Wei Cui
I am a scholar of tax law and tax policy. I also have a strong interest in social scientific investigations of the Chinese legal system and Chinese political economy.
As a tax law scholar, my main research interests are in the areas of international taxation, the value added tax (VAT), and tax and development. In the first area, I actively engage with global policy and doctrinal discussions, including about multinationals’ and wealthy individuals’ tax avoidance activities, taxing sovereign wealth funds and other state-owned enterprises, international tax dispute resolution, and tax treaty implementation. I have been a member of the Permanent Scientific Committee of the International Fiscal Association, a consultant to the United Nations, and have presented my scholarly work to the OECD and other policy audiences. My work also engages with current theoretical and empirical research by economists, and has recently examined proposals for destination-based corporate taxation, skeptical arguments against the concept of source in international taxation, and the strength of evidence for tax competition. My work is similarly interdisciplinary in the VAT area. In current research, I critique recent scholarly claims that the VAT is a paradigm of self-enforcement and information reporting, and that large-scale government intervention using information technology represents the future of tax administration. I also examine how research on the incidence of consumption taxes may require revisions to traditional VAT design and doctrinal understandings.
Many social scientists and historians regard the ability to raise tax revenue as a core component of modern state capacity. This idea also drives my study of tax and development, in which I explore the hypothesis that legal systems have played an under-appreciated and under-theorized role in modern tax administration. This hypothesis is fueled by conceptual reasoning but also especially by my study of tax administration in China, which I think of as a system that has gone long ways to cope with the needs of modern tax collection, but all without the rule of law. By analyzing the ways in which a very large administrative apparatus can—and cannot—function without the rule of law, this research also provide new understandings of the relation between law and development in general.
My scholarship on Chinese law is grounded on my teaching, research, policy-advisory and private practice experience in China between 2006 and 2013. During those years, I taught law as an associate professor at China University of Political Science and Law in Beijing, and had the privilege of working repeatedly with ministries and agencies in China’s national government on the development of tax policy. I was also able to continue the practice of tax law with market-leading firms. As a result of this experience, my writing on Chinese law focuses on the workings of the executive branch, which I believe to be crucial to the development of rule of law in China. I think of the presence or absence of a legal order (which I take to be what the “rule of law” refers to) as often having little to do with judicial institutions or ideological discourse about the rule of law. Instead, it is a pervasive and fundamental phenomenon that is endogenous to the design of all kinds of institutions, be it the marketplace, the work place, an administrative agency, or a federalist structure.
Address: UBC Faculty of Law, 1822 East Mall, Vancouver, BC, Canada V6T 1Z1
As a tax law scholar, my main research interests are in the areas of international taxation, the value added tax (VAT), and tax and development. In the first area, I actively engage with global policy and doctrinal discussions, including about multinationals’ and wealthy individuals’ tax avoidance activities, taxing sovereign wealth funds and other state-owned enterprises, international tax dispute resolution, and tax treaty implementation. I have been a member of the Permanent Scientific Committee of the International Fiscal Association, a consultant to the United Nations, and have presented my scholarly work to the OECD and other policy audiences. My work also engages with current theoretical and empirical research by economists, and has recently examined proposals for destination-based corporate taxation, skeptical arguments against the concept of source in international taxation, and the strength of evidence for tax competition. My work is similarly interdisciplinary in the VAT area. In current research, I critique recent scholarly claims that the VAT is a paradigm of self-enforcement and information reporting, and that large-scale government intervention using information technology represents the future of tax administration. I also examine how research on the incidence of consumption taxes may require revisions to traditional VAT design and doctrinal understandings.
Many social scientists and historians regard the ability to raise tax revenue as a core component of modern state capacity. This idea also drives my study of tax and development, in which I explore the hypothesis that legal systems have played an under-appreciated and under-theorized role in modern tax administration. This hypothesis is fueled by conceptual reasoning but also especially by my study of tax administration in China, which I think of as a system that has gone long ways to cope with the needs of modern tax collection, but all without the rule of law. By analyzing the ways in which a very large administrative apparatus can—and cannot—function without the rule of law, this research also provide new understandings of the relation between law and development in general.
My scholarship on Chinese law is grounded on my teaching, research, policy-advisory and private practice experience in China between 2006 and 2013. During those years, I taught law as an associate professor at China University of Political Science and Law in Beijing, and had the privilege of working repeatedly with ministries and agencies in China’s national government on the development of tax policy. I was also able to continue the practice of tax law with market-leading firms. As a result of this experience, my writing on Chinese law focuses on the workings of the executive branch, which I believe to be crucial to the development of rule of law in China. I think of the presence or absence of a legal order (which I take to be what the “rule of law” refers to) as often having little to do with judicial institutions or ideological discourse about the rule of law. Instead, it is a pervasive and fundamental phenomenon that is endogenous to the design of all kinds of institutions, be it the marketplace, the work place, an administrative agency, or a federalist structure.
Address: UBC Faculty of Law, 1822 East Mall, Vancouver, BC, Canada V6T 1Z1
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International tax design by Wei Cui
I argue first that it is crucial to distinguish between two versions of the DCFT. Version 1 resembles proposals for taxing corporate income by sales-factor-only formulary apportionment. Version 2, which is what the House GOP Blueprint proposes, resembles a destination-based VAT with deductions for labor costs and refundable losses. DCFT Version 2 is merely a species of residence-based consumption taxation and, unlike Version 1, would not allocate revenue to countries of consumer residence as distinct from countries of investor residence. It thus introduces no fundamental new option into international tax design. Instead, it may create substantial trade distortions (and its loss refund feature is also unlikely to be administrable). DCFT Version 1 does present a new option for taxing corporate profit but is un-implementable. I also highlight ways in which DCFT proposals make ad hoc normative and behavioral assumptions. For example, in criticizing the traditional corporate income tax, DCFT proponents only refer to neutrality benchmarks and give no weight to distributional concerns, but when defending the advantage of the DCFT vis-à-vis the VAT, they introduce considerations of progressivity.
Finally, the Article offers a novel explanation of why it is difficult to incorporate information about consumer location into international tax design, and argues that “residence” is more promising than “destination” (when both are understood as capturing information about natural persons) for dealing with problems arising from capital mobility.
General tax theory and tax design by Wei Cui
Design of tax administration by Wei Cui
I suggest that to better understand the institutional foundations of modern tax collection, we should stop thinking of business firms as “fiscal intermediaries” in a game of deterrence against tax evaders. Instead, it would be more fruitful to conceive of firms as sites of social cooperation under the rule of law. The co-evolution of the business firm and modern regulatory law may have enabled modern governments to practice precisely “taxation without information”.
US international taxation by Wei Cui
These questions for U.S. tax law and policy cannot be answered without understanding the Chinese administrative law approach to treaty implementation. This Article suggests that affected U.S. taxpayers cannot simultaneously avoid contesting the applications of the Chinese rules and claim, for U.S. law purposes, that they have taken “all practical and effective remedies” to reduce their tax liabilities. It also suggests that the U.S. rules on what qualifies a compulsory tax payment constitute a way of “exporting” U.S. concepts of the rule of law. But most fundamentally, it argues that to protect their rights and expectations under tax treaties, U.S. taxpayers and the IRS must tap unfamiliar mechanisms that enhance the rule of law, such as legislative, judicial, and executive oversight.
In this essay I discuss issues that are crucial for understanding the DCFT. I start off by examining border adjustments required under DCFT, and argue that we should not see the “perennial question” concerning such adjustments as being about whether it is in violation of WTO agreements. Instead, the question should be whether we truly understand the DCFT’s potential impact on trade, aside from WTO legal concerns. I identify a couple of ways in which objections against the DCFT have not been adequately answered. I then examine how the loss carry-forward aspect of the Blueprint interacts with border adjustments, and how things get even more complex when non-corporate entities are also taxed on a destination basis. The implementation issues for the DCFT I highlight would not arise if the U.S. were to adopt a VAT instead. I conclude by comparing the DCFT with the VAT in respect of the issue of progressivity, and considering the question of how other countries would respond to a U.S. DCFT.
Empirical research on taxation by Wei Cui
These conflicting theoretical views should be empirically testable. In particular, the first view suggests that SOEs should be insensitive to the income tax, that they would not pursue domestic tax planning, and that a firm’s tax sensitivity should rise as it becomes more privatized. By contrast, the third view suggests that SOEs are likely to be tax sensitive, and that such tax sensitivity is as much a function of managerial compensation and the degree of shareholder monitoring as it is of the proportion of government ownership. The chapter shows that recent advanced accounting research on Chinese listed companies augments already strong historical and legal evidence that supports the third view. Chinese SOEs, particularly centrally-owned SOEs, engage in extensive tax lobbying, and display degrees of tax planning similar to private firms. The chapter suggests that further empirical research on SOE taxation should be designed with a more explicit aim of testing the above theories, including whether countries that encounter greater problems with SOE corporate governance also rely more heavily on SOE income taxation.
I argue first that it is crucial to distinguish between two versions of the DCFT. Version 1 resembles proposals for taxing corporate income by sales-factor-only formulary apportionment. Version 2, which is what the House GOP Blueprint proposes, resembles a destination-based VAT with deductions for labor costs and refundable losses. DCFT Version 2 is merely a species of residence-based consumption taxation and, unlike Version 1, would not allocate revenue to countries of consumer residence as distinct from countries of investor residence. It thus introduces no fundamental new option into international tax design. Instead, it may create substantial trade distortions (and its loss refund feature is also unlikely to be administrable). DCFT Version 1 does present a new option for taxing corporate profit but is un-implementable. I also highlight ways in which DCFT proposals make ad hoc normative and behavioral assumptions. For example, in criticizing the traditional corporate income tax, DCFT proponents only refer to neutrality benchmarks and give no weight to distributional concerns, but when defending the advantage of the DCFT vis-à-vis the VAT, they introduce considerations of progressivity.
Finally, the Article offers a novel explanation of why it is difficult to incorporate information about consumer location into international tax design, and argues that “residence” is more promising than “destination” (when both are understood as capturing information about natural persons) for dealing with problems arising from capital mobility.
I suggest that to better understand the institutional foundations of modern tax collection, we should stop thinking of business firms as “fiscal intermediaries” in a game of deterrence against tax evaders. Instead, it would be more fruitful to conceive of firms as sites of social cooperation under the rule of law. The co-evolution of the business firm and modern regulatory law may have enabled modern governments to practice precisely “taxation without information”.
These questions for U.S. tax law and policy cannot be answered without understanding the Chinese administrative law approach to treaty implementation. This Article suggests that affected U.S. taxpayers cannot simultaneously avoid contesting the applications of the Chinese rules and claim, for U.S. law purposes, that they have taken “all practical and effective remedies” to reduce their tax liabilities. It also suggests that the U.S. rules on what qualifies a compulsory tax payment constitute a way of “exporting” U.S. concepts of the rule of law. But most fundamentally, it argues that to protect their rights and expectations under tax treaties, U.S. taxpayers and the IRS must tap unfamiliar mechanisms that enhance the rule of law, such as legislative, judicial, and executive oversight.
In this essay I discuss issues that are crucial for understanding the DCFT. I start off by examining border adjustments required under DCFT, and argue that we should not see the “perennial question” concerning such adjustments as being about whether it is in violation of WTO agreements. Instead, the question should be whether we truly understand the DCFT’s potential impact on trade, aside from WTO legal concerns. I identify a couple of ways in which objections against the DCFT have not been adequately answered. I then examine how the loss carry-forward aspect of the Blueprint interacts with border adjustments, and how things get even more complex when non-corporate entities are also taxed on a destination basis. The implementation issues for the DCFT I highlight would not arise if the U.S. were to adopt a VAT instead. I conclude by comparing the DCFT with the VAT in respect of the issue of progressivity, and considering the question of how other countries would respond to a U.S. DCFT.
These conflicting theoretical views should be empirically testable. In particular, the first view suggests that SOEs should be insensitive to the income tax, that they would not pursue domestic tax planning, and that a firm’s tax sensitivity should rise as it becomes more privatized. By contrast, the third view suggests that SOEs are likely to be tax sensitive, and that such tax sensitivity is as much a function of managerial compensation and the degree of shareholder monitoring as it is of the proportion of government ownership. The chapter shows that recent advanced accounting research on Chinese listed companies augments already strong historical and legal evidence that supports the third view. Chinese SOEs, particularly centrally-owned SOEs, engage in extensive tax lobbying, and display degrees of tax planning similar to private firms. The chapter suggests that further empirical research on SOE taxation should be designed with a more explicit aim of testing the above theories, including whether countries that encounter greater problems with SOE corporate governance also rely more heavily on SOE income taxation.
In this chapter, I summarize arguments made elsewhere that the allocation of power and responsibilities among different tiers of government has had major influences on the development of the rule of law in China. Specifically, extraordinary legislative centralization has resulted in a radical short supply of legal rules in virtually all areas of governance. At the same time, the extraordinary decentralization of policy implementation has directly reduced compliance with and enforcement of the laws, and indirectly undermined the development of legal institutions and the legal profession. The adverse consequences of legislative centralization and enforcement decentralization are also mutual reinforcing. Overall, these twin arrangements may have held back the development of the rule of law to a greater degree than even China’s authoritarian government itself would like.
The new SAT regulation on informal rulemaking is just one illustration of the dynamic development of the rule of law in taxation in China. This essay takes the new regulation as an occasion for examining the question: what is “law” in Chinese tax administration? Three views are described: one that is embodied in the Law on Legislation; another that tends to treat all government announcements as having the force of law; and a third, embodied in the new SAT regulation, that differs from both.
This Article describes the recent regulatory and commercial developments in China that may rekindle interest in elaborating the meaning of "establishment." It then discusses the interpretations that have been given to the concept under existing law and attempts to identify the policy issues that these interpretations implicitly touch on but fail to explicitly confront. Finally, the Article looks at the overall tax policy stance towards foreign portfolio investment that may reasonably be attributed to China.
China's large surpluses in current and capital accounts and currency reserves make it doubtful that China will follow the US model for taxing foreign investment in the near term. Nonetheless, the government would be well advised to adopt an interpretation that permits foreign portfolio investment already identified as beneficial for China.