The Tillinghast Lecture returns, examining the complexities of taxing multinational enterprises and the digital economy

When Paul Oosterhuis, senior international tax practitioner at Skadden, Arps, Slate, Meagher & Flom, delivered the 25th David R. Tillinghast Lecture on International Taxation on September 28, it was a welcome resumption of a longstanding annual event that had last occurred in 2019, before being suspended during the COVID-19 pandemic. 

Paul Oosterhuis
Paul Oosterhuis

The 2023 lecture focused on global shifts of a different sort. In the context of ongoing efforts to reform international tax laws, particularly in relation to taxing the digital economy, Oosterhuis reexamined which taxes should be treated as income taxes by the United States, and specifically which taxes should be allowed as foreign tax credits.

For the last decade, the Organisation for Economic Co-operation and Development (OECD) and the Group of 20 have been collaborating on the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS). The project is a collective effort by more than 130 countries and jurisdictions to address gaps in international tax rules that have allowed multinational enterprises to avoid paying taxes.

Speaking from a US perspective, Oosterhuis said that “our foreign tax credit rules should reflect not just what our income tax is, but what we see as an acceptable income tax globally, because…we can’t expect other countries to mimic our income tax, and they really shouldn’t. We have all kinds of features in our income tax that are not worth copying. 

“Our view of what foreign taxes should be treated as income taxes should be formed by kind of an international consensus, a multilateral consensus, of what forms of income tax are reasonable to impose,” Oosterhuis added.

Against the backdrop of the BEPS project, Oosterhuis articulated some principles that could be applied to the US approach to foreign tax credits. First, he said, net income taxes should be distinguished from revenue taxes or gross income taxes. Second, when other countries apply net income taxes—as Oosterhuis believes they should—the US should take a flexible stance on how those countries allocate income among themselves, “particularly if they’re doing it by a treaty or by a multilateral instrument where they decide how to divide it up—even if that’s different than what we would do.”

Watch the full video of the lecture:

Posted November 6, 2023