Introduction (footnotes omitted):

Multinational enterprises (MNEs) earn substantial returns in the current global economy. To the extent that these returns are in excess of what is needed to induce MINEs to remain in operation, these prof- its may be termed “rents.” Governments have an interest in capturing some of these rents for their citizens or national treasuries and regularly pursue policies to that end. Sometimes countries seek to capture rents that are realized by MNEs headquartered and domiciled locally. In theory, at least, that country can collect these rents through its substantial power to tax or regulate resident entities. In other cases, rents may be realized by nonresident entities. Collection of rents by nations in which an MNE operates, but does not reside, has proved more difficult.

A prominent pattern in recent years has been for U.S.-based MNEs to realize rents from operations in countries outside the United States. U.S. MNEs have been criticized for not paying their “fair share” of rents to the foreign jurisdictions in which they operate. For example, a European Commission investigation found that Apple had paid only $50 in tax in Europe for every $1 million of profit, leading one commentator to describe Apple as “not only the world’s largest for-profit corporation but also the world’s largest tax-exempt one.” Similar complaints have been made about the lack of tax paid to foreign governments by companies such as Google and Starbucks.

Although U.S. firms may have garnered the lion’s share of the press in this context, this is by no means a phenomenon limited to U.S. companies. MNEs resident in other jurisdictions have likewise been charged with adopting organizational structures and planning that purportedly strips the tax base of local economies in illicit ways. National governments have begun to strike back. Sometimes this
occurs in fora that promote the virtues of multilateralism and coordination. Sometimes jurisdictions have begun to experiment with unilateral measures that mark fairly radical departures from existing norms governing tax and regulation. All such measures, however, strike us as ad hoc, in the sense that there exists no systematic attempt to analyze the benefits and detriments of the full range of policy instruments that jurisdictions might apply in their attempt to reach MNE rents.

This Article, by contrast, offers a comparative assessment of the policy instruments that governments might employ to collect a share of rents from nonresident MNEs that operate within their borders. We begin with tax instruments, discuss recent attempts to expand those instruments, and then extend our analysis to antitrust policy, state- owned enterprises, price regulation, and various instruments of trade policy. Our goal is to identify the strengths and weaknesses of differ- ent instruments in different contexts. A related goal is to identify the circumstances in which we might find these instruments used.

The comparative approach of this Article marks a departure from existing scholarship, which tends to discuss tax, trade, and other regulatory instruments in isolation. Some scholarship has explored the tax-trade intersection, but these articles examine issues of overlap or conflict. A trade provision, for example, might preclude a particular kind of tax expenditure. Or, the underlying policy goals of free trade may or may not undergird U.S. or international tax norms. However, there do not appear to be any articles that provide a comparative analysis of the ways in which a nation might attempt to capture MNE rents through autonomous tax, trade, or regulatory instruments.

A key aspect of our comparative analysis is that one must consider each potential instrument on its own terms, taking account of context. Different instruments are subject to distinct legal constraints arising out of various treaty commitments and discrete aspects of public inter- national law. Some instruments may work to capture rents for certain sectors and organizational forms but not others. Despite this fine- grain aspect to the analysis, there is an organizing theme. The ultimate ability of a jurisdiction to capture rents from foreign MNEs is a function of the extent to which the jurisdiction has monopsonistic market power. Absent such power, no instrument will be effective. The interesting question is the relative merits of using one instrument or an- other where such power does exist.

The Article is organized as follows. In Part I, we define terms, outline some relevant sources of MNE economic rent, and offer some simple theorizing about the objectives of governments in the battle for rents and the international cooperation that may arise in response. Part II explains how jurisdictions may seek to capture economic rent through the tax system. Part III describes the role that nontax instruments might play in capturing rent. Finally, Part IV attempts to draw general conclusions regarding the relationship among the various fields considered here.