Article by Noam Noked
Reaching multilateral agreements on legal reforms to address transnational problems is a formidable challenge. This task is further complicated by the structure of U.S. policymaking, where Congress may reject or actively undermine international legal standards that were established with the support of the U.S. administration. A recent example of this is the so-called “global tax deal.” The previous U.S. administration played a crucial role in reaching what then-Treasury Secretary Janet Yellen described as a “historic agreement on new international tax rules,” which was endorsed by over 130 jurisdictions. This agreement aims to reform the international taxation of large multinational enterprises (Pillar One) and introduce a groundbreaking global minimum tax (Pillar Two). However, since the announcement of the agreement, Congress has blocked one of these reforms and sought to derail the other.
Given this reality, how can the international community develop and implement effective international legal standards? Recent international tax reforms have sought to address this challenge through legal design: establishing legal standards that are resilient to congressional inaction or that would disadvantage U.S. interests if not adopted. This Article analyzes the legal design techniques used to create “Congress-proof” international legal standards, examining six international tax standards and reforms from the past decade as case studies. This analysis demonstrates how variations in legal design affect the adoption and implementation of the relevant standards. For instance, it shows how differences in the legal design of Pillar One and Pillar Two have resulted in the failure of the former and the relative success of the latter.
The Article examines three strategies used in the legal design of the relevant reforms. The first strategy involves establishing a legal standard that the U.S. administration can implement within the existing legal framework, thereby eliminating the need for congressional action. The second strategy focuses on minimizing the negative consequences of U.S. nonparticipation by ensuring that congressional inaction cannot prevent the international rollout of the legal standard or undermine its effectiveness. The third strategy aims to create incentives for the U.S. government and relevant stakeholders to adopt the reform. The Article evaluates these strategies and their effects, including their impact on the negotiation, adoption, and implementation of international reforms. It also discusses concerns related to extraterritoriality, treaty violations, legitimacy, and retaliatory actions.
About the Author
Noam Noked, Associate Professor, Faculty of Law, The Chinese University of Hong Kong.
Citation
100 Tul. L. Rev. 701