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Of Great Fears and Greater Hopes: The GPH-MILF Framework Agreement on the Bangsamoro

By: Celeste Marie R. Cruz[*]


Peace and eco­nom­ic devel­op­ment have long remained elu­sive to the con­flict-torn region of Mus­lim Min­danao in the Philip­pines. Since the late 1960s, the Con­flict in Min­danao, led by a seces­sion­ist inde­pen­dence move­ment of the Islam­ic minor­i­ty in a pre­dom­i­nant­ly Catholic coun­try,[1] has led to an enor­mous loss of life and suf­fer­ing, claim­ing an esti­mat­ed 120,000 lives and dis­plac­ing more than 2 mil­lion peo­ple.[2] The ongo­ing peace process between the Gov­ern­ment of the Repub­lic of the Philip­pines (GPH), under Pres­i­dent Benig­no Aquino III, and the Moro Islam­ic Lib­er­a­tion Front (MILF) reached a sig­nif­i­cant mile­stone with the sign­ing of the Frame­work Agree­ment on the Bangsamoro[3] (Frame­work) last Octo­ber 15, 2012. The Frame­work seeks to estab­lish a “fed­er­al” type of sub-state in the said region[4] that is cur­rent­ly under the juris­dic­tion of the Autonomous Region in Mus­lim Min­dano (ARMM).

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Fate of the Unilateral Option Clause Finally Decided in Russia

By: Yele­na E. Archiyan[*]

For years, arbi­tra­tion courts in Rus­sia have upheld over and over again the valid­i­ty of the so called uni­lat­er­al option clause (“UOC). But every­thing changed on June 19, 2012, when the Pre­sid­i­um[1] of the high­est arbi­tra­tion court of the Russ­ian Fed­er­a­tion[2] held in Russ­ian Tele­phone Com­pa­ny v. Sony Eric­s­son Mobile Com­mu­ni­ca­tions Rus that such claus­es are invalid and unen­force­able.[3] In 2009, Russ­ian Tele­phone Com­pa­ny (“RTC”) entered into an agree­ment with the Russ­ian sub­sidiary of Sony Eric­s­son, Sony Eric­s­son Mobile Com­mu­ni­ca­tions Rus (“Sony Eric­s­son”) for the dis­tri­b­u­tion of Sony Eric­s­son phones.

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Territorial-based Income Taxation as International Ostracism

Tax­es not only serve to raise pub­lic rev­enues but also to shape the behav­ior of tax­pay­ers, and thus of the econ­o­my as a whole.  The tax neu­tral­i­ty of Adam Smith is, there­fore, the most hyp­o­crit­i­cal aspi­ra­tion of any tax pol­i­cy.  Impor­tant­ly, gov­ern­ments today not only seek to shape the behav­ior of its res­i­dents, but also of the for­eign­ers who inter­act with the country—thereby trans­form­ing the ter­ri­to­ri­al­i­ty of tax juris­dic­tion into anoth­er hypocrisy.  And the effects of this phe­nom­e­non have an increas­ing impact on inter­na­tion­al pol­i­tics, as well as cer­tain trade poli­cies did in oth­er not so far times.

On Octo­ber 26, 2011, the Com­mit­tee on Ways and Means of the U.S. House of Rep­re­sen­ta­tives issued a dis­cus­sion draft for a “com­pre­hen­sive tax reform” of the U.S. inter­na­tion­al tax­a­tion sys­tem.  The issuance’s pur­pose is to seek feed­back from inter­est­ed pro­fes­sion­als and stake­hold­ers in order to improve the pro­pos­al.  And this pro­pos­al, usu­al­ly called “The Camp Tax/Territorial Pro­pos­al” due to the fact that Con­gress­man Dave Camp pre­sides the Com­mit­tee on Ways and Means, is very impor­tant to be ignored.  This reform, in fact, posits a mod­i­fi­ca­tion that we could con­sid­er a kind of “rev­o­lu­tion” in the U.S. income tax sys­tem.  It pro­pos­es a change from a “world­wide tax sys­tem” to a “ter­ri­to­r­i­al tax sys­tem,” and offers a reduc­tion of the cor­po­rate tax rate (from 35% to 25%) and, as an accom­pa­ny­ing and instru­men­tal ben­e­fit, a “repa­tri­a­tion tax hol­i­days.”

In a few words, a world­wide tax sys­tem (also know as res­i­dence-based tax sys­tem) impos­es tax­es on any income regard­less its phys­i­cal ori­gin (source), both domes­tic and for­eign.  Instead, a ter­ri­to­r­i­al sys­tem only tax­es the domes­tic (res­i­dence) source income while exempt­ing the for­eign one.  In both sce­nar­ios, the income is typ­i­cal­ly taxed first in its source coun­try and, in a cross-bor­der arrange­ment, after­wards in the taxpayer’s res­i­dence coun­try.  So, to alle­vi­ate the con­tin­gent dou­ble tax­a­tion, the world­wide sys­tem grants a cred­it for for­eign tax­es paid (the so-called “for­eign tax cred­it,” which oper­ates as an advance of domes­tic tax­es) where­as the ter­ri­to­r­i­al sys­tem sim­ple exempts the for­eign source income.  Also, in a world­wide sys­tem such as the U.S. sys­tem, tax­a­tion on for­eign income derived from busi­ness (“active income”) is nor­mal­ly deferred until brought to the U.S. (“repa­tri­a­tion”) where­as for­eign income derived from invest­ments (“pas­sive income”) is gen­er­al­ly taxed as soon as it is earned through a num­ber of quite com­plex mech­a­nisms, such as the U.S. Sub­part F rules (Con­trolled For­eign Cor­po­ra­tions or “CFC”) and oth­ers.  The accom­pa­ny­ing ben­e­fit to this reform, the “repa­tri­a­tion tax hol­i­days,” attempts pre­cise­ly to incen­tive U.S. investors to rapid­ly repa­tri­ate their active income earned abroad through a very appeal­ing tax treat­ment, which con­sists basi­cal­ly in a reduced tax rate along with a com­fort­able install­ment peri­od to pay the tax­es (for details, click here).

Although at a first sight (and as many are today argu­ing), this reform would favor allo­cat­ing of U.S. invest­ments abroad through exempt­ing for­eign source income, a more thought­ful con­sid­er­a­tion reveals the con­trary.  Impor­tant­ly, the first goal at hand is to repa­tri­ate U.S. invest­ments cur­rent­ly invest­ed abroad, and that is actu­al­ly an objec­tive with empir­i­cal sup­port from the expe­ri­ence of oth­er coun­tries which have imple­ment­ed a ter­ri­to­r­i­al tax sys­tem such as The Nether­lands and notably, the U.K. (for fur­ther infor­ma­tion, see links below).  On the oth­er hand, noth­ing in this pro­pos­al indi­cates that the Com­mit­tee on Ways and Means attempts to decrease the U.S. rev­enues by exempt­ing for­eign source income that, as argued, would be gen­er­at­ed by U.S. invest­ments that would move abroad by virtue of this reform.  To the oppo­site, the reform also aims to increase the U.S. tax rev­enues just as it has hap­pened in The Nether­lands and U.K.  So, this pol­i­cy has actu­al­ly worked so far.  Con­se­quent­ly, we may con­clude that the pro­posed reform assumes that, in the long-term, the income gen­er­at­ed by U.S. invest­ments will then be pro­duced only in the U.S. and not abroad.  Why?

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