Opportunities for Incorporating International Tax Law Into All Levels of the Tax Curriculum

Editor: Annette Nellen, J.D., CPA

International tax is no longer a subject area that is reserved for the highest level of tax curriculum, nor is it just for partners, managers, and tax directors to deal with. Considering the global nature of today’s businesses, covering international topics is necessary at all levels of the business curriculum, and, yes, even in tax. As public accounting staff and entry-level accountants find themselves immersed in global business issues from the start of their careers, the tax curriculum needs to prepare these students for the business situations they will face in the workforce.

According to the U.S. Department of Commerce’s International Trade Administration, more than a quarter-million U.S. companies were engaged in exports in 2009, up 29% from 1997 (see U.S. Trade Overview). Additionally, just looking at the manufacturing sector, both imports and exports increased by 20% from 2009 to 2010. In 2009, small and medium-size companies made up over 97% of all importers and exporters (see U.S. Census Bureau, “A Profile of U.S. Importing and Exporting Companies, 2008–2009”). It is likely that even the smallest of clients or companies for which students may end up working will have an international aspect to their business.

The growth in global business has, of course, not gone unnoticed by the AICPA. The Model Tax Curriculum, which the AICPA published in August 2007, identifies the international and global perspective as important to economic decision-making and tax research skills. Although the AICPA advocates covering international topics within the broader business competencies, it indicates that international tax topics should be covered beginning at the introductory tax level, which would then be enhanced through an advanced tax curriculum.

The AICPA Examinations team has also included an international curriculum in Content and Skill Specifications for the Uniform CPA Examination, effective Jan. 1, 2011. Although the international topic coverage resides in the Business Environment and Concepts (BEC) section of the exam and does not address tax specifically, the emphasis on global business environments is a strong indication of its importance across all subject areas of a business curriculum.

The Tax Curriculum

The typical undergraduate accounting program offers two tax courses. In most cases, the introductory tax course is required, and the second course is an elective. Of course, there may be variations, as some colleges and universities do not require a tax class as part of the accounting curriculum, and some require two courses. Regardless, there are generally two approaches to an undergraduate tax curriculum: an individual taxpayer approach or a business entities approach.

The individual approach to tax generally focuses the entire first course on the individual as the taxpaying entity. Although general topics such as what is taxable income and what is a deduction will be covered, they are generally applied in an individual taxpayer context. That leaves the second course to cover business entities. Alternatively, the anecdotally more popular entities approach to the undergraduate tax curriculum introduces the student to various taxpaying entities in the first course. The general concepts of income and deductions are learned and applied to individuals as well as corporations and flowthrough entities. The second course in the sequence addresses each of these entities as well but introduces more complicated issues for each entity. At the graduate level, master in accounting (MSA) students are required to take an income tax course if they did not have one in their undergraduate programs. The graduate-level introductory tax course is similar to one of those described above for the undergraduate curriculum, although it is likely a bit more rigorous.

Master in taxation (MST) curriculums largely offer international tax as a one- or two-course sequence as an elective and not as a required course. This puts some students at a disadvantage. It is possible for students to receive a master’s degree without ever being exposed to international tax. One can argue that the students should know to choose the appropriate electives; however, they do not always know what is best for them. If the curriculum does not require an international course, the topics should be introduced in each foundational class (e.g., partnerships, corporations and shareholders, individuals, tax concepts, etc.). This would give students some of the framework they need to be successful in a global marketplace.

Introducing International Tax

Obviously, there is not a one-size-fits-all solution for introducing international tax issues into various portions of the tax curriculum, as it is highly dependent on both curriculum and instructors; however, listed below are certain suggestions that are available to be used in a variety of courses and that are implemented relatively easily.

Undergraduate taxation courses: The introductory tax course is usually filled with essential topics. However, there are ways in which some international material can be introduced without sacrificing other topics. In 2010, The Tax Adviser published an assignment that is geared toward reinforcing the ideas of different types of taxes as well as tax rate structures and at the same time introducing students to a variety of international tax systems (Rupert, Gagnon, and Oliveira, “Comparing International Tax Systems in the Introductory Tax Class,” 41 The Tax Adviser 800 (November 2010)). The instructions to the assignment require students to research parts of another country’s tax system to provide tax planning advice to a client who is considering taking a job overseas. This assignment indicates to students how relevant international tax is without having to remove topics from the curriculum to fit in something “extra.” Additionally, students are able to practice communication and research skills while also providing an opportunity for the professor to introduce tax policy issues, if desired.

At a slightly more advanced level, Michael Schadewald (“Integrating Multijurisdictional Issues Into the Introductory Tax Courses,” Journal of the American Taxation Association, 21(1): 76–93 (1999)) suggests several resources for instructors and also suggests assignments, mostly involving textbook readings. The author also provides a succinct outline of key multijurisdictional issues and some primary learning objectives to incorporate into class. Unfortunately, these additional readings and assignments would pull some class time away from other topics. However, in an effort to build a curriculum sensitive to a global business world, they are essential topics.

Other ideas for either the introductory or advanced course involve a research tool published by PwC, Worldwide Tax Summaries. The tool is available on the PwC website, and many universities have a hard copy in their library or as part of an electronic database. The publication summarizes basic information about corporate and individual taxes in 146 countries. For each country there is a brief introduction of the location, population, government system, economy, and international trade. It includes an overview of key components of both the corporate and individual tax systems. This allows students to delve into different tax systems without being overburdened by research and to have all essential information in one place.

For the introductory class, each student (or group of students) could be assigned a country and asked to report back to the class with a short presentation on the structure of the individual and corporate tax systems. This usually involves a description of the tax base as well as the tax rate structure. It is a quick, straightforward assignment that introduces them to the breadth and diversity of international tax schemes without taking too much time. Similar to the assignment previously mentioned, it can be used to reinforce the concepts of tax rates and structure as well as to introduce policy issues.

If instructors desire a more advanced introduction, perhaps in the undergraduate course, they can use a webcast Deloitte has created to introduce the topic of international taxation as part of its Dbriefs U program. The 56-minute webcast covers the “Four Cornerstones of International Taxation” based on inbound and outbound transactions. The speakers explain the basic terminology and transactions that would have international tax implications and provide key takeaways from the presentation. The webpage also provides a list of links to international tax resources as well as supplemental material for the professor to use. It contains a series of questions that can be used for homework or a quiz, as well as brief cases to work on as a class activity or homework assignment. Viewing the video can also be turned into a homework assignment so it does not absorb essential class time or burden the instructor with preparing the lecture.

Additional sources for materials to help introduce students to international tax rules and issues are provided by congressional tax committees. The House Ways and Means and Senate Finance Committees occasionally hold hearings on some aspect of international taxation. Committee websites generally have links to the testimony presented as well as an archived webcast of the hearing. Also, the Joint Committee on Taxation typically prepares comprehensive reports for these hearings. These reports provide background on how the current tax rules work, issues, and how any proposed reform would work. These reports tend to be written at a level students find understandable.

Current examples of international tax materials from the committees include:

• A proposal by Rep. Dave Camp, R-Mich., released in October 2011, to shift from a worldwide to a territorial system for businesses.
• A Sept. 8, 2011, Senate Finance Committee hearing on “Tax Reform Options: International Issues.” 
• A September 2011 Joint Committee on Taxation report, Present Law and Issues in U.S. Taxation of Cross-Border Income.

Current events are also an easy and less time-consuming method for introducing students to international issues. Students could be required to share at least one current event with the class throughout the semester. These current events could be on international topics. Requiring students to email the articles ahead of time prevents overlapping topics and provides an opportunity to prepare some points to make in class. Depending on class size, professors could assign two or three students to present per class session, but if there is not enough time during class to have students make these presentations, a discussion board can accomplish the same objective.

An often overlooked opportunity for international tax instruction is in the Volunteer Income Tax Assistance (VITA) Program. Although this will only benefit students who volunteer and not all tax students, it is an excellent opportunity to expose the volunteers to some international tax issues. Rather than turn away international students who come to VITA locations to have their returns prepared, volunteers from tax programs can be trained on international tax topics involved in return preparation, such as substantial presence, sourcing income, and tax treaties. This teaches students to prepare nonresident returns for international students who seek VITA return preparation services. A short training session that covers the decision tree on determining if a nonresident return is required, as well as the most common treaty terms likely to be encountered, gives students a sufficient background to complete tax returns for international students. By the end of the VITA season, students are able to complete the returns with minimal supervision and often are able to research and apply treaty terms of countries not covered in training.

Graduate taxation courses: The introductory taxation course for MSA students is similar to that for undergraduates, assuming the students did not have a tax course at the undergraduate level. Therefore, any of the previously discussed methods could be used to introduce those graduate students to international tax. In an MST program, if students are required to, or generally do, take an international course, they will have a sufficient foundational knowledge to address basic global issues in the workforce.

However, if MST students at certain schools are likely to graduate without an international course, or one is not offered, it is vital that some foundational international knowledge be built into the curriculum. Although a starting point could be some of the assignments discussed above, an MST graduate will generally be expected to have some in-depth knowledge of global issues surrounding taxation. For instance, in a partnership tax class, the instructor should cover the international aspects of owning a foreign partnership or having a nonresident individual or corporation own a portion of a U.S. partnership. A corporate tax class can introduce the implications of having nonresident shareholders and the implications to a corporation of having foreign operations. A tax policy class can discuss various tax regimes around the world, and a current-issues class can focus on the top one or two largest and timely international issues. Although these segments may not be as in-depth as a true international course, they can provide some of the necessary foundation for the students to be able to effectively learn the more complex rules on the job.

One of the best ways to bring international context into the classroom is through the use of cases. Instructors have abundant resources to use in finding cases. Academic journals focused on teaching (e.g., Issues in Accounting Education, a quarterly journal published by the American Accounting Association) will have various tax cases published in them; instructors can also refer to tax-related journals (e.g., the Journal of the American Taxation Association or this publication, The Tax Adviser). When completing an individual, corporate, or partnership study, instructors are encouraged to introduce some international facts either as part of the assignment or class discussion. This will enable students to start to get a feel for the issues and implications that arise in various situations. There are also several cases that highlight key international issues. In November 2007, Issues in Accounting Education published a special issue of cases that focused on international accounting or international tax. Some of the cases also combine accounting and tax issues, which are great for research or capstone courses. Lastly, many of the large firms provide cases to faculty in various areas including international tax.

How Can Practitioners Help?

As with any accounting or tax area, tying technical information to the real world is an important part of presenting the material for any course. Professors and practitioners should be in touch to discuss current trends and topics as well as the needs of the firms. Although many teaching resources (many of which are discussed above) are provided by the largest firms at the national level, it is also important to understand what students will be facing in their practice offices. When practitioners are meeting with local universities where they recruit students, they should be sharing the needs of the profession and clients, and help guide the curriculum. They should share with the school the international issues that are most relevant. Additionally, any client situations or fact patterns that could be turned into meaningful cases to be used in class are always helpful. Having the professional visit the class to discuss the case is also beneficial to students.

Conclusion

We live in a global marketplace that demands professionals develop a solid understanding of the international issues their clients or employers face. In this effort to adequately prepare students for the workforce, they must be taught about the international complexities of business and, in particular, tax implications. Although it may seem daunting to introduce an international component into existing tax courses, much of the work has already been done. Resources and ideas are available from tax professionals as well as academic colleagues. Taking advantage of these opportunities and resources is relatively easy and will give students an edge when entering the workforce.