MJIL’s OpinioJuris imprint collects expert short-form publications on key issues in international law produced by world-renowned scholars. The views and opinions expressed in these articles are those of the authors only.
Cite: Reuven S. Avi-Yonah, Altera, the Arm’s Length Standard, and Customary International Tax Law, 38 MJILOpinioJuris 1 (2017), http://www.mjilonline.org/altera.
ALTERA, THE ARM’S LENGTH STANDARD, AND CUSTOMARY INTERNATIONAL TAX LAW
Reuven S. Avi-Yonah*
Irwin I. Cohn Professor of Law, the University of Michigan
The recent Altera case in the US Tax Court (on appeal to the Ninth Circuit) raises interesting issues in regard to the much-debated topic of whether customary international tax law (CITL) exists. Altera involved the question whether the cost of employee stock options should be included in the pool of costs that must be shared under a cost sharing agreement. In Xilinx, the Ninth Circuit held under a previous version of the regulations that these costs should not be included because unrelated parties operating at arm’s length would not have agreed to include them. Treasury then amended the regulation to state specifically that “all” costs includes the cost of stock options but did not carve out an exception from the arm’s length standard. In Altera, the Tax Court sitting en banc invalidated the new regulation on the ground that it was inconsistent with the arm’s length standard (ALS). This article-in-abstract discusses the implications of Altera for the long-running debate about whether CITL exists and whether it is binding on the United States.
Introduction: Xilinx and Altera
In Xilinx v. Commissioner (125 TC 37 (2005), aff’d, 598 F.3d 1191 (9th Cir. 2010)), the Tax Court held that the cost of employee stock options cannot be included in the pool of costs shared under a cost sharing agreement because unrelated parties would not have agreed to share theses costs and the ALS takes precedence over the cost sharing regulations. A panel of the Ninth Circuit initially reversed, arguing that the more specific cost sharing regulations should override the ALS, and that the omission of stock option costs would undermine Congressional intent to ensure that all costs are included under the “commensurate with income” standard of IRC section 482. A storm of criticism over the court violating the ALS ensued, and the same Ninth Circuit panel vacated its previous ruling and affirmed the Tax Court.
Treasury then amended the cost sharing regulations (Treas. Reg. 1.482-7(d)(2)) to require specifically that the cost of options be included, relying on the commensurate with income standard. However, Treasury did not carve out an exception to the ALS; instead, it stated that such a result “is consistent with the arm’s length standard.” In Altera, 145 TC 3 (2015), a unanimous Tax Court sitting en banc overturned the new regulation because Treasury failed to address evidence that unrelated parties would not have agreed to share the cost of stock options and the ALS (Treas. Reg. 1.482-1) controls.
The issue is on appeal to the Ninth Circuit, and I have joined an amicus brief arguing that Treasury was entitled to rely on the commensurate with income standard: In the absence of true comparables it is impossible to prove that the result is inconsistent with the ALS, and the legislative history of the commensurate with income
Cite as: James C. Hathaway, The Michigan Guidelines on Refugee Freedom of Movement, 39 Mich. J. Int'l L. 1 (2017).
THE MICHIGAN GUIDELINES ON REFUGEE FREEDOM OF MOVEMENT
English / French
Freedom of movement is essential for refugees to enjoy meaningful protection against the risk of being persecuted, and enables them to establish themselves socially and economically as foreseen by the Convention relating to the Status of Refugees (“Convention”).
The very structure of the Convention presumes the right to leave in search of protection,since a refugee is defined as an at-risk person who is “outside” his or her own country. Once outside the home state, the Convention makes express provision for rights not to be sent away (non-refoulement), to enjoy liberty upon arrival, to benefit from freedom of movement and residence once lawfully present, to travel once lawfully staying, and ultimately to return to the home state if and when conditions allow. Respect for refugee freedom of movement in its various forms is thus central to good faith implementation of the Convention.
The right of refugees to move has moreover been reinforced by the advent of general human rights norms in the years since the Convention’s drafting. Of particular importance is the International Covenant on Civil and Political Rights (“ICCPR”), the relevant provisions of which have been authoritatively interpreted to apply equally to citizens and non-citizens, including refugees.
Despite the clear legal foundation of refugee freedom of movement at international law, states are also committed to the deterrence of human smuggling and trafficking, to the maintenance of effective general border controls, to safeguarding the critical interests of receiving communities, and to effectuating safe and dignified repatriation when refugee status comes to an end. Legal obligations to respect refugee freedom of movement therefore co-exist with, and must be reconciled to, other important commitments.
With a view to promoting a shared understanding of how best to understand the scope of refugee freedom of movement in the modern protection environment we have engaged in sustained collaborative study of, and reflection on, relevant norms and state practice. Our research was debated and refined at the Eighth Colloquium on Challenges in International Refugee Law, convened between March 31 and April 2, 2017, by the University of Michigan’s Program in Refugee and Asylum Law. These Guidelines are the product of that endeavor and reflect the consensus of Colloquium participants on how states can best answer the challenges of implementing the right of refugees to freedom of movement in a manner that conforms with international legal principles.
1. Refugee status is declaratory. A person becomes a refugee as soon as he or she in fact meets the criteria of the Convention’s refugee definition, not when refugee status is formally recognized.
2. Some Convention rights, including in particular to protection against both refoulement and discrimination and to access a state’s courts, must be respected as soon as a refugee comes under the jurisdiction of a state party. Other Convention rights are defined to apply only once a refugee enters a state’s territory, is lawfully present, is lawfully staying,
Cite as: James C. Hathaway, The Michigan Guidelines on Risk for Reasons of Political Opinion, 37 Mich. J. Int'l L. 234 (2016), available at http://wp.me/P5WwJW-oV.
THE MICHIGAN GUIDELINES ON RISK
FOR REASONS OF POLITICAL OPINION
English / French
The Convention relating to the Status of Refugees (“Convention”) recognizes as refugees those who, owing to a well-founded fear of being persecuted on the basis of inter alia “political opinion,” are unable or unwilling to avail themselves of the protection of their home country.
State practice acknowledges that protection based on “political opinion” should not be limited to those individuals at risk by reason of their views about partisan politics. Beyond this, the absence of an authoritative definition of “political opinion” in either the Convention or international law more generally has allowed interpretive inconsistencies to emerge, both within and among jurisdictions. Further complicating the search for a consistent approach is a lack of clarity about how best to ensure that the social and political context of the country of origin is meaningfully taken into account in assessing the existence of a “political opinion.”
With a view to promoting a shared understanding of the proper interpretation of “political opinion” within the context of Article 1(A)(2) of the Convention, we have engaged in sustained collaborative study and reflection on relevant norms and state practice. Our research was debated and refined at the Seventh Colloquium on Challenges in International Refugee Law, convened in March 2015 by the University of Michigan’s Program in Refugee and Asylum Law. These Guidelines are the product of that endeavor, and reflect the consensus of Colloquium participants on how best to interpret “political opinion” in a manner that ensures both fidelity to international law and the continuing vitality of the Convention.
1. As Article 1(A)(2) of the Convention sets a uniform standard for recognition of refugee status, it is desirable to seek consistency of interpretation both within and among states. Yet because a “political opinion” is informed by time and place, the search for consistency must not be an excuse for interpretive inflexibility. More generally, the Vienna Convention on the Law of Treaties requires that the text be interpreted in good faith, and in a manner that is consistent with the context, object, and purpose of the Convention as a whole.
2. It is thus especially important that interpretation of “political opinion” align with the purpose of the Convention’s nexus (“for reasons of”) clause, which establishes a principled delimitation of persons at risk of being persecuted. ”Political opinion” is one of five enumerated grounds for the recognition of refugee status, each of which is derived from non-discrimination principles and is to be understood in light of international human rights law.
3. A decision maker should first turn her mind to the question of whether there is evidence of an “opinion.”
4. An “opinion” is a conscious choice or stance.
5. An expressed choice or stance necessarily constitutes an “opinion”; an applicant may, however, hold an “opinion” without having expressed it.
6. Even if not actually held, a choice or stance may be attributed to an
Cite as: James C. Hathaway, The Michigan Guidelines on the Exclusion of International Criminals, 35 Mich. J. Int'l L. 3 (2013).
THE MICHIGAN GUIDELINES ON
THE EXCLUSION OF INTERNATIONAL CRIMINALS
English / French / Spanish
Article 1(F)(a) of the Convention relating to the Status of Refugees (“Convention”) requires the exclusion from refugee status of “... any person with respect to whom there are serious reasons for considering that... he has committed a crime against peace, a war crime, or a crime against humanity, as defined in the international instruments drawn up to make provision in respect of such crimes.”
Current state practice relating to Article 1(F)(a) exclusion fails to draw consistently on international criminal law, as is mandated by the Convention’s text. The process of drawing on international criminal law is in any event complex given both the continuing evolution of international criminal law and normative divergence among the interpretations adopted by courts and national authorities. Most important, there has been a failure to recognize that international criminal law must be drawn upon in a way that takes full account of key differences between the purpose and structure of international criminal law and those of international refugee law. In the result, Article 1(F)(a) is prone to misapplication, leading to unwarranted denials of protection.
With a view to promoting a shared understanding of the proper approach to Article 1(F)(a) exclusion from refugee status, we have engaged in sustained collaborative study and reflection on relevant norms and state practice. Our research was debated and refined at the Sixth Colloquium on Challenges in International Refugee Law, convened in March 2013 by the University of Michigan’s Program in Refugee and Asylum Law. These Guidelines are the product of that endeavor, and reflect the consensus of Colloquium participants on how decision makers can best ensure the application of Article 1(F)(a) in a manner that conforms to international legal principles.
1. A person who falls afoul of Article 1(F)(a) of the Convention must not be recognized as a refugee, even assuming that he or she faces a well-founded fear of being persecuted. Because of the seriousness of a decision to deny protection to a person shown or assumed to face the risk of persecution, Article 1(F)(a), like all exclusion clauses, should be applied with caution.
2. Decision makers moreover have a duty in good faith to interpret the text of Article 1(F)(a) not by reference to text alone, but rather in a manner consistent with the context, object, and purpose of that article and of the Convention as a whole.
3. The context of Article 1(F)(a) includes, in particular, the fact that decisions on refugee exclusion are binary: an individual either is, or is not, excluded from refugee status. In contrast, the ramifications of a finding of guilt in the context of international criminal law can be tempered by the sentencing process – an option not available to the refugee decision maker. This contextual difference should be recognized and, to the greatest extent possible, accommodated in the assessment of criminal responsibility for purposes of exclusion from
Cite as: James C. Hathaway, The Michigan Guidelines on the Right to Work, 31 Mich. J. Int'l L. 293 (2010).
THE MICHIGAN GUIDELINES ON
THE RIGHT TO WORK
The right to work is fundamental to human dignity. It is central to survival and development of the human personality. According to the International Labour Organization (ILO), decent work “sums up the aspirations of people in their working lives—for opportunity and income; rights, voice and recognition . . . .” Work is interrelated, interdependent with, and indivisible from the rights to life, equality, the highest attainable standard of physical and mental health, an adequate standard of living, the right to social security and/or social assistance, freedom of movement, freedom of association, and the rights to privacy and family life, among others.
Numerous international and regional human rights instruments, as well as many national constitutions, protect the right to work. The right to work is contained in Article 23 of the Universal Declaration of Human Rights. Articles 6, 7, and 8 of the International Covenant on Economic, Social and Cultural Rights (ICESCR) recognize the right to work, along with rights at work. In addition, Article 8(3)(a) of the International Covenant on Civil and Political Civil Rights (ICCPR) protects against slavery and forced labor, while Article 32 of the Convention on the Rights of the Child protects against child labor. The right to work is also enshrined in Article 5(e)(i) of the International Convention on the Elimination of All Forms of Racial Discrimination (ICERD); Article 11(1)(a) of the Convention on the Elimination of All Forms of Discrimination Against Women (CEDAW); Article 27 of the Convention on the Rights of Persons with Disabilities (Disability Convention); and various provisions of the International Convention on the Protection of the Rights of All Migrant Workers and Members of Their Families, particularly Articles 52 to 55. The United Nations Convention Relating to the Status of Refugees (Refugee Convention) recognizes the right to work in Articles 17, 18, and 19.
Several regional instruments also recognize the right to work. They include the European Social Charter of 1961, the Revised European Social Charter of 1996 (Part II, Article 1) and Article 15 of the Charter of Fundamental Rights of the European Union; the African Charter on Human and Peoples’ Rights (Article 15); the Charter of the Organization of American States (Article 45), the American Declaration on the Rights and Duties of Man (Article XIV), and the Additional Protocol to the American Convention on Human Rights in the Area of Economic, Social and Cultural Rights (Article 6); and the Arab Charter on Human Rights (Article 34).
In addition, rights at work are protected by international labor standards, particularly the eight “fundamental” ILO conventions and the four “priority” ILO conventions. The eight fundamental ILO conventions are: Freedom of Association and Protection of the Right to Organise Convention, 1948 (No. 87); Right to Organise and Collective Bargaining Convention, 1949 (No. 98); Forced Labour Convention, 1930 (No. 29); Abolition of Forced Labour Convention, 1957 (No. 105); Minimum Age Convention, 1973 (No. 138);
Cite as: James C. Hathaway, The Michigan Guidelines on Protection Elsewhere, Adopted January 3, 2007, 28 Mich. J. Int'l L. 207 (2007).
THE MICHIGAN GUIDELINES ON
English / French / Russian / Arabic
Refugees increasingly encounter laws and policies which provide that their protection needs will be considered or addressed somewhere other than in the territory of the state where they have sought, or intend to seek, protection.
Such policies-including "country of first arrival," "safe third country," and extraterritorial processing rules and practices-raise both opportunities and challenges for international refugee law. They have the potential to respond to the Refugee Convention's concern "that the grant of asylum may place unduly heavy burdens on certain countries" by more fairly allocating protection responsibilities among states. But insistence that protection be provided elsewhere may also result in the denial to refugees of their rights under the Refugee Convention and international law more generally. The challenge is to identify the ways in which the protection regime may be made more flexible without compromising the entitlements of refugees.
To this end, we have engaged in sustained collaborative study and reflection on the legal basis of protection elsewhere policies. Research conducted by the University of Melbourne's Research Programme in International Refugee Law was debated and refined at the Fourth Colloquium on Challenges in International Refugee Law, convened in November 2006 by the University of Michigan's Program in Refugee and Asylum Law. These Guidelines are the product of that endeavor. They reflect the consensus of Colloquium participants on the minimum international legal requirements for valid protection elsewhere policies, as well as our views on the procedures by which international legal obligations may reliably be fulfilled in the implementation of such policies.
When States May Implement Protection Elsewhere Policies
1. The 1951 Convention and 1967 Protocol relating to the Status of Refugees ("Convention") neither expressly authorize nor prohibit reliance on protection elsewhere policies. As such, protection elsewhere policies are compatible with the Convention so long as they ensure that refugees defined by Art. 1 enjoy the rights set by Arts. 2-34 of the Convention.
2. Because the Convention does not contemplate the devolution of protection responsibilities to a non-state entity, any sharing-out of protection responsibility must take place between and among states. While it is preferable that the state to which protection is assigned ("receiving state") be a party to the Convention, such status is not a requirement for implementation of a protection elsewhere policy which respects international law.
3. Reliance on a protection elsewhere policy must be preceded by a good faith empirical assessment by the state which proposes to effect the transfer ("sending state") that refugees defined by Art. 1 will in practice enjoy the rights set by Arts. 2-34 of the Convention in the receiving state. Formal agreements and assurances are relevant to this inquiry, but do not amount to a sufficient basis for a lawful transfer under a protection elsewhere policy. A sending state must rather inform itself of all facts and decisions relevant to the availability of protection in the receiving state.
Cite as: James C. Hathaway, The Michigan Guidelines on Well-Founded Fear, 26 Mich. J. Int'l L. 493 (2005).
THE MICHIGAN GUIDELINES ON
English / French / Russian / Arabic
An individual qualifies as a Convention refugee only if he or she has a "well-founded fear" of being persecuted. While it is generally agreed that the "well-founded fear" requirement limits refugee status to persons who face an actual, forward-looking risk of being persecuted (the "objective element"), linguistic ambiguity has resulted in a divergence of views regarding whether the test also involves assessment of the state of mind of the person seeking recognition of refugee status (the "subjective element").
The view that the assessment of well-founded fear includes consideration of the state of mind of the person seeking recognition of refugee status is usually implemented in one of three ways. The predominant approach defines a showing of "fear" in the sense of trepidation as one of two essential elements of the well-founded fear test. In the result, refugee status may be denied to at-risk applicants who are not in fact subjectively fearful, or whose subjective fear is not identified as such by the decision-maker. A second view does not treat the existence of subjective fear as an essential element, but considers it instead to be a factor capable of overcoming an insufficiency of evidence of actual risk. Under this formulation, persons who are more timid or demonstrative, or who are simply able to articulate their trepidation in ways recognizable as such by the decision-maker, are advantaged relative to others who face the same level of actual risk, but who are more courageous, more reserved, or whose expressions of trepidation are not identified as such. A third understanding of a subjective element neither conditions refugee status on evidence of trepidation, nor advantages claims where such trepidation exists. The requirement to take account of "fear" is instead treated as a general duty to give attention to an applicant's specific circumstances and personal vulnerabilities in the assessment of refugee status.
We have engaged in sustained collaborative study and reflection on the doctrinal and jurisprudential foundations of the well-founded fear standard, and have concluded that continued reference to distinct "subjective" and "objective" elements of the well-founded fear standard risks distortion of the process of refugee status determination. The existence of subjective fearfulness in the sense of trepidation should neither be a condition precedent to recognition of refugee status, nor advantage an applicant who faces an otherwise insufficiently well-established risk. An approach which recognizes a subjective element in order to take account of an applicant's circumstances and vulnerabilities does not pose protection risks of the kind associated with the first understanding of a subjective element, nor raise the unfairness concerns of the second approach. Reliance on a subjective element to particularize the inquiry into well-founded fear is, however, unnecessary, and may result in the devaluation of evidence of real value to the assessment of actual risk of being persecuted. These Guidelines are intended to promote a shared understanding of a unified approach to
Cite as: James C. Hathaway, The Michigan Guidelines on Nexus to a Convention Ground, 23 Mich. J. Int'l L. 211 (2002).
THE MICHIGAN GUIDELINES ON
NEXUS TO A CONVENTION GROUND
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Efforts to promote the contemporary vitality of the Convention refugee definition have usually focussed on refining our understanding of the circumstances in which an individual may be said to be at risk of “being persecuted,” or on giving contemporary relevance to the content of the five grounds upon which risk must be based—race, religion, nationality, membership of a particular social group or political opinion. Comparatively little thought has been given to how best to conceive the causal linkage or nexus between the Convention ground and the risk of being persecuted. In what circumstances may the risk be said to be “for reasons of” one of the five Convention grounds?
The jurisprudence of many leading asylum states is simply silent on this issue, while decisions rendered in other states assume that causation in refugee law can be defined by uncritical analogy to standards in other branches of the law. Only rarely have senior courts sought carefully to conceive an understanding of causation of specific relevance to refugee law, including the critical questions of a standard of causation and the types of evidence which should inform the causation inquiry.
With a view to promoting a shared understanding of the basic requirements for the recognition of Convention refugee status, we have engaged in sustained collaborative study and reflection on the norms and state practice relevant to the causation inquiry. This research was debated and refined at the Second Colloquium on Challenges in International Refugee Law, convened in March 2001 by the University of Michigan’s Program in Refugee and Asylum Law. These Guidelines are the product of that endeavour, and reflect the consensus of Colloquium participants on how the causal nexus to a Convention ground should be understood in international refugee law.
1. Not every person who is outside his or her own country and has a well-founded fear of being persecuted is a Convention refugee. The risk faced by the applicant must be causally linked to at least one of the five grounds enumerated in the Convention—race, religion, nationality, membership of a particular social group or political opinion.
2. In many states, the requisite causal linkage is explicitly addressed on the basis of the requirement that a refugee’s well-founded fear of being persecuted be “. . . for reasons of race, religion, nationality, membership of a particular social group or political opinion . . .” In other states causation is not treated as a free-standing definitional requirement, but rather is subsumed within the analysis of other Convention requirements. Whether treated as an independent definitional factor or as part of a general understanding of refugee status, the existence of a nexus to a Convention ground must be assessed in the light of the text, context, objects and purposes of the Refugee Convention and Protocol.
3. It is not the duty of the applicant accurately to identify the
Cite as: James C. Hathaway, The Michigan Guidelines on The Internal Protection Alternative, 21 Mich. J. Int'l L. 134 (1999).
THE MICHIGAN GUIDELINES ON
THE INTERNAL PROTECTION ALTERNATIVE
English / French / Russian / Arabic
In many jurisdictions around the world, ‘internal flight’ or ‘internal relocation’ rules are increasingly relied upon to deny refugee status to persons at risk of persecution for a Convention reason in part, but not all, of their country of origin. In this, as in so many areas of refugee law and policy, the viability of a universal commitment to protection is challenged by divergence in state practice. These Guidelines seek to define the ways in which international refugee law should inform what the authors believe is more accurately described as the ‘internal protection alternative.’ It is the product of collective study of relevant norms and state practice, debated and refined at the First Colloquium on Challenges in International Refugee Law, in April 1999.
The Analytical Framework
1. The essence of the refugee definition set out in Art. 1(A)(2) of the 1951 Convention relating to the Status of Refugees (‘Refugee Convention’) is the identification of persons who are entitled to claim protection in a contracting state against the risk of persecution in their own country. This duty of state parties to provide surrogate protection arises only in relation to persons who are either unable to benefit from the protection of their own state, or who are unwilling to accept that state’s protection because of a well-founded fear of persecution.
2. It therefore follows that to the extent meaningful protection against the risk of persecution is genuinely available to an asylum-seeker, Convention refugee status need not be recognized.
3. Both the risk of persecution and availability of countervailing protection were traditionally assessed simply in relation to an asylum-seeker’s place of origin. The implicit operating assumption was that evidence of a sufficiently serious risk in one part of the state of origin could be said to give rise to a well-founded fear of persecution in the asylum-seeker’s ‘country.’ Contemporary practice in most developed states of asylum has, however, evolved to take account of regionalized variations of risk within countries of origin. Under the rubric of so-called ‘internal flight’ or ‘internal relocation’ rules, states increasingly decline to recognize as Convention refugees persons acknowledged to be at risk in one locality on the grounds that protection should have been, or could be, sought elsewhere inside the state of origin.
4. In some circumstances, meaningful protection against the risk of persecution can be provided inside the boundaries of an asylum-seeker’s state of origin. Where a careful inquiry determines that a particular asylum-seeker has an ‘internal protection alternative,’ it is lawful to deny recognition of Convention refugee status.
5. A lawful inquiry into the existence of an ‘internal protection alternative’ is not, however, simply an examination of whether an asylum-seeker might have avoided departure from her or his country of origin (‘internal flight’). Nor is it only an assessment of whether the risk of persecution can presently be avoided somewhere inside the asylum-seeker’s country of origin