3L Amanda Leon's International Tax Law Paper Wins Major Writing Competition

Paper Notes Implications for U.S. If EU Decides Treaty-Shopping Limitations Are Illegal
Amanda Leon

Formerly a CPA with Deloitte, third-year law student Amanda Leon didn't think she would pursue tax again. "But I took Federal Income Tax my first year and really got into it again. The tax faculty are great here, so I kind of lucked out."

January 5, 2017

Amanda Leon, a third-year University of Virginia School of Law student from Grayslake, Illinois, has won first place in the International Fiscal Association USA Branch 2016 Writing Competition.  

As part of the honor, Leon will attend the association's February conference in New York, and her paper is being considered for publication in Bloomberg BNA's Tax Management International Journal.

The paper, “If the Commission ‘LOBs’ a Pitch to the ECJ, Will It Strike Out Again?,” tied for the award. It looks at a 2015 European Commission infringement action against the Netherlands and explains how a potential court case stemming from that action could have a major impact on international tax law — specifically the enforcement of limitation-of-benefits clauses, or LOBs.

News of winning the top prize was a "mid-finals pick-me-up," said Leon, who credits UVA Law Professor Ruth Mason for getting her interested in the topic during EU Taxation, Mason's spring seminar class.

In bringing the action on which Leon reports, the European Commission says that a Netherlands-Japan bilateral tax treaty discriminates against businesses in other European countries by offering a more favorable tax treatment.

The action instructed the Dutch government to amend its treaty or face referral to the European Court of Justice.

LOBs are a common safeguard in international tax agreements, and primarily exist to prevent so-called "treaty shopping." An example of shopping would be when a company has headquarters in one country, draws income from a second "source" country with which there is a treaty (often featuring a reduced tax rate as a partnering incentive), then forms a corporation in a third country, transfers its stock and reaps more favorable tax benefits there.

But with limitations in place, a business is obligated to pay taxes to the source country from which it is reaping profits.

"The United States, India and Japan place tremendous value on these provisions because they effectively combat abusive treaty shopping," Leon writes in her paper, noting that the 2016 U.S. Model Income Tax Convention refers to LOBs as "a fundamental pillar of U.S. tax treaty policy for over two decades."

Leon says if LOBs were no longer applicable in EU deals, the EU member state would lose revenue until it could renegotiate its treaties to either eliminate the LOB (which the United States would not accept) or to devise an EU-compliant LOB. Multinational businesses would also face much uncertainty.

"If the ECJ finds the LOB provisions in the Netherlands-Japan bilateral tax treaty to be incompatible with EU law, member states would be forced to renegotiate countless treaties, all whilst becoming less attractive negotiation partners," she writes.

While there are experts who consider LOBs safe from challenge, Leon says that the commission's infringement action reveals the unresolved nature of the issues involved. A previous ECJ class action case, Class IV ACT, concluded that LOBs are indeed compatible with EU law, but Mason is among experts who think the case was not comprehensive enough.

Mason said the Netherlands has largely ignored the action against its treaty, but the Commission will not likely leave the challenge unanswered — and "even if the commission gives up its fight [for political reasons], the taxpayers have a private right of action, so this challenge will be heard and decided by the court sooner or later."

The IFA is one of the largest organizations of tax advisers in the world, and well-respected tax professors judge the writing competition each year, Mason said.

"The IFA USA Branch Committee’s prize selection reflects the high caliber of Amanda’s paper and the growing importance of EU law for U.S. tax practitioners," she said. "I'm incredibly proud of Amanda. In 11 years of teaching, I've never had a student win this award."

As a former CPA with Deloitte Tax, Leon had a head start in her study of tax before attending UVA Law.

"I told myself I wasn't going to do tax, because I did tax before coming to law school and I wanted to try something new," she said. "But I took Federal Income Tax my first year and really got into it again. The tax faculty are great here, so I kind of lucked out."

After graduation, Leon will work for Caplin & Drysdale, a renowned law firm in Washington, D.C., that specializes in tax. She holds a bachelor of business administration degree in accountancy and political science from the University of Notre Dame.

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