tax system. So what was going on before was kind of good enough. And everyone was getting something out of it. But it turned out that it was leaky in a variety of different ways. There were these mismatches. And it wasn't necessarily optimized. And who knows where we'll wind up. I don't think anyone knows at this point. But there are conversations to try to make the pie bigger for everyone. And that could go someplace really interesting.

RISA GOLUBOFF: Yeah, I agree. And I was also thinking who is everyone, right? So it was working for the companies and maybe the governments. But clearly, there were losers too, economic losers and political losers. And those folks are making their voices heard, and people are listening.

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So that's it for this latest episode of Common Law. We hope you like what you're hearing so far. And if you do, we'd so appreciate your help spreading the word about it. Leave us a rating or review on Apple Podcast, Stitcher, or wherever you get your podcasts. It's a great way to get the podcast seen by others who might be interested. And if you're not already subscribed to the show, you can get yourself subscribed directly from our website commonlawpodcast.com. You'll also find all of our past episodes there as well as really cool show notes. And we're also on Twitter @commonlawuva.

LESLIE KENDRICK: We'll be back in your podcast feed in two weeks with a new episode that will be of interest to all of you Game of Thrones fans out there. Because not only is it tax season, it's the season for a new Game of Thrones season.

RISA GOLUBOFF: Winter is coming.

LESLIE KENDRICK: It is. It is, right here in the spring. So we'll be looking at the series through the lens of the law. And we promise that is more fun than it sounds. Here's a taste.

SPEAKER 1: I'm trying to remember. Who was the prosecutor in the Tyrion trial? It's sort of an inquisitorial model because it seems like the judges are also calling and questioning the witnesses.

SPEAKER 2: Wasn't it Tywin?

SPEAKER 1: Yeah, Tyrion's father. So there seems to be a recusal problem there but. [LAUGHTER]

RISA GOLUBOFF: Common Law is a production of the University of Virginia School of Law. Our production team includes Mary Wood, Tyler Ambrose, and Tony Field. We record the show at the studios of Virginia Humanities. I'm Risa Goluboff.

LESLIE KENDRICK: And I'm Leslie Kendrick. Thanks for listening.

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