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The Village of Billionaires: Fair Taxation and Redistribution Amid Relative and Absolute Poverty

July 2020

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University of Cambridge

In this article, the authors explore the notion of fairness in international tax using the parable of the Village of Billionaires to highlight the moral dilemma posed by redistributing tax revenue to address relative poverty within a developed country when absolute poverty exists beyond the village walls.

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TAX NOTES INTERNATIONAL, JULY 6, 2020 97

tax notes international®

VIEWPOINT

The Village of Billionaires: Fair Taxation and Redistribution

Amid Relative and Absolute Poverty

by Alexis Brassey and Henry Ordower

Aptly named, the Village of Billionaires is

populated exclusively with billionaires. Every

family living there has abundant wealth and

privilege. Every driveway is lined with luxury

vehicles like Rolls Royces, Bentleys, and Ferraris.

Each house has its own swimming pool, gym

complex, helicopter, and helipad. The village

airport is filled with private Gulfstream and

Boeing aircrafts. Residents have access to the top-

notch health services, education, road systems,

information and communications technology

equipment, and shopping facilities. Simply put,

villagers enjoy the very best of what the world has

to offer. The village governs itself by committee,

and each family nominates someone to sit on the

council.

Sadly, as a result of overspending on yachts

and fine wines, one of the families in the village

has suffered a financial setback — they are down

to their last $100 million dollars. The family

appeals to the village council, which sets up a

social metrics commission to develop an approach

to measuring poverty.1 The commission’s remit is

to identify those least able to make ends meet. It

takes into account all material resources, not just

incomes, and accounts for all the inescapable costs

that families may face including child care,

maintenance of super yachts, replenishing stocks

of fine wine, extensive foreign holidays, helicopter

maintenance, and mortgage costs.2 The

commission concludes that any family with less

than 40 percent of the median income and wealth

for the village falls within the poverty category,

and it resolves to develop interventions and

support to reduce the incidence of poverty and

mitigate the impact of poverty for those who

experience it.

To address the immediate problem, the

villagers impose a progressive wealth tax on the

billionaire families such that the family down to

their last $100 million has its wealth restored to the

$400 million range and therefore is no longer

Alexis Brassey is a solicitor and a visiting

fellow, Faculty of Law, at the University of

Cambridge, U.K., and Henry Ordower is a

professor of law at Saint Louis University

School of Law in St. Louis, Missouri.

In this article, the authors explore the notion

of fairness in international tax using the parable

of the Village of Billionaires to highlight the

moral dilemma posed by redistributing tax

revenue to address relative poverty within a

developed country when absolute poverty

exists beyond the village walls.

1The Legatum Institute Foundation’s Social Metrics Commission

report uses similar language to explain its methodology for generating a

working definition of poverty for the United Kingdom. Philippa Stroud,

“Measuring Poverty 2019 — A Report of the Social Metrics

Commission,” The Legatum Institute Foundation (July 2019).

2This is not to suggest that super yachts, fine wine, and extensive

foreign holidays are inescapable costs per se, but that they appear so

based on a relative — rather than an absolute — analysis. In other words,

the definition of inescapable costs is relative.

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VIEWPOINT

98 TAX NOTES INTERNATIONAL, JULY 6, 2020

suffering from poverty based on the commission’s

assessment. The family is also given access to an

emergency fund to ensure it does not fall into

poverty again. To save embarrassment, the

emergency fund is available on a universal basis

and is not means tested. The villagers happily

declare the problem solved.

Outside the village walls, there is another

town. That town is suffering from actual poverty

as defined by the U.N., that is:

a condition characterized by severe

deprivation of basic human needs,

including food, safe drinking water,

sanitation facilities, health, shelter,

education and information. It depends not

only on income but also on access to

services.3

The Village of Billionaires is the principal

place of employment for town residents. Workers

from the town commute to the village to maintain

its facilities and perform other routine and menial

functions. Some workers provide household

services and child care on a residential basis and

must be available around the clock; they are

housed in quarters similar to the housing in their

own town, but with more attractive exteriors to

maintain the village’s overall aura. Wages are

based on the prevailing wage that residents of the

other town earn when working in their own town

or elsewhere to ensure that workers receive a fair,

comparable wage for their town. Workers who

have completed at least 40 quarters of

employment in the Village of Billionaires are

entitled to a retirement benefit beginning at age

65. Anyone who works in the Village of

Billionaires must contribute a nonrefundable 20

percent of their wages to the retirement benefit

fund. Those who do not complete 40 quarters of

employment receive nothing from the fund. Of

course, those who work in the Village of

Billionaires probably pay taxes where they live as

well.

When criticized for the opulence of their

community alongside the impoverished town,

residents of the Village of Billionaires are quick to

point out that they are job creators. Without them,

conditions in the town — to which the residents of

the Village of Billionaires owe nothing — would

be much worse. Unemployment would be higher

without the wealthy neighbor. And nothing

prevents resourceful residents of the poorer town

from becoming billionaires and eventually

applying to immigrate to the Village of

Billionaires. Nevertheless, the Village of

Billionaires allocates up to 2 percent of its annual

budget to foreign assistance, and residents of

various impoverished communities thank the

residents of the Village of Billionaires for the

assistance with nice letters and remember the aid

in their evening prayers. Most billionaire

residents happily pay their fair share of the taxes

needed to maintain the community and provide

foreign assistance, although some grumble about

expenditures like foreign assistance that do not

benefit them directly.

I. Introduction

This reductio ad absurdum4 parable introduces

the stark contrast between relative and absolute

poverty. Both concepts are important when

determining tax structures. Recent discussions

about tax justice and the principles underpinning

the international tax regime often emphasize the

idea that companies and individuals should pay

their fair share — not just in the domestic sense,

but also in an international sense.5 It is reasonable

to assume that taxation is the means by which the

state funds public services and, in some

jurisdictions, contributes to greater equality. The

parable, however, shows that relative poverty

within a society may be a false indication of

genuine need, and it reminds the reader that

empirical data can help us refocus our definition

of fairness. This is not to suggest that relative

poverty is a pseudo-need, but that the moral

obligation to resolve relative poverty is minimal

when compared with the far more pressing

problem of absolute poverty. Setting a goal of

3U.N., “Report of the World Summit for Social Development” (Mar.

6-12, 1995).

4Absurdity is itself relative — after all, the Village of Billionaires has

features reminiscent of several developed democracies.

5OECD, “Ensuring Multinationals Pay a Fair Share of Taxes” (last

accessed Mar. 1, 2020); Tax Justice UK, “Fair Share: Increasing Company

Tax Contributions” (last accessed Mar. 1, 2020); IRS, “The Agency, Its

Mission and Statutory Authority” (last accessed Mar. 1, 2020); and HM

Revenue & Customs, “Tackling Tax Avoidance, Evasion, and Other

Forms of Non-Compliance” (Mar. 2019).

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VIEWPOINT

TAX NOTES INTERNATIONAL, JULY 6, 2020 99

contributing to greater equality within a society

necessarily gives rise to competing claims

internationally. This is especially the case when

considering international tax challenges such as

those the OECD discusses in its 2019 work

program for taxing the digital economy.6

This article examines competing claims for tax

revenues and considers the specific categories of

relative, as opposed to absolute, poverty. If one

accepts that taxation is to fund public services, the

question then arises, at least in international tax:

Which jurisdiction’s public services should be

funded? If the motivation for raising taxes is to

tackle inequality, what has the greater claim,

international inequality or national inequality?

These questions require us to consider whether

relative or absolute poverty is more pressing. If

we conclude that international inequality and

absolute poverty are more pressing, are we still

permitted to use resources to address national

inequality and relative poverty? What if we lack

the resources, political will, and popular support

necessary to confront international inequality and

absolute poverty?

This article contends that there is a far

stronger moral claim7 for tax revenue to be

redistributed on an international basis rather than

a national basis. Further, it argues that the

purported moral authority to address inequality

within national borders is really a political

demand to further the economic interests of

particular groups that are already among the

most economically privileged when viewed on an

international spectrum. This article also finds that

we lack the political will to truly confront

international poverty — at least beyond

contributing minimal resources to fight

international poverty, which ultimately means we

acknowledge the problem, but refuse to make the

sacrifices necessary provide a remedy.

Resource availability is also a relative concept:

The bulk of any national budget is committed to

maintaining existing infrastructure leaving little

funding for international development unless one

opts to sacrifice maintenance for the morally

superior aim of eliminating absolute poverty.

Accordingly, the resources that are considered

available for allocation in this article are only

those resources dedicated to addressing either

local or international poverty.

This article is divided into six sections,

including this introduction. Section II tackles

slippery definitional problems around the terms

“tax justice” and “fair share.” What do these

terms mean when they are used by different

economic agents and to what end? What do those

agents want to achieve when they use these terms,

and what moral basis do they rely upon to make

those claims? Can claims of fairness pertaining to

equality extend to redistribution beyond specific

absolute levels of resource allocation and, if so,

what levels?

Section III sets out a proposal for ongoing

discourse based on the idea that claims for using

tax resources to fund efforts within national

boundaries are political as opposed to moral —

that is, they are not based on economic merit. If we

take redistribution as a moral imperative

seriously, we must put the greater international

need above national, political demands.

Section IV considers the practical implications

of this analysis in the context of the latest iteration

of the OECD’s base erosion and profit-shifting

initiative, known as BEPS 2.0. The OECD’s work

program is aimed at revising the existing

structure of profit allocation as well as the nexus

rules, efforts that may generate a novel set of

international tax rules.

Section V assesses the political philosophical

arguments for and against global distributive

justice. It considers the cases of cosmopolitans,

realists, nationalists, and Rawlsians.8 The article

concludes that the complex interplay of political,

economic, and social cooperation in the 21st

century requires an urgent reevaluation of the

way in which distributive justice is and should be

practiced.

6OECD, “Programme of Work to Develop a Consensus Solution to

the Tax Challenges Arising From the Digitalisation of the Economy”

(May 2019) (hereinafter, work program).

7Morality is itself a contentious term. This article contends that its

moral force works on any of a utilitarian, Kantian, or Aristotelian

definition.

8From the works of John Rawls, an American political philosopher

(1921-2002), discussed in greater detail infra notes 90-93, Rawlsian

justice, broadly speaking, revolves around the idea that differences in

society are largely a legacy of luck. In order to determine how political

institutions ought to be arranged, Rawls proposes that differences in

society ought only to be tolerated insofar as they improve the position of

the weakest members. Rawls does not suggest that “society” should be

viewed from a global perspective; this article suggests otherwise.

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100 TAX NOTES INTERNATIONAL, JULY 6, 2020

The final section considers whether there is

any continuing moral value in redistribution to

address relative poverty within national borders

absent the resources and political will to also

address absolute poverty internationally, and

concludes that there is none. It also yields insight

into the motives of those with wealth and power

who choose to share only as much of their wealth

as may be necessary to prevent the less wealthy in

their vicinity from forcibly seizing wealth and

power.

II. Tax Justice

Everyone believes in justice. After all, who

will publicly declare a goal of injustice? The term

has found its way into the names of tax lobbying

groups such as the Tax Justice Network and

Global Alliance for Tax Justice. Their aims,

however, are highly political and their

perspectives often differ from other lobbying

groups that invoke their own (politically

informed) perspective on justice. Likewise, it is

difficult to imagine there are many economic

agents who would express their desire not to pay

their “fair share.” Language as loose as “fair

share” can mean such different things to different

people that it ends up not really meaning

anything beyond expressing the political

predilections of the utterer. To a multinational

enterprise’s board of directors, the terms “justice”

and “fair share” mean operating within the legal

framework of the jurisdictions in which they

operate.9 Others, as discussed below, have a very

different perspective.

Given the politically charged nature of these

terms, it is surprising how frequently those tasked

with the administration of the tax system use

them. For example, HM Revenue & Customs

appears to substitute references to the amount of

tax large businesses legally need to pay with the

statement that they should pay their fair share10 —

suggesting there are additional obligations

beyond that which is legally necessary. When

discussing cross-border tax arrangements, HMRC

states that “the government supports a

competitive corporate tax system but is clear that

companies must pay their fair share.” Much of the

difference, in HMRC’s view, relates to tax

avoidance; however, it is far from clear that the

definition is restricted to only that issue.

The IRS’s mission statement states that its role

is to ensure the “minority who are unwilling to

comply [with tax law] pay their fair share.”11 The

violation of unambiguous tax laws constitutes

noncompliance and evasion, but compliance is

itself an ambiguous term. Compliance could also

mean not structuring one’s affairs at the very

limits of tax law ambiguity in a way that

minimizes tax liability — that is, not engaging in

tax avoidance.12 Tax avoidance is a far more

difficult concept than tax evasion since avoidance

depends on an accepted understanding of the

legislative intent underlying ambiguous tax law

language. While the United States relates fairness

— a term explored in greater depth in Section III

— back to legality as opposed to more politically

driven notions of justice or fairness, those notions

control the activities of the IRS as it responds to

the legislative will. Those ideals also influence the

legislature and tax administrators when they

decide to respond to planning by eliminating

ambiguity or decide not to act, although the latter

can also occur because the authorities lack the

resources to respond immediately as tax planners

continuously devise structures at the limits of the

law.

A recently disclosed sophisticated tax

planning scheme involving so-called “cum-cum”

and “cum-ex” share trading exemplifies the

tension between tax planning within the law and

violations of the law. Germany did not expressly

outlaw transactions that enabled German

9See, e.g., Apple, “The Facts About Apple’s Tax Payments” (Nov. 6,

2017). How corporations ought to behave is far from a settled matter.

Milton Friedman argues that directors-as-individuals may have their

own personal political and moral views, but their legal duties require

them to operate in accordance with the law and their fiduciary duties

require them to maximize shareholder value. Friedman, “The Social

Responsibility of Business Is to Enhance Its Profits,” 32(13) The New York

Times Magazine 122 (Sept. 3, 1970). Others disagree with this, suggesting

that corporate social responsibility is in the interest of a wider group of

stakeholders that directors ought to consider. See Judith Freedman, “Tax

and Corporate Responsibility,” 695 Ta x J. (Jan. 1, 2003).

10HMRC, supra note 5.

11IRS, supra note 5.

12Henry Ordower, “The Culture of Tax Avoidance,” 55 Saint Louis U.

L.J. 47 (2010).

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TAX NOTES INTERNATIONAL, JULY 6, 2020 101

taxpayers to claim a credit for a dividend

withholding tax that was not actually paid on

shares that non-Germans owned and lent or sold

short to Germans near the ex-dividend date that

were then returned to the non-German owner,

and it permitted both the owner of shares and the

buyer of the shorted shares to claim the German

credit for dividend withholding.13 It is difficult to

imagine how two taxpayers paying their “fair

share” can receive a refund of the same tax.

Nevertheless, because the scheme was not made

expressly illegal, one might argue that claiming

the refund was compliant with the tax law and

thus consistent with tax justice.

While it is understandable that tax authorities

want to reduce tax evasion and tax avoidance, it

seems reasonable to expect their role to be

restricted to the apolitical realm — that is, limited

to their legal fiat. On this analysis, moral

questions about justice and one’s fair share should

be restricted to the political realm.

However, it also seems legitimate for political

lobbying groups to argue in favor of a particular

political or moral position even if this means

claiming that their use of terms like “fair share” is

not a legal prescription, but rather a normative

expression. Tax Justice UK, for example, asserts

that “large companies in the UK do not contribute

their fair share of tax to the exchequer.”14 The

group acknowledges that when it uses the term

“fair share,” it means businesses should pay more

tax than they owe. Tax Justice UK encourages

public review of the cost-benefit analysis used to

draft corporate reliefs and subsidies; it hopes to

see an abandonment of the ideology of tax

competition, a tightening of efforts to reduce

avoidance, and better enforcement. Once again, it

difficult to imagine that many would disagree

with the idea that economic agents should pay

what they legally owe, but it is far from clear that

jus tice req uires pa ying mor e — altho ugh it is clear

that the terminology is political and cannot easily

be characterized objectively.

There are cogent, albeit contested, arguments

in favor of the idea that increases in corporate tax

lead to reductions in overall tax yield.15 If true, this

would appear to harm those reliant on tax

revenue and reduce the welfare of everyone in the

system. Assuming, however, that increases in

taxation did lead to increases in tax revenue, what

would that mean in terms of justice? For many on

the communitarian end of the political spectrum,

justice would require increases in taxation. They

would claim that vital public services are

underfunded,16 noting that there are significant

welfare needs throughout the public sector and

increasing reliance on food banks.17 Looking at the

United Kingdom as an example, they would

argue that the National Health Service (NHS) is in

a permanent crisis; education is underfunded;

teachers, doctors, and nurses are not paid enough;

local authority services have been cut; and that the

whole austerity enterprise has created

devastation and misery since the financial crisis in

2008.18 The point being made here is that there are

many academics, lobby groups, and other

organizations actively making moral claims for

more money (that is, demanding scarce resources

from the state for the alleviation of relative

poverty without reference to the demands of

absolute poverty). What is clear from these

sources is that they all attempt to dress their

demands as moral claims as opposed to

straightforward political or economic bargaining

requests. Use of the word “crisis” is prevalent,

indicating that unless their demands are met,

something “terrible” will happen to the public,

which requires immediate attention.

Based on this analysis, the demands of justice

require increases in public services that have a

redistributional effect and are paid for by taxing

those who can comfortably afford to pay more.19

The argument, put in these terms, is one based on

13Lee A. Sheppard, “Anticipating EU Tax Haven Hybrid Rules,” Tax

Notes Int’l, Sept. 23, 2019, p. 1217.

14Tax Jus tic e U K, supra note 5.

15See, e.g., Richard Teather, “The Effect of Labour’s Corporation Tax,”

Adam Smith Institute blog, May 12, 2017; Alex Brill and Kevin A.

Hassett, “Revenue-Maximizing Corporate Income Taxes: The Laffer

Curve in OECD Countries,” AEI Working Paper No. 137 (2007); and Joel

Slemrod, “Chapter 6: On the High-Income Laffer Curve,” in Tax

Progressivity and Income Inequality (1996).

16Kam Gill, “Austerity Won’t Be Over Until Our Public Services Get

the Funding They Need,” TUC blog, Oct. 26, 2018.

17Rachel Loopstra et al., “Austerity, Sanctions, and the Rise of Food

Banks in the UK,” The BMJ Online blog, Apr. 8, 2015.

18Sophie Arie, “Austerity in the UK: Rising Poverty Threatens

Stability and Health,” The BMJ Online blog, Nov. 19, 2018.

19Chris Giles and Delphine Strauss, “Costs Soars for Labour’s Grand

Pledge to Reshape the Economy,” The Financial Times, Sept. 2, 2019.

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102 TAX NOTES INTERNATIONAL, JULY 6, 2020

justice and fairness: After all, shouldn’t a country

as wealthy as the United Kingdom provide

minimum levels of public services?20 An issue that

arises, however, is how to define the acceptable

minimum. How much resource redistribution

should the state engage in? Is there a level of

comfort beyond which the state can say that

further intervention to narrow wealth distribution

is beyond its mandate? To understand this issue,

one must consider the problems of relative versus

absolute poverty.21

A. Absolute Poverty: Analysis

In 2015 it was estimated that around 10

percent of the world’s population — more than

700 million people — were living in conditions of

actual poverty.22 Childhood deaths are one of the

threats of absolute global poverty.

In 2018 the World Health Organization

estimated that 6.2 million children and

adolescents under the age of 15 died from

preventable causes.23 The leading causes of

childhood deaths were preterm birth

complications, pneumonia, birth asphyxia,

congenital anomalies, diarrhea, and malaria. The

WHO suggests that:

more than half of these early child deaths

are preventable or can be treated with

simple, affordable interventions including

immunization, adequate nutrition, safe

water and food and appropriate care by a

trained health provider.

Goal number one in the U.N.’s sustainable

development goals is to “end poverty in all its

forms everywhere.” Outside of our hypothetical

Village of Billionaires, having a job does not

guarantee a decent living. Discussing this goal,

the U.N. cites some sobering statistics for 2018

(although there is little reason to believe there has

been major change in two years). Worldwide, 8

percent of employed workers and their families

lived in extreme poverty. For ages 24-34, there

were 122 women living in extreme poverty for

every 100 men. The majority of those who were

living on less than $1.90 per day were in sub-

Saharan Africa. One in five children lived in

extreme poverty. Fifty-five percent of the world’s

population had no access to social protection.

Only 41 percent of women giving birth in 2018

received maternity benefits.

At the same time, as the world is facing the

very real problem of absolute poverty, developed

countries like the United Kingdom are devoting

large amounts of money to far different

priorities. In the United Kingdom, John

McDonnell, Labour shadow chancellor24 from

2010 to 2015, argued that the provision of

Universal Basic Services is consistent with

Labour’s belief in universalism and the

importance of the services we all share.25

Estimates suggest that in 2014 the United

Kingdom spent more than £5 billion on benefits

for those with incomes that exceeded £100,000 per

annum (about $6.22 billion and $124,000,

respectively).26 According to one report, in 2018

the U.K.’s foreign aid budget came to around £14

billion with £1.75 million going toward paying

bonuses to civil servants, including £243,000 for

top officials.27 In excess of £400 million of the U.K.

government’s money is spent on its arts and

entertainment program, which includes funding

for lavish productions at the Royal Opera House.28

The Sovereign Grant, which maintains the Queen,

the royal family, and their palaces, came to a total

of £82.2 million for 2018-2019.29 In 2019 the Labour

20Sven-Olof Lodin, “Swedish Tax Reforms 1071-77 — Why So

Many?” 56 Acta Universitatis Stockholmiensis Studia Juridica

Stockholmiensia 181 (1977) (observing that building the welfare state

required the bulk of taxes to be imposed on the middle class, but steeply

progressive rates applicable to wealthy taxpayers were necessary to

ensure that the middle class would accept the plan).

21See U.N., supra note 3 and accompanying text.

22Zack Beauchamp, “The World’s Victory Over Extreme Poverty in

One Chart,” Vox, Dec. 14, 2014.

23WHO, “Children: Reducing Mortality” (Sept. 2019).

24Longman Dictionary of Contemporary English defines shadow

chancellor as “the politician in the main opposition party in the British

parliament who would become chancellor etc. if their party was in

government, and who is responsible for speaking on the same subjects.”

25Ordower, “Uniform International Tax Collection for Global

Development, a *(**)topian BEPS Alternative” (unpublished manuscript

on file with author).

26Taxpayers’ Alliance, “New Bumper Book of Government Waste

Exposes £120 Billion of Wasteful Spending — That’s £4,500 for Every

Household in the UK” (June 15, 2014).

27David Wilcock, “Staff in Charge of the UK’s £14 Billion Foreign Aid

Budget Shared £1.75 Million in Bonuses Last Year Including £10,000P to

Senior Civil Servants,” Daily Mail, Aug. 12, 2019.

28The Arts Council England, “How We Invest Public Money” (2018).

29Deputy Treasurer to the Queen, “The Sovereign Grant and

Sovereign Grant Reserve” (Mar. 2019).

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TAX NOTES INTERNATIONAL, JULY 6, 2020 103

Party proposed increasing U.K. government

expenditure on public services by around £80

billion in addition to the £800 billion already

devoted to those services.30

The Labour Party’s vision for international

development is set out in a document entitled, “A

World for the Many, Not the Few.” It states:

The Labour Party stands ready to lead the

transition to a fairer world. The singular

mission of international development

under Labour will be to build a world for

the many, not the few. Labour will

wholeheartedly back the Sustainable

Development Goals (SDGs) as a

progressive route to building that world.31

In spite of government spending

commitments totaling more than £800 billion and

in spite of the Labour leadership being among the

most egalitarian Western political parties, the

government only proposes directing 70 pence out

of every £100 made in the United Kingdom

toward eradicating absolute poverty — a

commitment that had already been met by the

center-right Conservative administration.32

Instead, the country spends its vast tax revenue on

its royal family, with their private jets, fine wines,

and royal palaces; opera performances; and

welfare handouts to those with incomes in excess

of £100,000 per year — an approach to global

poverty that is similar to other countries in the

OECD.

The United States doesn’t have a monarchy or

royal palaces to maintain. The White House is

merely a cottage in comparison with the grand

palaces of the United Kingdom. Salaries for

government officials remain modest relative to

those of highly compensated corporate

executives. The president receives $400,000 per

year plus expenses, certainly well above the

average of $45,000 for American workers, but far

below the income earned by CEOs of major

corporations who often earn in excess of $50

million annually.33 Direct government support for

the arts has disappeared almost entirely in the

United States, but indirect support through an

income tax deduction for charitable contributions

is a significant benefit that lacks any meaningful

government oversight. Excluding donations to

healthcare and education, the expected cost of

providing tax breaks to donors for charitable

contributions will exceed $555 billion for the 10-

year period from 2019 to 2028.34 Many income tax

expenditures inure primarily to the benefit of

high-income or high-net-worth taxpayers in the

United States, including the stepped-up new

“basis at death” rule (an estimated $222 billion

expenditure for 2019 to 2028) and preferential

rates for long-term capital gains (estimated to cost

more than $1.5 trillion from 2019 to 2028).35

Proposals from some of the former candidates for

the 2020 Democratic Party nomination for

president would have made the United States

more like the United Kingdom in terms of the

universal provision of benefits with plans

including providing Medicare to all and free

college tuition36 or a universal basic income.37 The

presumptive Democratic presidential nominee

Joe Biden’s plans are far more tame and

traditional. His policy proposals emphasize

support for jobs through unions, environmental

improvement, and infrastructure projects for

roads, railroads, broadband, and airports.38

The total U.S. budget for 2020 is estimated to

be more than $4.6 trillion (not including the

extraordinary expenditures associated with the

ongoing economic relief from the COVID-19

30Institute of Fiscal Studies, “Labour Manifesto: An Initial Reaction

From IFS Researchers” (Nov. 2019).

31Kate Osamor, “A World for the Many, Not the Few,” Labour Party

policy paper (Mar. 2018).

32Richard Braham, “UK Spending on Foreign Aid,” Full Fact, Feb. 15,

2018. See also DFID Media Room, “The Aid Budget Only Goes Up as the

UK Economy Grows,” DFID in the News: Gov.UK Blog (Apr. 6, 2018).

33See Kathleen Elkins, “Here’s the Last Time the President of the

United States Got a Raise,” CNBC Make It, Feb. 19, 2018; and AFL-CIO,

“Highest-Paid CEOs” (last accessed Mar. 1, 2020).

34Depending on the donor’s tax characteristics, each dollar donated

reduces the donor’s tax liability by up to 37 cents — a subsidy with no

government oversight beyond determining whether the recipient is

qualified to receive charitable contributions. Most arts organizations do.

See U.S. Department of the Treasury, Office of Tax Analysis, “Tax

Expenditures” (Oct. 29, 2018) (including specific tables for 2018, 2019,

and 2020).

35Id. The basis at death rule means that any increase in the value of

the property while the decedent owned it is untaxed and capital gains on

assets held for longer than a year receive a preferential tax rate.

36Brian Riedl, “America Might Be Ready for Democratic Socialism.

It’s Not Ready for the Bill,” Vox, Aug. 20, 2018.

37“The Freedom Dividend, Defined,” Yang2020 (last accessed Mar. 2,

2020).

38Joe Biden, “The Biden Plan to Invest in Middle Class

Competitiveness” (accessed June 1, 2020).

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VIEWPOINT

104 TAX NOTES INTERNATIONAL, JULY 6, 2020

pandemic) with some $32 billion —

approximately 60 cents out of every $100 spent —

devoted to foreign assistance, which includes

approximately $9 billion for “peace and security”

(primarily stabilization efforts).39 Of the $4.6

trillion, only $6.5 million is dedicated to

humanitarian assistance, including migration

management; $7 billion to health, with only $690

million focused on maternal and children’s health;

and a mere $2 billion for economic development,

most of which takes the form of industry

subsidies.

Even among the most socialistic of those who

ran to be the 2020 Democratic presidential

nominee, there was no discussion about

substantially increasing the U.S. development

budget to relieve world poverty — although

section 170 of the U.S. tax code continues to offer

a charitable contribution deduction for eligible

taxpayers who contribute to U.S. charitable

entities working to relieve world poverty. It also is

clear that the COVID-19 pandemic has caused the

United States to look even more inward. The first

$2 trillion economic relief package did not include

foreign aid.40 Also, the United States suspended

funding for WHO and closed its borders to

immigrants, except low-wage temporary workers

needed to harvest crops and some specialized

workers.

B. Relative Poverty: An Analysis

The parable that opens this article is designed

to provoke. It is a reductio ad absurdum

demonstrating how definitions of relative poverty

fare when compared to the more serious issue of

absolute poverty. The Village of Billionaires,

however, is a modern tale about the differentials

in global wealth and the way in which the

language used by redistributionalists in

developed economies has led to the appropriation

of resources that, on any legitimate moral ground,

could be dedicated to far more serious and

pressing issues.

When considering questions of global

inequality and redistribution, the key issue is not

whether billionaires or multinationals ought to

pay more, it is whether residents of the Village of

Billionaires who are less affluent — or the less

affluent residents of OECD countries — should

expect that redistributed funds will accrue to

them or to those who are far needier. The scale

and scope of relative need compared with the real

problem of absolute poverty is such that even

some groups who claim to be in crisis and in

desperate need themselves have a moral duty to

redistribute their own assets toward the absolute

poor as defined by the U.N. It is interesting to

observe that individuals in developed economies

who experience need (but not absolute poverty)

demonstrate a greater willingness to share limited

resources than is seen among the wealthy. On

average, low-income individuals contribute a far

higher percentage of their income to charities than

high-income individuals.41

When comparing GDP per capita, per annum

— a useful but imperfect comparison tool that

materially overstates the resources at the lower

end of the scale because, in all countries,

distribution of GDP is skewed toward those with

property and power — the EU averages about

$43,700, with the United Kingdom’s coming in at

$45,500, which also happens to be the OECD

average.42 The United States stands at $62,600. The

world’s poorest economies, such as Burundi, the

Central African Republic, the Democratic

Republic of Congo, Niger, Liberia, Malawi, and

Mozambique, all have GDPs per capita below

$1,500 a year.

According to GDP per capita data, which may

change materially because of the worldwide

impact of the COVID-19 pandemic, the average

person in the United Kingdom is more than 61

times better off than the average person in

Burundi, which has per capita GDP of only $744

per year. Perhaps that method of assessment is too

crude, and a better metric might be looking at

how someone in the lower-income bracket in the

39See Congressional Budget Office, “Budget” (last accessed Mar. 2,

2020); and “Map of Foreign Assistance Worldwide,”

ForeignAssistance.gov (last accessed Mar. 2, 2020).

40U.S. Department of Treasury, “The CARES Act Works for All

Americans” (accessed June 1, 2020).

41Katia Savchuk, “Wealthy Americans Are Giving Less of Their

Incomes to Charity, While Poor Are Donating More,” Forbes, Oct. 6, 2014.

42The World Bank, “GDP per Capita, PPP (Current International $)”

(last accessed Jan. 3, 2020). All GDP figures are in international dollars

with a purchasing power equal to that of the U.S. dollar in the United

States and are rounded to the nearest hundred.

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VIEWPOINT

TAX NOTES INTERNATIONAL, JULY 6, 2020 105

United Kingdom fares in comparison with

someone in Burundi.

A single person with a disposable income of

£169 per week (nearly £9,000 per year) with no

children is considered to be in the lowest 10

percent in the United Kingdom.43 That data set,

however, does not take into account the range of

other benefits and services available at no cost in

the United Kingdom. Every pupil in the United

Kingdom is entitled to around £5,000 per year for

primary education and £6,300 per year for

secondary education.44 The average per-person

cost for the U.K.’s National Health Service comes

in at around £3,000 per year.45 Averaged across all

individuals, the low-income housing benefit

amounts to approximately £5,000 annually.46

Ultimately, someone with no job and no resources

in the United Kingdom can reasonably expect to

receive around £22,000 per annum in welfare,

health, education, and housing benefits, which

equates to around $28,000 annually — more than

38 times the average per capita GDP in Burundi.

Perhaps even more surprising when

comparing relative poverty with absolute poverty

is the impact that removing national boundaries

has on data sets. According to the Giving What

We Can Global Rich List, which is run in

collaboration with Care International, that income

of £22,000 mentioned above places someone in the

top 1.46 percent of the richest people in the world

by income.47 Therefore, when compared against

an international scale of income, the very poorest

in the United Kingdom are among the richest in

the world. The United Kingdom, on this analysis,

is indeed the proverbial Village of Billionaires.

Most likely, the United States is also akin to

the Village of Billionaires, although the welfare

amount per capita is more difficult to measure for

the bottom wealth segment, which may be

needier than that segment in the United

Kingdom. The United States lacks universal

healthcare but does offer Medicaid, a healthcare

program for low-income individuals and families

administered by the states,48 and Medicare for

older U.S. citizens and residents who paid, or

whose spouses paid, the Medicare tax for at least

40 calendar quarters.49 Free public elementary and

secondary education is available for all

authorized U.S. residents and many unauthorized

residents, although rules and funding amounts

vary by state. Some public housing and housing

assistance is available, but it is not universal. Even

the basic retirement benefit under Social Security

is, like Medicare, eligibility-based.50

Other benefits are available, including

temporary assistance for needy families51 and the

supplemental nutrition assistance program (food

stamps),52 but again, eligibility is not universal.

The largest welfare benefit — supplemental

income provided through the refundable earned

income tax credit — is a function of the

individual’s income from wages or other earnings,

so unemployed individuals do not share in the

benefit. Set forth in section 32, the EITC is

estimated to be a $49 billion tax expenditure over

the decade beginning in 2019.53

Returning to the United Kingdom, in a Labour

press release, McDonnell refers to the top 1

percent as the “super rich.” He says:

It’s shocking that so many of the top 1

percent are getting tax advantages. . . . A

Labour government will be for the many,

not the few — and will tackle regional

inequality, introduce a fairer taxation

system, and clamp down on tax

advantages exploited by the super-rich.54

43Feargal McGuinness and Daniel Harari, “Income Inequality in the

UK,” House of Commons Library Briefing Paper 7484 (May 20, 2019)

44Chris Belfield, Claire Crawford, and Luke Sibieta, “Long-Run

Comparisons of Spending per Pupil Across Different Stages of

Education,” Institute for Fiscal Studies (Aug. 2018).

45Office for National Statistics, “Healthcare Expenditure, UK, Health

Accounts: 2017” (last accessed Jan. 3, 2020).

46Dawn Foster, “Who Gets Housing Benefit and What Does It Cost?”

The Guardian, Jan. 22, 2016.

47Giving What We Can, “How Rich Am I?” (accessed June 1, 2020).

48U.S. Department of Health and Human Services, “Who Is Eligible

for Medicaid?” (updated Aug. 4, 2017).

49Patricia Barry, “Do You Qualify for Medicare?” AARP (updated

Sept. 29, 2019).

50Social Security Administration, “Explore the Benefits You May Be

Due” (last accessed Mar. 2, 2020)

51U.S. Department of Health and Human Services, “What Is TANF?”

(updated Nov. 7, 2012).

52U.S. Department of Agriculture, “SNAP Eligibility” (updated Aug.

14, 2019).

53“Tax Expenditures,” supra note 34.

54Labour Party release on the top 1 percent (Aug. 6, 2019).

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VIEWPOINT

106 TAX NOTES INTERNATIONAL, JULY 6, 2020

Looking at the United Kingdom from a global

perspective, however, the data suggest that even

the people to whom he is looking to redistribute

tax advantages are among the superrich. They are,

ultimately, “the few,” not “the many.” On a global

scale, McDonnell’s proposals merely take from

the top 1 percent of the top 1 percent and

redistribute to the world’s top 1 percent. On any

reasonable analysis, if based on a wider global

perspective, this is not egalitarian. It is simply the

expression of political power within a wealthy

jurisdiction to redistribute money from the

fabulously wealthy to the simply wealthy. When

McDonnell talks about regional inequality, why

restrict the discussion to regions within the U.K.

borders? Why not acknowledge that the United

Kingdom itself is just a region within a global

community?

In 2019 the Institute for Fiscal Studies reported

that in order for a U.K. taxpayer to find

themselves in the top 1 percent of income earners,

they would have to earn £160,000 per year.55 By

way of contrast, reaching the top 0.1 percent of

income earners required earning around

£650,000. The levels of inequality faced by income

earners between 0.1 and 1 percent is higher than

any other part of the income spectrum. However,

recalling the Village of Billionaires, it is as absurd

to suggest a redistribution of income from the top

0.1 percent of U.K. income earners to the top 1

percent of income earners in the name of

egalitarianism56 as it is to suggest that the top 1

percent of global income earners ought to receive

the level of benefits they receive from the top 0.1

percent of global income earners. Egalitarianism

must face this problem if it is going to be a serious

moral force in the world, rather than representing

the narrow interests of a small but lucky group of

people who happen to have been born in a

particular geographic location.

Conceptually, the system has created a

problematic moral dilemma — one not

anticipated by those within the OECD village

unless and until they look outside its walls. With

the problem noted, the discussion can turn to how

one can distinguish genuine egalitarian claims

from narrow political claims made by the

privileged few who, because of where they were

born, can claim significant benefits in large

welfare economies.

III. Economic vs. Egalitarian Discourse

Recognizing the problem with claims for

resource allocation in the context of relative as

opposed to absolute poverty, this section

considers whether redistributional claims made

in the name of “fairness” fulfill egalitarian aims if

they are restricted to within national boundaries.

The following discussion involving international

wage arbitrage sharpens the focus to lay the

groundwork for considering fairness in the

context of international tax.

Fairness is a quintessentially relative term.

Suggesting that a particular state of affairs — X —

is unfair requires an explanation. Why is X unfair?

It must be unfair relative to some other state of

affairs — Y — that is fair.

If one is talking about wages, for example, a

fair wage should be relative to some situation in

which the wage paid is unfair, and that judgment

must be based on some kind of reasoning. The

comparator group is clearly important. One

person earning £8 per hour in London might be

said to be receiving and unfair wage relative to

someone earning £5,000 per hour for doing the

same work. Why should one person get paid

more than another for the same thing? This

reasoning is applied in discrimination legislation,

which outlaws paying one person less because of

a protected characteristic such as gender, race,

and age. The U.K. Equality Act 2010 is just one

example. Notably, like other discrimination laws,

it does not, as we shall see below, apply between

jurisdictions. There also may be regional

variations within a jurisdiction, although those

tend to be a function of the cost of living. How

does one consider the fairness of a wage of £8 per

hour in one country versus a group that might be

making £8 per week elsewhere?

Claims of fairness are frequently made by

groups within a jurisdiction or a region seeking to

advance their economic or political position.

Trade unions, for example, often use the term “fair

55Robert Joyce, Thomas Pope, and Barra Roantree, “The

Characteristics and Incomes of the Top 1 Percent,” Institute of Fiscal

Studies Briefing Note BN253 (Aug. 2019).

56Egalitarianism is the doctrine that all people are equal and deserve

equal rights and opportunities. In the context of this article and along

with communitarianism, egalitarianism is the belief that inequality is a

problem that needs to be addressed using government action.

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VIEWPOINT

TAX NOTES INTERNATIONAL, JULY 6, 2020 107

pay” to advance an economic demand for higher

wages and improved conditions for their workers.

The fair pay being demanded by certain trade

unions, however, is not the sort of fairness that

matters in a more traditional Marxist analysis.

Take, for example, the demands of the British

Airline Pilots Association (BALPA), a pilots’

union, in a recent call for a strike against British

Airways. The airline’s pilots were dissatisfied

with an offer to increase their £167,000 per annum

salaries by 11.5 percent to around £186,000. The

union declared that the pilots wanted more

because the company was making large profits,

describing the demands as “fair and

reasonable.”57 BALPA was not concerned by the

inequality between its members and the cabin

crew (who earned between £16,000 and £27,000),

instead focusing the claim of fairness on the £1.3

million salary afforded to the chief executive

officer.58

Can a pilot earning over £185,000 a year really

be considered to be suffering from unfairness in

the egalitarian sense? It seems reasonable to

assume that those making demands of this sort —

demands that they present as issues of fairness —

are in fact simply economic agents using their

collective ability to disrupt business to enrich

themselves. These demands are not really

examples of egalitarianism at work; rather, they

show the exercise of economic power.

In classic Marxist theory, as discussed below,

fairness is central to organizing labor markets.

This ubiquitous term suffers from a problem

when one removes national boundaries and

considers fairness across an international

spectrum. Friedrich Engels suggests that:

the produce of the workman’s labour goes

to the Capitalist, and the workman gets

out of it no more than the bare necessaries

of life. And thus the end of this

uncommonly “fair” race of competition is

that the produce of the labour of those

who do work, gets unavoidably

accumulated in the hands of those that do

not work, and becomes in their hands the

most powerful means to enslave the very

men who produced it.59

Writing in the late 19th century, Engels might

be forgiven for simplifying the complex

relationship between rewards afforded to one

who risks capital in developing new, uncertain

enterprises (that is, equity capital) and returns

afforded to capital provided on a lower risk basis

(for example, interest on a loan). However, in the

context of an international economy, the concept

of fairness needs to be further explored.

Consider the way in which the advantages of

international trade, specifically that which

involves international labor arbitrage, accrue and

to whom. Labor arbitrage occurs when a company

elects to move its workforce to a country where

wages are lower and the overall cost of doing

business is reduced. One of the most successful

companies to engage in international labor

arbitrage is Associated British Foods, the holding

company that owns Primark. Primark, a huge

MNE in its own right with more than 75,000

employees around the world, sells a range of

fashion and homeware items to stores in

developed economies. The company has been

hailed as an enormous success; according to its

2019 annual revenue numbers, it sells around £7.8

billion of its products, generating a pretax profit

of around £913 million.60 For investors, however,

the returns have not been spectacular. Over the

last 10 years, an investor would have received

dividend income of around 1.6 percent, and their

capital would have increased by around 7 percent

per annum on a compound basis.61 This compares

with a risk-free return on the 10-year U.K.

government bond yield of about 5 percent over

the same period.62

From an investor’s perspective, returns that

only exceed those from a risk-free investment in

government bonds by 3.6 percent have been

adequate, but they are fairly pedestrian when

57BALPA release on pilots’ demands and planned strike (Sept. 8,

2019).

58Basit Mahmood, “BA CEO Slammed for Taking £530,000 Pay Rise

Before Pilot Strike,” Metro, Sept. 9, 2019.

59Engels, “A Fair Day’s Wages for a Fair Day’s Work,” The Labour

Standard, May 1, 1881.

60Associated British Foods PLC, “Annual Report and Accounts 2019”

(last accessed May 7, 2020).

61Associated British Foods, “Performance” (last accessed Mar. 1,

2020).

62“United Kingdom Government Bond 10Y,” Trading Economics

(last accessed Mar. 1, 2020).

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VIEWPOINT

108 TAX NOTES INTERNATIONAL, JULY 6, 2020

compared with other large companies.63 Who,

then, has benefited the most from Primark’s

spectacular rise? The consumer. Primark’s

consumer demographic, which is at the lower end

of the developed economy’s labor market, has

benefited from lower prices that Primark has

achieved using labor arbitrage. In other words,

the relatively poor are benefiting at the expense of

the absolute poor. As Richard Hyman, an ex-

director of market research firm Mintel pointed

out:

There has been a lot of justifiably bad

publicity about ethical sourcing, paying

people a pittance and all that, but I am

afraid the truth is that comfortable

middle-class people may be able to adopt

the moral high ground, but most people

can’t.64

In 2008 an investigation into Primark revealed

that the firm had been benefiting from child labor

with workers as young as 11.65 Investigators found

that workers in India were being paid as little as

the equivalent to 60 pence per day. By way of

contrast, the national living wage in the United

Kingdom, applicable to workers age 25 and older,

rose to £8.72 as of April 2020.66 These figures,

however, underestimate the benefits that

individuals living in modern, developed welfare

economies receive, as discussed in the previous

section.

Consumers in developed economies saw the

price of apparel drop about 4.25 percent from

2000 to 2019.67 Compare that with the U.K.

consumer price index’s growth of around 67

percent over the same period. Who has benefited

from, to use Engel’s term, the workman’s labor?

Based on the data, the lower-income brackets in

developed economies.

What the analysis above shows is that use of

economic bargaining groups within well-off

nationalities, including even the poorest in those

societies, will not result in a cogent egalitarian

redistribution. Compare the minimum wage in

the United Kingdom with the sorts of wages being

paid in, for example, Bangladesh68 — on an hourly

basis, that is £8.72 versus around 45 pence. In

those circumstances, where would the tax on the

profits of, for example, Primark be allocated in a

fair global economy? Should we look to increase

the tax revenue allocated to the U.K. where

Primark has its head office and the annual

government revenue amounts to about $1 trillion,

or to Bangladesh where it produces many of the

goods that it sells and the annual government

revenue amounts to about $24 billion?

If international government welfare budgets

and international wages were taken into account

when considering the nebulous term “fairness,”

how can we possibly argue in favor of increasing

developed countries’ demands for tax revenue?

Surely any egalitarian can only advocate for a

large-scale redistribution toward the low-wage

and low-government-welfare economies in which

many MNEs operate.

IV. BEPS 2.0

The work program produced by the OECD in

May 2019 was approved by 129 members of the

inclusive framework. It sought to resolve issues

that members believed the initial BEPS package

failed to address and to limit what appeared to be

a proliferation of unilateral actions by individual

jurisdictions.

The work program’s proposals rest on two

pillars that form what is commonly referred to as

BEPS 2.0. The first pillar seeks to reallocate taxing

rights toward countries that control the users or

consumers (the market jurisdiction). The second

pillar is designed to address the residual

problems relating to BEPS risk, specifically the

problem of profits being allocated to countries

with no or low taxation. The focus of the second

63Gary Jackson, “The UK Funds With the Strongest Returns After 10

Years of QE,” Trustnet, Mar. 6, 2019. Over 10 years, reinvesting interest in

government bonds would have yielded approximately 175 percent of the

original investment compared with 250 percent of the original

investment for Primark, more than 300 percent for the FTSE all shares

index, and over 650 percent for the best performing funds.

64Gaby Hinsliff, “Cheap and Cheerful: Why There’s More to

Primark’s Success Than You Thought,” The Guardian, May 28, 2019.

65“Exposed: Primark’s Sweatshops That Pay Children Just 60p a

Day,” Evening Standard, June 22, 2008.

66GOV.UK, “National Minimum Wage and National Living Wage

Rates: 2020” (last accessed Mar. 1, 2020).

67Official Data Foundation, “Historical Pricing for Apparel Since

1913” (last accessed Mar. 1, 2020).

68Marjorie van Elven, “Bangladesh Raises Minimum Wage for

Garment Workers,” Fashion United, Sept. 4, 2018.

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VIEWPOINT

TAX NOTES INTERNATIONAL, JULY 6, 2020 109

pillar is the global anti-base-erosion (GLOBE)

proposal. Paragraph 54 of the work program

explains that a key aim of GLOBE is:

to stop a harmful race to the bottom,

which otherwise risks shifting taxes to

fund public goods onto less mobile bases

including labour and consumption,

effectively undermining the tax

sovereignty of nations and their elected

legislators.

The proposal continues to suggest that it is

often developing countries that offer those tax

incentives to try and recruit economic activity in

their jurisdictions. The document states this often

harms those developing countries and that the

GLOBE proposals could:

effectively shield developing countries

from the pressure to offer inefficient

incentives and in doing so help them in

better mobilising domestic resources by

ensuring that they will be able to

effectively tax returns on investment made

in their countries.

The proposals, which are in keeping with the

general principles surrounding the wider BEPS

project, focus on tackling international tax

arbitrage and preventing companies from using

the international system to erode the tax base of

higher-tax jurisdictions by placing profits in low-

or no-tax jurisdictions.

The OECD suggests that pillar 2:

seeks to develop rules that would provide

jurisdictions with a right to “tax back”

where other jurisdictions have not

exercised their primary taxing rights or

the payment is otherwise subject to low

levels of effective taxation.69

Notably, this statement makes no reference to

whether the state that has the right to tax must

take into account whether it is appropriate to do

so. For example, is it appropriate for a wealthy

country with high tax and a comprehensive

welfare system to take advantage of this tax back

even if it is to the detriment of a poorer nation?

The U.S. system has long given rise to

concerns of this sort, and other OECD members

have criticized the United States because of its

worldwide taxation of domestic taxpayers

described in Treas. reg. section 1.1-1(b). While U.S.

individuals and entities are subject to tax in the

U.S. on all income from all sources, the United

States cedes primary taxing authority to the

country in which the income is generated through

a foreign tax credit. The amount of the credit is the

lesser of the amount of tax properly paid in the

foreign jurisdiction or the amount of U.S. tax

attributable to the income produced in that

jurisdiction. By capturing the excess of the U.S. tax

over the foreign tax, the United States frustrates

any attempt by developing jurisdictions to use tax

concessions to encourage investment of capital in

that jurisdiction. Some discussions suggested that

an exclusive tax savings clause in the governing

tax treaty could limit taxes to those imposed

where the economic activity takes place and

prevent the United States and other jurisdictions

from claiming tax that the developing economy

intentionally relinquished to attract capital

investment.

In the past, U.S. persons could temporarily

avoid the U.S. tax by operating through a foreign

entity (other than one that is tax transparent for

U.S. tax purposes, like a partnership). Under that

regime, which had been detailed in sections 901

and 902, repatriation of foreign-source income

was taxable in the United States — that is, U.S. tax

applied (with direct and indirect credits for

foreign taxes paid) when the foreign entity

distributed funds to its U.S. owner. Ho weve r, U.S .

tax legislation enacted in 2017 (the Tax Cuts and

Jobs Act (P.L. 115-97)) substantially eliminated the

tax on distributions from a foreign corporation to

its U.S. corporate shareholders through the 100

percent dividends received deduction in section

245A. This aligns the U.S. tax structure for

corporations and their subsidiaries with the

territorial tax systems characteristic of the United

Kingdom and the member states of the EU. Given

the long-standing criticism of U.S. exceptionalism

and its worldwide taxation, it is ironic that the

BEPS project is now initiating a tax back

conversation to prevent the supposed race to the

bottom.

For all the talk in connection with the BEPS

project about undermining the “fairness and

69OECD, “OECD Secretariat Invites Public Input on the Global Anti-

Base Erosion (GloBE) Proposal Under Pillar Two” (Nov. 8, 2019).

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VIEWPOINT

110 TAX NOTES INTERNATIONAL, JULY 6, 2020

integrity of our tax systems,”70 the project does not

address the far bigger issue of where any

additional tax ought to go in accordance with an

egalitarian analysis. Instead, BEPS 2.0 focuses on

quantifying the profits subject to the new taxing

rights, designing a nexus rule that is not

constrained by physical location, and issues

relating to implementation and administration.

Perhaps the OECD’s proposals to consider a

minimum rate of tax might address some of these

issues. The OECD states that:

a minimum tax rate on all income reduces

the incentive for taxpayers to engage in

profit shifting and establishes a floor for

tax competition among jurisdictions.71

The problem with this proposal, however, lies

in the fact that minimum levels of taxation

imposed on MNEs may simply lead to head-office

jurisdiction shopping — to some extent, it already

has when taking into account, for example,

Ireland’s ultralow corporation tax.72 It is difficult

to see a minimum tax falling below the Irish

corporate tax rate. Further, the GLOBE proposal is

largely targeted at solving specific issues

pertaining to the digital economy along with

ancillary and perennial issues such as those

relating to the taxation of permanent

establishments and foreign branches. The type of

problems the OECD is addressing do not come

close to the changes that must be made if the

world decides to take international wealth,

income, and tax resource inequality seriously. For

international inequality to be addressed in a

meaningful way, taxation rights and revenue

would need to be allocated with wholesale

redistribution of resources across the world in

mind and without regard to any other

consideration. Judging by the pending OECD

proposals, this sort of redistribution is not on the

near horizon.

The proposal here is straightforward. If the

technical debate surrounding BEPS 2.0 proceeds

as expected, jurisdictions should refrain from

using terms such as “fairness” and “justice” in

presenting their case. The debate should proceed

solely on the premise that there are multiple

parties with varying interests and degrees of

political and economic power, and they all fully

intend on expressing that power to further their

desired individual welfare. The international

forum for tax agreements between countries is

rather like the Hobbesian state of nature73: There is

no overarching Leviathan who can determine the

rules and arbitrate disputes. Instead, the mutual

and complementary self-interests of the

participants and the expression of power will

ultimately drive the outcome.

Evidence suggests that, at least in the debate

surrounding BEPS, the OECD’s deliberations and

consultations are really an effort to referee the

sparring match among international economic

powers. It is not about justice or fairness — rather,

it is about distributing power across wealthy

nations. States with high-tax, high-spend

economies were poised to explore unilateral

action, particularly in the form of digital services

taxes, which disproportionately affected U.S.

internet corporations. By spring of 2020 at least 14

countries had either enacted DSTs or made plans

to do so: Austria, Belgium, the Czech Republic,

France, Hungary, Italy, Latvia, Norway, Poland,

Slovakia, Slovenia, Spain, Turkey, and the United

Kingdom.74

For example, the 3 percent DST that France

passed in July 2019 targeted around 30 large

technology businesses, including Facebook,

Amazon, and Google.75 The tax applied to firms

with revenues of greater than €750 million that

were generated from “digital activities,”

including revenue greater than €25 million in

France. The United States immediately launched

an investigation suggesting France’s DST unfairly

targeted U.S. interests. President Trump also

suggested that the imposition of the DST might

result in retaliatory tariffs on a number of French

70Angel Gurría, “Joint Action for Efficient and Fair Taxation,” OECD

(July 20, 2013) (remarks given at the G-20 finance ministers’ meeting in

Moscow).

71OECD, supra note 69.

72IDA Ireland, “Ireland’s Tax Regime” (last accessed Apr. 15, 2020).

73Allison Christians, “Human Rights at the Border of Tax

Sovereignty,” NYU Spring 2017 Tax Policy Colloquium (Feb. 2017).

74Robert Goulder, “Rethinking the Taboo: Do DSTs Deserve Their

Bad Rap?” Tax Notes Int’l, Apr. 27, 2020, p. 477.

75Stephanie Soong Johnston, “U.S. Sanctions Won’t Make France

Drop Digital Tax, Le Maire Says,” Tax Notes Int’l, Jan. 20, 2020, p. 328; and

“French Tax on Internet Giants Could Yield 500 Million Euros Per Year:

Le Maire,” Reuters, Mar. 3, 2019.

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VIEWPOINT

TAX NOTES INTERNATIONAL, JULY 6, 2020 111

products sold into the U.S. market, including

wine. In an unedifying display of diplomacy,

Trump described French President Emmanuel

Macron’s decision to press ahead with the DST as

“foolishness,” while French Finance Minister

Bruno La Maire urged the United States to avoid

mixing the DST debate with general trade policy.76

By the end of August 2019 the United States and

France had reached a compromise. Under the

teams of the deal, France agreed to scrap its DST

once a new international levy had been agreed

upon at the OECD level.

Despite the compromise with France, the

U.S.’s aggressive approach to international trade

led to a ruling in its favor allowing it to impose

$7.5 billion of countermeasures against European

goods.77 This ruling arose as a result of European

subsidies to Airbus, which the WTO agreed had

caused harm to the U.S. economy over several

decades.

The economic negotiations surrounding how

countries trade and tax each other’s goods and

services will no doubt continue. It appears likely

that multilateral institutions such as the WTO and

the OECD will help ensure rules-based systems

remain in place and allow trade to flourish. But

are these international rules-based institutions

truly dispensing justice and fairness? We would

argue, at least from an egalitarian perspective,

that the answer is no.

We believe that terms like “fairness” or

“justice” should be reserved for actions or

discussions that involve a global understanding

of inequality, and we respectfully assert that this is

the only cogent position that an egalitarian can

honestly take. Lobbying groups, trade unions,

and domestic political bodies have devoted large

amounts of time and resources purporting to

advance socialism, but instead they merely

advanced the narrow, parochial, and regional

interests of their members. They have focused on

the economic and political well-being of their

small constituent groups, arguing for advancing

the global top 1 percent at the expense of the

global 0.1 percent.

True communitarians must feel regret when

they recognize there is another 99 percent living

outside their Village of Billionaires. If they truly

care about justice and fairness, the mission starts

and finishes with this acknowledgment.

V. Global Distributive Justice

The Village of Billionaires parable

demonstrates the absurdity of limiting

redistribution to a small and privileged

community. This section examines why the

arguments in favor of global redistributive justice

have comprehensively failed to gain traction.

As we have noted, those arguing for a narrow

domestic redistribution wealth are not doing so

based on morality or fairness — rather, this

position is simply an expression of power. The

proponents’ interests are defined by virtue of the

power they hold.78 Kenneth Waltz argues that the

system of international relations is akin to

anarchy with no central agent enforcing the

rules.79 This realist perspective helps to explain

why hopes for fairness or justice are unlikely to

result in practical arrangements that reflect

morality. Setting aside the realists’ concerns about

practical application, if a fair system could be

introduced, what would it involve?

Many thinkers, including a group known as

cosmopolitans, have considered this question. In

“Famine, Affluence and Morality,” Peter Singer

poses a thought experiment, asking what moral

responsibility may arise if, while on the way to

work, someone discovers a child drowning in a

pond.80 Singer concludes that the inconvenience

of getting wet and dirty can never outweigh the

possible loss of a child’s life. We suggest there is a

parallel between that situation and the obligations

we face when we are aware of the extreme,

absolute poverty that many suffer from around

the world.

Other cosmopolitan thinkers have discussed

these issues since Singer published his article in

76Corazon Miller, “France Rejects Trump’s Wine and Digital Tax

Remarks: ‘Please Do Not Mix the Two,’” The Independent, July 27, 2019.

77Willem Marx, “WTO Formally Backs US Tariffs on EU Goods,”

CNBC, Oct. 14, 2019.

78See, e.g., Hans Morgenthau, Politics Among Nations: The Struggle for

Power and Peace (1978).

79Wal tz , Man, the State, and War: A Theoretical Analysis (1959); and

Wal tz , Theory of International Politics (1978).

80Singer, “Famine, Affluence, and Morality,” 1(3) Phil. and Pub. Aff.

231 (1972).

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VIEWPOINT

112 TAX NOTES INTERNATIONAL, JULY 6, 2020

1972.81 Broadly, the cosmopolitan theory revolves

around three essential elements, which Thomas

Pogge sets out in several of his works.82 The first

element identifies individuals, as opposed to

family, cultures, or religions as the correct unit of

concern. The second element requires

universality, meaning there can be no

discrimination of gender, race, or age. Finally,

there is a requirement of generality so that all

people ought to have concern for all other people

equally, removing national, religious, and cultural

ties. In the end, the cosmopolitans adhere to the

golden rule, an imperative with a long, rich

heritage.83

Even within the cosmopolitan community,

there is disagreement about how a universal,

nondiscriminatory distribution might take place.

Martha Nussbaum, for example, argues that “it is

right to give the local an additional measure of

concern if it is the only sensible way to do good.”84

Similarly, Robert Goodin argues that one might be

compelled to privilege one’s fellow countrymen in

order to fulfill one’s general duties.85 In our view,

however, these positions do nothing to alleviate

the concern that distributions from the top 0.1

percent to the top 1 percent do not meaningfully

fulfill any moral duties to the other 99 percent.

What might justify the obvious abandonment

of those suffering in the global 99 percent? The

theory of nationalism, which sets forth several

duties that apply to individuals within a smaller

collective, offers one possible response. David

Miller identifies five aspects to a nationalist

obligation: (i) a common identity (ii) that is

marked off by a distinctive public culture, (iii) in

which members recognize special obligations to

one another, (iv) regard the nation as a valuable

good, and (v) aspire to be politically self-

determining.86 Yael Tamir suggests that liberal

nationalism is not grounded in consent or

reciprocity; instead, it is based on shared feelings

of belonging or connectedness.87

Small collective units of humans engender a

closeness and, inevitably, a feeling of mutual

obligation. The family unit is the most obvious

example. However, when the ties that bind

individuals are stretched too far and the elements

of common identity or public culture are so

strained that they render their application

meaningless, they may no longer warrant mutual

obligation.

Consider three towns: Utqiagvik (formerly

known as Barrow), Alaska; El Paso, Texas; and

Ciudad Juarez, Mexico. Utqiagvik is the

northernmost city in the United States. It falls

inside the Arctic Circle on Alaska’s northern coast.

The city has been a home to an indigenous Inuit

group for more than 1,000 years. The lifestyle,

jobs, and economy revolve around the activities

one might expect given its location. It is difficult to

imagine two places with greater contrasts in terms

of size, weather, lifestyle, jobs, and economy than

Utqiagvik and El Paso, a west Texas city that lies

adjacent to Ciudad Juarez. In 2019 Ronald Rael

and Virginia San Fratello designed an art

installation: a set of pink seesaws bridging the

border between the United States and Mexico,

with a beam in the border wall itself acting as the

fulcrum.88 According to Rael, it is an effort to bring

“jobs, excitement and togetherness [to] the border

wall.”

Despite being in different countries, images of

children on either side of the wall playing

together illustrate a connection similar to that one

might expect from the conditions like those

described by Miller — a connection that could

never be achieved between El Paso and Utqiagvik.

Even the languages spoken in El Paso and Ciudad

Juarez (English and Spanish) bear a closer link

than the languages in El Paso and Utqiagvik,

where the locals speak Inupiaq and have long

81See, e.g., Kwame Anthony Appiah, Cosmopolitanism: Ethics in a

World of Strangers (2006); and Martha Nussbaum, “Patriotism and

Cosmopolitanism,” in For Love of Country: Debating the Limits of Patriotism

(1996).

82Pogge, “Severe Poverty as a Human Rights Violation,” in Freedom

From Poverty as a Human Right: Who Owes What to the Very Poor? (2007);

Pogge, World Poverty and Human Rights: Cosmopolitan Responsibilities and

Reforms (2002); and Pogge, “Cosmopolitanism and Sovereignty,” in

Political Restructuring in Europe: Ethical Perspectives 89-122 (1994).

83See Leviticus 19:9-18; and Luke 22:37-39. See also Immanuel Kant,

Groundwork of the Metaphysics of Morals [Grundlegung zur Metaphysik

der Sitten] (1785); and Søren Kierkegaard, Works of Love [Kjerlighedens

Gjerninger] (1848).

84Nussbaum, supra note 81.

85Goodin, “What Is So Special About Our Fellow Countrymen?”

98(4) Ethics 663 (1988).

86Miller, On Nationality 70 (1995).

87Tamir, Liberal Nationalism 137 (1993).

88Lanre Bakare, “Pink Seesaws Reach Across the Divide at US-

Mexico Border,” The Guardian, July 30, 2019.

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VIEWPOINT

TAX NOTES INTERNATIONAL, JULY 6, 2020 113

rejected outside (read: U.S.) cultural influences,

even changing the city’s name from Barrow to

Utqiagvik in 2016.89

Is instinctive human closeness — such as the

connections established on the seesaws of El Paso

and Ciudad Juarez — less relevant than the

obligations that connect El Paso and Utqiagvik

merely because of the shape of U.S. borders?

Which pair of cities really shares a connection, a

culture, and mutual obligations? Do El Paso and

Utqiagvik have a way of sharing aspirations,

including the mutual desire to be politically self-

determining, or regard the nation as a valuable

good because they share a common culture? It

seems difficult to base obligations on arbitrarily

drawn borders.

John Rawls suggests that richer nations

should provide aid to poorer societies to help

them develop better political systems based on

justice. In Law of Peoples,90 he argues a weaker

version of his original position on global justice, a

concept expressed in his A Theory of Justice.91 But

he remains indifferent to the inequalities that

might arise once this goal has been achieved,

which is why his global theory is said to focus on

the equality of peoples as opposed to persons.

Rawls has been widely criticized for the

narrow scope of his work. For example, Derek

Parfit believes that Rawls should better account

for global inequality.92 Parfit suggests that the

difference principle — which gives absolute

priority to ensuring a benefit to those who are

worse off — cannot credibly be limited to borders

of a nation state. Instead, he says there is no

reason not to extend the principle globally.

Separately, Pogge and Charles Beitz argue that the

things that bind nations together, including

complex economic and social interdependence,

have grown increasingly complex such that the

interconnectedness could justify the type of

cooperation on a global level that Rawls argued

for within the state.93

This position is important in the context of

discussions about how to tax MNEs fairly and

distribute the income derived from that tax

revenue. The Rawlsian analysis, which recognizes

obligations that arise in complex systems of social

cooperation, cannot ignore the fact that MNEs

span the globe. By their very nature, they cross

national boundaries; therefore, when considering

how justice applies to MNEs and the tax revenues

that arise from their operations, a global solution

is inviting. Pillar 1 of BEPS 2.0 doesn’t couch the

idea that taxing rights should focus on consumers

or users in the language of justice or fairness.

Rather, it is the language that one might expect to

be used in the boardrooms of MNEs or the

government offices of countries seeking to further

their own individual interests without regard to

what Rawlsian justice, global prioritarianism, or

egalitarianism might require.

In the 21st century, the complex interplay

between economic entities renders the concept of

the nation-state far more amorphous than it was

before. Cities like London, Tokyo, and New York

have far more in common with each other than

they do with Scunthorpe, Niseko, and Utqiagvik,

despite each of those towns sharing a country

with each of those cities. Similarly, international

treaties confirming economic, defense, and

political arrangements — including the complex

relationships represented by the EU, Association

of Southeast Asian Nations, and NATO — make it

difficult to isolate the interests of one country as a

wholly separate unit. Written in 1624, the oft-

quoted line from John Donne’s Devotions Upon

Emergent Occasions has never been more apt: “No

man is an island, entire of itself; every man is a

piece of the continent, a part of the main.”

The political and economic obligations that

arise as in this connected world must, at some

stage, invite political philosophers to reconsider

the parochial nature of their work — especially

those who take the Rawlsian position on

nationally confined redistribution. From an

egalitarian perspective, the moral imperative

demands one take account of global inequalities.

One who argues for a position that ignores global

inequalities is simply advocating for the interests

of the top 1 percent and is acting as a political

lobbyist, not a moral beacon.

89Shady Grove Oliver, “Barrow Voters Support Name Change to

‘Utqiagvik,’” The Anchorage Daily News, Oct. 13, 2016.

90Rawls, The Law of Peoples (1999).

91Rawls, A Theory of Justice (1971).

92Parfit, “Equality or Priority?” in The Ideal of Equality (2002).

93Pogge, Realizing Rawls (1989); and Beitz, Political Theory and

International Relations (1979).

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VIEWPOINT

114 TAX NOTES INTERNATIONAL, JULY 6, 2020

VI. Conclusion

The Village of Billionaires parable debunks

the “fairness” and “fair share” concepts favoring

redistribution of wealth and resources when the

redistribution is limited to the borders of

developed nations. Instead, the presence of

absolute poverty globally renders the relative

poverty within developed economies trivial and

not fit for fairness or fair share redistribution

demands. Resource allocation locally — whether

that means within a family unit, a region within a

state, a single state, or even within all OECD

member states — simply demonstrates the use of

political power in advancing self-interest. Sadly,

much like a single meal supplied to an

impoverished individual, the parable of the

Village of Billionaires leaves one feeling

emptiness and despair — a truth with which

international relief agencies are all too familiar.

Durable solutions to international wealth

disparity are elusive. Citing a deeper

understanding of fairness and the meaning of a

true fair share, charities, engaged scholars and

political actors may continue to press for change,

taking small steps to encourage the global 1

percent — and the governments of the countries

in which they live — to contribute more revenue

to international development regardless of

whether that revenue is attributable to successful

BEPS adjustments. In so doing, the elite need not

cede taxing power to undeveloped and

developing economies that may not deploy their

taxing power efficiently. Instead, the OECD and

other international agencies dedicated to

developing and improving tax structures could

emphasize allocating a larger share of the

worldwide tax base to regions where wages and

resources are low, which invites international

exploitation by MNEs, by defining the tax base

and its allocation in terms of value created by

labor and resources rather than consumer

markets.94

Or one might seek to level worldwide

resources under a utopian (or dystopian) system

of redistribution based on a worldwide Marxian

model, a theory that has already proven

unworkable even on a small, national scale.95

94See, e.g., Michael P. Devereux et al., “The OECD Global Anti-Base

Erosion (‘GloBE’) Proposal,” Oxford University Centre for Business

Taxation (Jan. 2020); Christians, “Taxing According to Value Creation,”

Tax Notes Int’l, June 18, 2018, p. 1379 (arguing assigning greater value to

the contribution in developing economies); and Devereux and John

Vella, “Value Creation as the Fundamental Principle of the International

Corporate Tax System,” European Tax Policy Forum Policy Paper (2018).

95See Ordower, “Uniform International Tax Collection for Global

Development,” supra note 25.

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ResearchGate has not been able to resolve any citations for this publication.

Patriotism and Cosmopolitanism

Article

Jan 2002

M.C. Nussbaum

What Is So Special about Our Fellow Countrymen?

Article

Jul 1988
ETHICS

Robert E. Goodin

Famine, Affluence and Morality

Article

Jan 1989

Peter Singer

Freedom From Poverty as a Human Right: Who Owes What to the Very Poor?

Article

Jun 2007

Collected here in one volume are fifteen cuttingdge essays by leading academics which together clarify and defend the claim that freedom from poverty is a human right with corresponding binding obligations on the more affluent to practice effective poverty avoidance. The nature of human rights and their corresponding duties is examined, as is the theoretical standing of the social, economic and cultural rights. The authors largely agree in concluding that there is a human right to be free from poverty and that this right is massively violated by the present world economy which creates huge unfair imbalances in income and wealth among and within countries. This searing indictment of the status quo is all the more powerful as the authors endorsing it exemplify diverse philosophical methods and moral traditions and also highlight different aspects of poverty and global institutional arrangements. This volume will be of great interest and value to academics working in the fields of philosophy, political science and international relations, as well as to undergraduate and graduate students in these disciplines. It will also be a crucial aid and challenge to practitioners in international governmental organizations (such as the UN and its agencies) and NGOs who think of their work in human-rights terms. Indeed, in view of the magnitude of the human rights deficit at issue, any moral citizen has reason to engage with the arguments of this book. And the book makes this possible for most in that, throughout, even the most complex aspects of rights theory is discussed in clear, direct language, making the text accessible to specialists and lay readers alike Co-published with UNESCO

Politics Among Nations: The Struggle for Power and Peace

Article

Jan 1973

Hans J. (Hans Joachim) Morgenthau

7th ed. Terminologický slovník

Jan 1995

Miller

Miller, On Nationality 70 (1995).

Pink Seesaws Reach Across the Divide at US-Mexico Border

Jul 2019

Lanre Bakare

Lanre Bakare, "Pink Seesaws Reach Across the Divide at US-Mexico Border," The Guardian, July 30, 2019.

France Rejects Trump's Wine and Digital Tax Remarks: 'Please Do Not Mix the Two

Jul 2019
77

Corazon Miller

Corazon Miller, "France Rejects Trump's Wine and Digital Tax Remarks: 'Please Do Not Mix the Two,'" The Independent, July 27, 2019. 77

WTO Formally Backs US Tariffs on EU Goods

Oct 2019

Willem Marx

Willem Marx, "WTO Formally Backs US Tariffs on EU Goods," CNBC, Oct. 14, 2019.

A Theoretical Analysis (1959); and Waltz

Jan 1978

Man Waltz
War State

Waltz, Man, the State, and War: A Theoretical Analysis (1959); and Waltz, Theory of International Politics (1978).

The Village of Billionaires: Fair Taxation and Redistribution Amid Relative and Absolute Poverty

Abstract

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