1. UK Supreme Court Decisions International Tax Law and Public Interest George Anson v HMRC: A Global Analysis Speaker: Eduardo Baistrocchi Associate Professor of Law, LSE

2. Topics The Anson Case (2015) in the G20 Context  Emergence of a New Industrial Revolution  Increasing Competition among Countries for Talent, Capital and Revenues  Tax Treaty Disputes in the G20: An Emerging Tsunami The Anson Case: A Bridge between London and Delaware  Anson links crucial nodes of two global network legal markets: London (a key node of the international tax regime) and Delaware (a key node of the business law global network market)  The Economics of Superstars as a Theoretical Framework of the Anson Case Conclusion  Anson triggers reinforcing feedback between the central nodes of two network markets: London and Delaware.  The London and Delaware nodes should probably have increasing relevance in their own global network markets as a result of Anson and the G20 context.  From Public Interest to National Interest via, for example, Case Law Linking Nodes of Global Legal Network Markets 2

3. The Anson Case in the G20 Context 2 Central Issues in the Anson Case:  Technical Issue: Whether Mr Anson is entitled to double taxation relief under the UK/US tax treaty as a member of a Delaware partnership.  Strategic Issue:  London and Delaware are the central nodes for two different global legal network markets: the international tax regime and business law, respectively.  Can the Anson precedent link London and Delaware so as to trigger reinforcing feedback between London and Delaware to expand their relevance in their own global network markets? 3

4. Emergence of a New Industrial Revolution Technological Innovation Robots 3-D Printers Internet Impact Increasing Global Mobility of the Tax Base (both individuals and firms) Countries are Increasingly Behaving like Firms Increasing Tax Competition among Countries for Capital, Talent and Tax Revenues An Emerging Tsunami of Tax Treaty Disputes in the G20 (such as the Anson case) 4

5. 5 Tax Treaty Disputes in the G20 An Emerging Tsunami

6. Map of Tax Treaty Disputes in the G20 and Beyond (1923-2015) M. Hearson and E. Baistrocchi, A Quantitative Analysis of Tax Treaty Disputes in the G20, E. Baistrocchi (Ed) A Global Analysis of Tax Treaty Disputes (London -Cambridge University Press, forthcoming). 6

7. 7 The map shows the country relationships where there are the most tax treaty disputes in G20 countries in the pre-BEPS era (1923-2015). Countries are located more centrally based on the number of treaties to which they are a party that are the subject of disputes. The thickness of each line and the size of each node indicate the number of disputes.

8. Countries have been increasingly behaving like firms since the current age of globalisation.  Globalisation has increased international competition among countries for capital, talent and revenues.  Countries offer international investors bundles of elements to maximise investors’ returns. These bundles include: 1) resources such as the relevant talent cluster; 2) connectivity to markets; 3) institutional quality; 4) a reputation that may have an impact on access to the banking system. The ITR as a co—opetition game implemented via a two-sided platform.  Cooperation Dimension: OECD Platform  Competition Dimension: e.g., joint venture of countries with different market powers to encapsulate distribution channels.  For example, countries with relatively high market power in international trade, such as China, have the incentive to conclude a joint venture with low-tax jurisdictions, such as Hong Kong, in order to implement a channel of distribution of Chinese services to international investors. The case of Russia with two, competing channels of distribution: Cyprus and Netherlands. Implications  Global harmonisation at the regulatory level towards a single platform, currently the OECD Model.  No global harmonisation at the enforcement level. 8 Emerging Industrial Revolution Impact on the International Tax Regime

9. The Anson Case 9

10. USAUK HV LLC Boston George Anson A UK Resident, but non-domiciled individual DTC HV is transparent for US tax law purposes on US law grounds (check-the-box grounds) Delaware 10 Beijing HK Tokyo Toronto Overseas Entities – Characterisation Issues for UK Tax Purposes

11. Main Issue Whether Mr Anson is entitled to double taxation relief (DTR) under the UK/US tax treaty. Common ground: To obtain DTR, Mr Anson must establish that his share of HV’s profits account for the same profits as those by reference to which he was taxed in the US. 11

12. Anson Case Central Question: Is HV transparent for UK tax law purposes? Supreme Court - Yes Court of Appeal - No Upper Tribunal - No First Tier Tribunal - Yes 12

13. Supreme Court Holding - For the Taxpayer ‘The words “the same” are ordinary English words. It should however be borne in mind that a degree of pragmatism in their application may be necessary in some circumstances if the object of the Convention is to be achieved, for example where matching of the income by reference to which tax is computed in the two jurisdictions’. (Paragraph 114; emphasis added.) 13

14. Supreme Court Holding – For the Taxpayer ‘The profits do not belong to the LLC in the first instance and then become the property of the members.… Accordingly, our finding of the fact in the light of the terms of the LLC operating agreement and the views of the experts is that the members of [the LLC] have an interest in the profits of [the LLC] as they arise.’ (para. 119; emphasis added.) Thus, Anson is entitled to double taxation relief under the UK/US tax treaty. 14

15. US check-the-box-system: Has it been transplanted to UK law via Anson? In the Anson era, the taxpayers control the character of Delaware LLC entities for UK tax purposes. This control can be implemented via the LLC agreement. Anson net effect: it minimises the entry tax cost of off-shore income of a UK resident but non-domiciled taxpayer using Delaware LLC entities. 15

16. The Anson Case — The Economics of Superstars 16 Sherwin Rosen, The Economics of Superstars, The American Economic Review, Vol 71, N 5 (December 1981, pp. 845-858) http://users.polisci.wisc.edu/schatzberg/ps616/Rosen1981.pdf The phenomenon of superstars, wherein a relatively small number of people dominate the activities in which they engage, is increasingly relevant in the modern world. Two common elements in the economics of superstars: 1. A close connection between personal reward and the size of one’s own market. 2. A strong tendency for both market size and reward to be skewed toward the most talented people in the activity. The economics of superstars can be extended to explain the emergence of central nodes in global network legal markets, such as London and Delaware, in international tax and business law, respectively.

17. Anson Decision Delaware London

18. Conclusion The International Tax Regime and the G20 World  The Logic of Cooperation and Competition Anson Case: A Global Analysis  Anson shows the dynamics of international competition among countries for talent. Linking central nodes of different global network legal markets is an example of this competition.  The relevance of London and Delaware in their own markets should increase because Anson has activated reinforcing feedback between these key nodal cities. The economics of superstar can illuminate this dynamic.  Emerging Trend: From Public Interest to National Interest in the Context of Global Network Markets 18