Tax Policy Challenges in the 21st Century

S. 449I. Introduction

This chapter seeks to ask if extraterritoriality in tax law runs afoul of basic principles of public international law or whether it is simply a policy choice that some states avoid as a matter of international comity. This paper will first examine the question of the public international legality of extraterritorial jurisdiction with special reference to tax law, and will then cover two extraterritorial provisions in federal tax laws: the taxation of nonresident US citizens on their worldwide income (citizenship-based taxation), and the extension of informational reporting requirements for US citizens and foreign legal entities and tax administrations under the Foreign Account Tax Compliance Act (FATCA).

The first section of this chapter discusses the public international law implications of extraterritorial legislation and nationality as a basis for jurisdiction in tax matters. The second section will trace the history of citizenship-based taxation in US tax policy, and make an analysis of scholars’ arguments for and against the policy. The third section will briefly highlight a single US state’s experience with an extraterritorial unitary group taxation regime, the...