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The U.S. Banking System: Laws, Regulations, and Risk Management Felix I. Lessambo
Formal Aspects of Component Software 10th International Symposium FACS 2013 Nanchang China October 27 29 2013 Revised Selected Papers 1st Edition José Luiz Fiadeiro
This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed.
The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made.
This Palgrave Macmillan imprint is published by Springer Nature The registered company is Nature America Inc. New York
A CKNOWLEDGEMENT
Writing a book is always a challenge. But writing a book on international aspects of the US tax system geared to MBA, MST students, and professionals, is an especially daring intellectual exercise for two reasons: the difficulty in choosing appropriate topics to cover and the complexity of each subject chosen.
First and foremost, I would like to thank my wife, Aline, for standing beside me while writing this book and throughout my entire career. I would also like to express my gratitude to those who motivated me all along the project, knowing my dedication to the subject, and who believed in my ability to complete this project: James Thompson, Fouad Sayegh, and Brice Thionnet.
7
9.7
13.3
13.6
L IST OF A BBREVIATIONS
APA Advance Pricing Agreement
BEPS Base Erosion and Profit Shifting
CEN Capital Export Neutrality
CFC Controlled Foreign Companies
CIN Capital Import Neutrality
DFTC Commodity Futures Trading Commission
COFLA Consolidated Overall Foreign Loss Account
CON Capital Ownership Neutrality
CSLI Consolidated Separate Limitation Income (CSLI) or consolidated separate
CSLL Consolidated Separate Loss Limitation Loss
DCC Domestically Controlled Corporation
DEA Dividend Equivalent Amount
DISC Domestic International Sales Corporations
ECEP Effectively Connected Earnings and Profits
ECTI Effectively Connected Taxable Income
EIN Employer Identification Number
EJMMA Education Jobs and Medicaid Assistance Act
EOI Exchange of Information
ETR Effective Tax Rate
EU European Union
FATCA Foreign Account Tax Compliance Act
FC Foreign Corporation
FCDC Foreign Controlled-Domestic Corporation
FDAP Fixed, Determinable, Annual or Periodic (income)
FFI Foreign Financial Institution
FIRPTA Foreign Investment in Real Property Tax Act
FOGEI Foreign Oil and Gas Extraction Income
FORI Foreign Oil Related Income
FSC Foreign Sales Corporations
FY Fiscal Year
GLAM Generic Legal Advice Memorandum
HIRE Hiring Incentives to Restore Employment Act
IC Inverted Corporation
IGAs Intergovernmental Agreements
IRC Internal Revenue Code
IRS Internal Revenue Service
ISDA International Swaps and Derivatives Association
LB&I Large Business & International
LoB Limitation-on-Benefits
MAP Mutual Agreement Procedure
MAPS Managed Account Product Structure
NFFE Non-Financial Foreign Entity
NOLs Net Operating Losses
NON National Ownership Neutrality
NN National Neutrality
NOPA Notice of Proposed Adjustment
ODL Overall Domestic Loss
OECD Organisation for Economic Co-operation and Development
OFL Overall Foreign Loss
OID Original Issue Discount
OTC Over-The Counter
PE Permanent Establishment
QEA Qualified Export Assets
QER Qualified Export Receipt
QI Qualified Intermediary
REIT Real Estate Investment Trust
REMIC Real Estate Mortgage Investment Conduit
TEFRA Tax Equity and Fiscal Responsibility Act
TIN Tax Identification Number
TPA Transfer Pricing Operations
TRA Tax Reform Act
USNE US Net Equity
USP United States Parent
USRPHC US Real Property Holding Corporation
WQI Withholding Qualified Intermediary
Fig.
Fig.
Fig.
Fig.
Fig.
Fig.
Fig.
Fig.
Fig.
Fig.
L IST OF F IGURES
L IST OF T ABLES
Table 3.1 Taxable income and tax rates
Table 12.1 Top US trade partners (2013)
Table 13.1 Summary of IRC sections authorizing and limiting the FTC
Table 17.1 Commission expense calculation
Table 17.2 Tax deductible commission calculation
CHAPTER 1
Overview
1.1 INTRODUCTION
International taxation is one of the most complex, if not the most complex, component of the Internal Revenue Code (IRC). Inception of International Tax, the US Congress faced a challenge in enacting specific provisions that deal with or cover the two aspect of the US Aspect of international tax: the inbound and the outbound. Inept tax policies in place since the 1980s, aggravated by the Bush Tax reforms of 2004–2005, put US multinational companies out of sync with the rest of the world. The 1986 Tax Reform Act was governed by the principle of tax neutrality. Thus, the burden on lobbyists was to demonstrate how their proposals would not lose many supports or how they could be paid for by other revenues.1 Since then tax policy debates have been hijacked into an examination of how well tax systems and particular taxes meet the criteria of equity, efficiency, and simplicity. The debate is led by two opposing groups: liberals and conservatives. Liberals see tax policy as a tool for economic distribution. Their approach has been to raise taxes on the wealthy in order to sustain expensive government programmes. In contrast, conservatives advocate for economic growth, lower taxation, and public sector spending cuts. They see consumption as an unstoppable engine of economic growth.2
Curiously, each side claims to be 100 % correct, while the right approach lies in between. Therefore, the US international tax provisions from the IRC is out of step with the way global business is conducted. Most of the provisions still in effect have been in place since the 1930s. Subsequent
F.I. Lessambo, International Aspects of the US Taxation System, DOI 10.1057/978-1-349-94935-9_1
tax reforms have worsened or at least perverted the underlying principles that sustained the International Aspects of the IRC. The 1986 Tax Act favors foreign investment in the USA in several ways. Unless a substantial and well-thought-out overall tax reform is conducted by experts in the field, incremental changes could aggravate the complexity of the system to render it incomprehensible to all except lobbyists.
1.2 A WORLDWIDE VS. TERRITORIAL TAX REGIME
The USA is among only a handful of countries, and the only one in the Group of Seven (the Group of Seven is an informal bloc of industrialized democracies which includes: the US, Canada, France, Germany, Italy, Japan, and the UK), that taxes companies on worldwide earnings rather than the earnings in their home domiciles. That is, in a worldwide system, a country taxes a corporation’s total income, whether generated within its boundaries or outside its boundaries. A worldwide tax regime often provides tax credits for the foreign taxes already paid. In a territorial system, a country taxes only the income that the corporation generates in that country, leaving other countries to tax the income generated within their boundaries. However, the worldwide tax system allows indefinite deferral of US tax on earnings reported in foreign countries and a tax credit for foreign taxes paid. That feature alone does not make the US tax system a case apart. Many other countries use a so-called “territorial tax system” with “territorial” reach beyond their borders to prevent abuse in ways that the US system does not. Many territorial systems have hybrid systems, under which the countries can tax substantial portions of the overseas profits of their multinationals on a worldwide basis.3 For example, Japan taxes resident companies on foreign-source income at the full Japanese rates if they are paying an effective rate of less than 20 % in the foreign jurisdiction. Further, the Organisation for Economic Co-operation and Development (OECD) is even calling for its member countries to review the “fundamentals” of their predominantly territorial tax systems.4
The US tax regime is often criticized as having among the top rates in the world. Though true, the argument lacks consistency as rates alone do not depict the true reality. Comparisons are often made between corporate tax rates in the United States and those found elsewhere in the world. Such a short-cut analysis is especially frequent among non-economist tax scholars who tend mainly to consider countries’ “statutory rates.” Economists, however, generally prefer to compare “effective tax rates” when making international comparisons. The reason is that, as every country has its own
tax system, the statutory tax rate is just one component of each system and does not tell all the story.5 For example, some countries may have higher or lower rates, allow for faster capital recovery (i.e., deprecation), or offer corporate tax credits not offered by other countries. Effective tax rates attempt to account for all the system differences and are more indicative of the tax burden in each country.
Though the statutory corporate income tax rate is 35 %, the effective tax of US corporations has been estimated at less than half that much, at 13 %, reduced through a variety of mechanisms, including tax provisions that permit multinational corporations to defer US tax on active business earnings of their offshore subsidiaries until those earnings are brought back to the USA.6 Although the USA has one of the highest statutory tax rates, a study by Avi-Yonah and Lahav comparing US-based multinationals with the 100 largest EU multinationals concludes that the effective US tax rate is the same or lower than effective EU tax rates despite the USA having a corporate statutory tax rate 10 percentage points higher than the average EU corporate statutory tax rate.7 The main finding was that the EU tax base is broader than the US tax base. Despite the evidence, several lawmakers still cling to their hypothetical “pure territorial tax system” which exists nowhere in the world. The mere fact that, among OECD nations, 26 have territorial systems—including Australia, Canada, France, Germany, Japan, Spain, and the United Kingdom—does not justify the USA shifting from the predominantly “worldwide tax system” to a territorial tax system.8
1.3 US TAXATION OF INDIVIDUALS AND CORPORATIONS
Today, corporate tax accounts for 8.9 % of federal tax revenue, whereas individual and payroll taxes generate 41.5 % and 40 % respectively, of federal revenue.9 The decline in corporate tax revenues is due in part to more corporate income being reported abroad in low-tax jurisdictions such as Ireland, Bermuda, and the Cayman Islands.10
1.4 REFORMING THE US TAX SYSTEM
1.4.1 Broadening the Tax Base
The USA needs to increase the amount of income subject to tax. This can be done by eliminating some loopholes and corporate expenditures such as the deductibility of interest which is not an expenditure.
1.4.2 Integration of the Corporate and Individual Tax Systems
One integration approach would be to eliminate corporate tax and allocate earnings directly to shareholders in a manner similar to which partnerships and S corporations allocate income to their partners and shareholders. In effect, C corporations, partnerships, and S corporations would be treated identically for tax purposes, with all being treated as pass-throughs.11
1.4.3 Taxing Certain Large Pass-throughs
Taxing large pass-throughs as corporations would also allow for lower tax rates as it would broaden the corporate tax base. Lower tax rates combined with a reduction in business tax disparity could improve business tax equity and the allocation of resources relative to current policy.
Depending on how “large” pass-throughs were identified, a relatively small percentage of businesses currently structured as pass-throughs could be affected by the corporate tax under certain reforms.12
NOTES
1. Bruce C. Wolpe (1996) Lobbying Congress: How the System Works, 2d Edition, Congressional Quarterly, Inc.
2. Ken Messere, Flip de Kam and Christopher Heady (2002): Tax Policy: Theory and Practice in OECD Countries.
3. Chye-Ching Huang, Chuck Marr, and Joel Friedman (2013): The Fiscal and Economic Risks of Territorial Taxation, Center on Budget and policy Priorities, p. 4.
4. OECD (2013) Confronting the Reality of ‘Leaky’ Territorial Systems in Other Countries,” p. 15.
5. Mark P. Keightley, Molly F. Sherlock (2014): The Corporate Income Tax System: Overview and Options for Reform, Congressional Research service, p. 12.
6. United States Senate- Permanent Subcommittee on Investigations (April 1, 2014): Caterpillar’s offshore tax strategy, p. 9.
7. Avi-Yonah, R., Lahav, Y. (2012): The effective tax rates of the largest US and EU multinationals, New York University Tax Law Review, 65, 375.
8. William Simon (2012): Territorial vs. Worldwide Taxation at rpc.senate.go/policy-papers.
9. United States Senate- Permanent Subcommittee on Investigations (April 1, 2014): Caterpillar’s offshore tax strategy, p. 8.
10. United States Senate- Permanent Subcommittee on Investigations (April 1, 2014): Caterpillar’s offshore tax strategy, p. 8.
11. Mark P. Keightley, Molly F. Sherlock (2014): The Corporate Income Tax System: Overview and Options for Reform, CRS, p. 25.
12. Idem, p. 26.
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That is a remarkable conclusion to a letter from a deacon in France to the Archbishops and Bishops of all England.
The following letter is written in a slightly humbler style. It was probably written towards the end of his life.
“To the most holy and venerable fathers the Bishops Alchard [Elmham, 786-811] and Tifred [Dunwich, 798-816] Alchuin the levite sends greeting.
Ep. 230. 798804.
“I pray your most pious goodness that you take not this letter from so small a man to be presumptuous. It is in reliance on your regard that I have dared to write. Christian humility should despise none, but should receive benignantly all in the pious bosom of love. This love I trust will abundantly show itself forth in you by the Holy Spirit, that, as the Truth saith in the Gospel, out of your belly may be seen to flow rivers of living water, that is, of sacred doctrine.
“It is yours to preach to all the word of God, to all to shine clear in the house of God, that all may recognize through you the light of truth and may be led through the pastures of perpetual beatitude. Your mouth must be the trumpet of the God Christ, for the tongues of your authority are the keys of heaven, having power to open and to shut; to open to the penitent, to shut against those that resist the truth. Wherefore make yourselves by your good lives worthy of such excellence; knowing that assiduity in preaching is the praise of bishops. The episcopal honour is no secular play. The Christian bishop must exercise himself with great diligence in the commands of God, that by example and word together he may educate a Christian people.
“The venerable brother the abbat Lull[159] has spoken to me in praise of your good conversation. It is on this account that I have cared to commend myself as a suppliant to your sanctity, that you may order some slight memorial of my name to be made throughout your churches. Not for my own merits but for the love of Christ I have presumed to make this earnest request. Pray grant it, as I trust in your good piety.
“May the Lord God increase you by the grace of merits, and make you to advance in all holiness and in preaching the word of God, my most dear and longed-for fathers.”
We saw in the previous chapter something of the anxiety which Alcuin felt when he marked the misdeeds of Northumbrian kings. There was another source of anxiety which troubled him in his thoughts of his native land, in the year 795. The old Archbishop of York, Eanbald I (780-796) could evidently not last much longer, and Alcuin feared that the general decadence had reached the ecclesiastics of York, and that some improper appointment might be secured by simoniacal methods.
To the old Archbishop himself he wrote an affectionate letter, as follows:—
“To my lord best loved of all health eternal in Christ.
Ep. 36. . . 795.
“I confess myself greatly rejoiced to hear from Eanbald[160] , of your household, of the soundness of your prosperity, so greatly desired by me. The love and faith which began long ago to dwell in my breast will never be able to leave me. The nearer the time of heavenly reward comes, the more careful should he be who is the first to leave the world that he has left in the world a friend. The sharpness of fever, and the delay of the king [Karl] in Saxony, has prevented my coming to you as I have desired to do. May the divine clemency grant to me to see thy face in joy before I die. If I come, I earnestly hope that I shall find you still in that honourable place of dignity in which you were when I left. And if some other dignity has been preferred by you,[161] I hope that you will not by any means allow violence to be done to the Church of Christ, and that the brethren may be left free to elect as your successor the best man, in the fear and by the grace of God most high. For in the sacred canons a terrible anathema is uttered against those who do any violence to the Church of Christ. You have always loved our [ecclesiastical] family of York and have done them very many kindnesses. We now need your help more than ever; and when our
time of eternal rest has come, you will have us as perpetual intercessors in your behalf.
“May the divine clemency grant to thee prosperous and happy days in this life, and glory eternal with His saints, my dearest lord and father.”
Eanbald contemplated abdication in the end of 795, and Alcuin wrote the following anxious letter to the brethren of York, on whom the choice of a new archbishop would fall:—
“To my best-loved friends, greeting.
Ep. 37. . . 795.
“I beg of you, by the faith of love, that you act faithfully and wisely in the election of a pontiff, if the election must take place before I come. Again and again I call upon you, in the name of our Lord Jesus Christ, that you by no means allow any one to obtain the bishopric by the heresy of simony; for if that takes place, it is the complete perdition of the race. This simoniacal heresy is that worst of heresies which the holy Peter condemned with an eternal anathema [Acts viii. 14, 20, seq.]. He who sells a bishopric gains gold and loses the kingdom of God.
“Up to this time, the holy Church of York has remained untainted in its elections. See that it be not tainted in your day. If, which be far distant, it loses its ecclesiastical reputation, I fear that you will lose the eternal kingdom. Judas sold the spouse, that is, Christ. And he that sells Christ’s spouse, that is, the Church, is guilty of the same crime; for Christ and the Church are one body, as saith the Apostle[162] . He who sells the Church must of necessity be outside the Church; and he who is outside the Church, where will he be but with the devil in eternal destruction. Fear not, hate not, him who speaks to you the truth; for to this which I say, the books sent forth by the Holy Spirit testify My desire is that you be without stain in the sight of God; that you reign felicitously in this present world, and rejoice for ever with Christ. Live and be strong and happy in Christ.”
Eanbald I did not abdicate. He died on August 10, 796, and the electors immediately proceeded to the election, their choice falling
upon Eanbald II. The election was so hasty that Eanbald II was consecrated five days after the Archbishop’s death.
This is Alcuin’s letter to the new Archbishop:—
“To his best-loved son in Christ, Eanbald the Archbishop, his in all things devoted father Albinus sends greeting.
Ep. 72. 796.
“Laud and honour to the Lord God omnipotent who hath preserved my days in prosperity, so that I can rejoice in the exaltation of my dearest son; and have been allowed, though the lowliest servant of the Church, to train up one of my pupils to be regarded as worthy to become a dispenser of the mysteries of Christ and to labour in my stead in the Church where I was nourished and instructed; and to preside over those treasures of wisdom of which my beloved master Helbrecht left me his heir. I must pray with all intentness the divine clemency that he may be my survivor in this life as he was my solace alway in the time of his obedience; not that I wish for my own death but that I desire that his life should be prolonged. For not sons to fathers but fathers to sons should leave an heritage.[163]
“See, my dearest son, by God’s favour you have all that man could hope for, and more than all that our small desert dared hope for. Now, then, act as a man and a strong man. The work of God which is put into your hands do to the full, for the profit of your own soul and the welfare of many souls. Let not your tongue cease from preaching; nor your foot from going about among the flock committed to you; nor your hand from labouring that alms be given and the holy Church of God be everywhere exalted. Be the outward expression of the well-being of all. In thee let there be the example of most holy manner of life; in thee let there be the solace of the miserable; in thee the strengthening of the doubting; in thee the rigour of discipline; in thee the confidence of truth; in thee the hope of every good. Let not the pomp of the world lift thee up; nor luxury of food enervate thee; nor the vanity of vestures make thee soft; nor the tongues of flatterers deceive thee; nor the gainsaying of detractors disturb thee; nor troubles break thee; nor joys lift thee up. Be not a reed shaken by the wind; be not a flower falling with the
gale; be not a tottering wall; be not a house built upon the sand; but be the temple of the living God, built on the firm rock, whose indweller be the very Spirit, the Paraclete.
“How many days do you suppose you have to live? Put it in your mind at fifty years. Even that has its end; and you cannot expect to live so long as that. Let the weakness of your body make you strong in soul; be with the Apostle,—‘when I am weak, then am I strong.’ Let the affliction of your body be the gain of your soul. Show yourself gentle and humble to the better; hard and rigid to the proud; all things to all men that you may gain all. Have in your hands honey and wormwood; let each man eat which he chooses. Let him who would live on pious preaching have the honey; let him who needs hard invective drink of the wormwood, but so that he may hope for the honey of pardon to follow, if the blush and confusion of penitence go before.”
Alcuin would have been an excellent man to have as preacher at the consecration of a bishop.
In a letter which quickly followed, Alcuin begged Eanbald to read frequently the above letter, and expressed the hope that if there was anything in it which could be regarded as less than quite affectionate, the Archbishop would feel sure that it was unintentional. One thing, and only one, he wished to add:—
Ep. 73. 796.
“Do not allow the nobleness of mind which I so well know to be in you, and the integrity of faithfulness which is your wont to all, by any advice of friends, by any ambition of secular desires, to be corrupted or changed. Not every friend is fit to be an adviser; the Scripture[164] says, Let thy friends be many, thine adviser one only. Do not allow your goodness to be clouded by the wickedness of others.”
In yet another letter he finds a good deal to add:—
“If there is joy over a rise, there is fear for a fall: the loftier the position, the more dangerous the fall. According to your appellation be the chief overseer not only of the
Ep. 74. 796.
flock committed unto thee, but also of thyself, that in a few days of labour you may earn a great reward of bliss.
“These are dangerous times in Britain. The death of kings[165] is a signal of misery. Discord is the road to prison. The things which you have very often heard our master Archbishop Albert predict are hastening to come true.
“Be not covetous of gold and of silver but of gain of souls. Me remember daily in prayers and alms, thyself always in keeping of the commandments of God. If storms threaten on every side, steer manfully the ship of Christ, that in time you may arrive with your sailors at the port of prosperity. Let your tongue never be silent from the word of holy preaching, your hand never be benumbed from good work.
“Let not your mind become soft in adulation of princes or slow in correction of those under you. Let not the flatteries of the world deceive you, the transient honours uplift, the favour of the people subvert you. Be a very firm pillar in the house of God, not a reed shaken with the wind. Be a candle set on a candlestick, not hid under a bushel. Be to all a way of salvation, not an artery of perdition, that by thee very many may be corrected and saved, and with thee may attain unto eternal life.
“Wherever you go, let the Pastoral treatise of the blessed Gregory go with you. Read it, re-read it, very often, and see in it yourself and your work, that you may always have before your eyes how you ought to live, how you ought to teach. It is a mirror of a bishop’s life, and a specific against all the wounds of the devil’s fraud.”
Ep. 173. . . 801.
Late in Alcuin’s life, he became very anxious about the conduct of this favourite pupil, Archbishop Eanbald II. Five years after the election he wrote two letters on the subject, one direct to the Archbishop, and one to two monks whom he sent to visit and advise him. To Eanbald he writes as to one in tribulation, the king Eardulf being set against him. “But”, he says, “I think that a part of your tribulation arises from yourself. It may be that you shelter the enemies of the king, or protect their possessions. If you suffer justly, why be troubled? If unjustly, why not
call to mind the Saints? As the apostle James says[166]—‘Ye have heard of the tribulations of Job, and have seen the end of the Lord.’”
In this letter he goes no further into detail, remarking at its close that the Cuckoo will say more. The Cuckoo was one of his messengers, Cuculus, whom he calls in his playful way the bird of spring, the name being the Latin word for a cuckoo. To the Cuckoo, then, and the presbyter Calvin, he sends a letter of instructions.
Ep. 174. 801.
“I have heard of the tribulations of my dearest son Simeon [that is, Eanbald]. You are to exhort him to act faithfully and be not pusillanimous in trials. His predecessors suffered such; and not they only but all the Saints. John Baptist, we read, was slain for testifying to the truth. Let the archbishop see to it that there is in him no cause of trial other than his preaching the truth. I fear that he is suffering for his acquisitions of lands, or his support of the enemies of the king. Let what he has suffice him; let him not grasp at what belongs to others, which often turns out to be very dangerous.
“And why is there in his following such a large number of soldiers? He appears to keep them from pity for their condition. But it is harmful to the inhabitants of the monasteries which receive him and his. He has, as I hear, far more than his predecessors had. And his soldiers have under them far more of a lower class than is necessary. My master [Archbishop Albert] allowed none of his followers to have more than one such under him, except the rulers of his household, and they were only allowed two. It is imprudent charity to help a few, and they perhaps criminals, and to harm many and they good men. Let him not blame me for suggesting this, but amend his conduct.”
Ep. 149.
Alcuin had in the previous year, 800, written a letter to the Cuckoo’s colleague, Calvinus, in which he was very urgent that Eanbald II should have the best spiritual advice. He entreats Calvinus to warn him of perils, and to strengthen him in all good ways. In giving advice to the archbishop, he bids Calvinus “consider sagaciously time, place, and person; at what time, in what place, to what person, what should be said by the
archbishop; all which can be best learned in the book of the blessed Gregory on the Pastoral Care”.
Alcuin frequently presses upon his correspondents the value of a careful study of Pope Gregory’s treatise on Pastoral Care. It was this book that King Alfred selected to have translated into English for the benefit of the clergy of England. Inasmuch as Alfred was born only fifty years after the death of Alcuin, there is no great improbability in the idea that Alcuin’s influence in regard of this book survived to Alfred’s time. The fact that it is chiefly on English bishops that he urges its frequent study may point in this direction. It was, however, not always the English bishops who received this advice.
Ep. 71. . . 796.
To Arno, Bishop of Salzburg, Alcuin wrote a long and very valuable letter of advice as to the manner in which the Huns whom Karl was conquering should be brought to the faith. He speaks strongly of the necessity of adapting the teaching and discipline to the character of each individual, as also of each race.
“There be some infirmities which are better treated by sweet potions than by bitter; others better by bitter than by sweet. Whence a teacher of the people of God, while he ought to shine clear with all the lights of virtues in the house of God, should specially excel in the utmost sagacity of discretion. He should know what treatment best suits the sex, the age, the aim, even the occasion, of each person. All which the blessed Gregory, the most lucid doctor, in his book on the Pastoral Care has most diligently investigated, has adapted to various persons, has driven home by examples, has made sure by the authority of the divine scriptures. To the study of which book I refer you, most holy prelate; beseeching you to have it very frequently in your hands as a manual, to keep it in your heart.”
To Higbald of Lindisfarne he writes:—
“Read very often, I beseech you, the book of the blessed Gregory, who brought the Gospel to us, on the Pastoral Care, that in it you may learn the peril of the episcopal office and may not forget the reward of him who serves the office well. Let that book be very often in your hands, let its points be firmly
Ep. 81. 797.
fixed in your memory, that you may know how a man should attain to the office of a bishop, and, having attained, with what circumspection he should guide himself, how exemplary his life should be, how earnest his preaching. The author of the book has also given the most discreet advice as to the different ways of dealing with persons of different characters.”
CHAPTER X
Summary of Alcuin’s work in France. Adoptionism, Alcuin’s seven books against Felix and three against Elipandus. Alcuin’s advice that a treatise of Felix be sent to the Pope and three others. Alcuin’s name dragged into the controversy on Transubstantiation. Image-worship. The four Libri Carolini and the Council of Frankfurt. The bearing of the Libri Carolini on the doctrine of Transubstantiation
Having seen something in detail of the earnestness and faithfulness of Alcuin’s exhortations to the kings and bishops of his native land of England, and having learned from them to how sad a state things had fallen, especially in Northumbria once the nursery of saints, we must now turn to Alcuin’s work on the continent of Europe. It may be well to state again the leading dates.
Ethelbert, or Albert, master of the School of York and afterwards archbishop, took Alcuin with him as a tonsured youth on one of his visits to France and Rome, and on that occasion he appears to have studied for a short time in French monasteries. The first letter of his that has come down to us is a letter to the abbat of St. Martin at Tours, where he was destined to spend the latest years of his life, about a fugitive monk whom he had rescued; it was written some eight years before he first settled in France. On his return from this journey he was ordained deacon by Albert, probably in 768, when he would be about thirty-five years of age. He was sent again to Italy by Albert, on a mission to Karl, the king of the Franks, and it would appear that Karl noticed him favourably. All this time he was working hard as master of the School of York. In 780 the new archbishop of York sent him late in the year to Rome for the pallium, and on his way back he again met Karl, at Parma, and Karl asked him to settle in France. He obtained leave of absence from York, and joined Karl in 782. His definite work was to govern the school at which the youths at the court of Karl, including Karl’s own sons, were taught;
the king himself often being present as a learner He then planned for Karl a number of schools in various parts of the country, all based on the model of the Palace school, which he had organized on the plan of the School of York. Then he took in hand the correction of the service-books, which had become seriously debased by ignorant copyists; his liturgical work produced such an effect that the servicebooks of the Middle Ages owed more to Gallican than to Roman influences. Tradition tells us that Alcuin himself wrote the Office for Trinity Sunday, at that time not fixed as now to a particular day. He found that the Holy Scriptures themselves had become debased by the same process of ignorant copying of manuscripts, and in his later years he was set by Karl to take seriously in hand the revision of the Scriptures. From 790 to 792 he had lived in Northumbria; but the aggression of heresy in Karl’s dominions had called him away again, and he had never returned. He was about fifty-eight years old when he finally left England, and he died in 804, at the age of sixty-nine.
The tendency towards attempting to define and explain the method in which Almighty power conducts its operations was a marked tendency of Alcuin’s time. He combated it, on sound principles. The whole matter, for example, of the union of the two natures in Christ, he reminded his readers, was supernatural; therefore, it could not be fitly measured by human analogies. To deny the perfect union of the two perfect natures in one Person was to impugn the Divine omnipotence; to claim to understand and to define the method and manner of the union was to impugn the infiniteness of the mystery
It was to this tendency to inquire into and seek to fathom divine mysteries that the controversy about transubstantiation was due. That controversy came into being a full generation after the death of Alcuin; and one of the most prominent opponents of any approach to a materialistic view of the manner of the Real Presence was a pupil of Alcuin’s, Rabanus Maurus, Archbishop of Mainz.
The heresy which reached such dimensions as to call Alcuin back from England to France was the heresy known as Adoptionism. It became prominent in the same manner, from the same tendency to pry into the divine secrets of operation, as did the theory of
transubstantiation. The point was, how exactly did the human nature of the Son come into union with the divine nature? The answer given by Felix, Bishop of Urgel in Catalonia, was this—by adoption. Hence he and his followers were called Adoptionists.
The term Adoption had been applied to the Incarnation by some early Fathers, and indeed in the Spanish Liturgy, which Felix naturally used. It was used probably as equivalent to assumption— He took upon Him—that is, assumed—our flesh. This use of the word Adoption in their liturgy led Felix and his followers to take a large step beyond the equivalence to assumption. They carried it to its full meaning in ordinary affairs, and declared that the divine nature of the Second Person of the Trinity adopted the human nature into sonship, as Son. The so-called Athanasian Creed has in our English form, “by taking the manhood into God.” In the original Latin the word “assumption” is used, assumptione humanitatis in Deum. [167]
Catalonia was at that time a part of Karl’s dominions, and therefore he could operate upon Felix. But Elipandus, who supported Felix, was bishop of Toledo and primate of Spain under the Mohammedan dominion, and thus was beyond the reach of Karl. He was a man who, in his letters at least, used very abusive language.
The Adoptionists held that it was a confusion of the two natures in Christ to say that Christ was proper and real Son of God not only in his Godhead but in His whole Person. The highest that could befall humanity, they maintained, was to be adopted into sonship with God; therefore Christ’s humanity is adopted into sonship. This adoption had three stages they said; the first at the moment of conception, the second at His baptism, the final stage at His resurrection. The Adoptionists professed to deny that they were Nestorians, that is, that they divided Christ into two Persons; but it was urged against them that if they did not divide Christ into two persons, their theory did, when it was pressed to its necessary consequence. That is the history of the origin of many of the heresies.
Various measures had been taken against the heresy of the Adoptionists, both by Karl and by the Pope, Adrian. In course of time
Karl sent the treatise of Felix to Alcuin, who was at the time in England, and Alcuin returned to France, never again to visit his native country. Simeon of Durham tells us that the English bishops made him their representative for the refutation of Felix. As such, probably, in part, but also by the special wish of Karl, he attended the Council of Frankfort in 794, and though only a deacon, argued against Felix. Felix was condemned. Alcuin’s argument was at Karl’s request or command developed into a treatise in seven books; and he wrote also a treatise in three books against Elipandus.
We have these ten books. They fill 220 very closely printed columns in Migne’s series. The books against Felix are among the best and most independent of Alcuin’s dogmatic work.
This by no means ended the matter. In the year 798 Karl sent to Alcuin a treatise by Felix, which he desired Alcuin to refute. Alcuin’s reply has been the subject of so much controversy that it will be well to give it as literally as possible. The point is, the place assigned to the Pope as a judge of doctrine. I only quote that part of the very long letter.
Ep. 100. July, 798.
“I beseech you, if it please your piety, that a copy of the treatise be sent to the apostolic lord [that is of course the Pope] and another to Paulinus the patriarch [of Aquileia]; similarly to Richbon [of Trèves] and Theodulf [of Orleans] bishops, doctors, and ministers; that they may (singuli) severally answer for themselves.[168] Your Flaccus [Alcuin] labours with you in giving account of the catholic faith. Allow him sufficient time to consider with his pupils, quietly and carefully, the opinions of the Fathers, what each has said on such views as this subverter has set forth in his book. Then, at a time appointed by you, let the answers of the above several persons (singulorum) be brought to you. And whatever of opinion or of meaning in that book is found to be contrary to the catholic faith, let it be overthrown by catholic quotations. And if the writings of all [of the above] sound forth equally and concordantly in profession or defence of the catholic faith, it will be clear that one spirit speaks through the voice and heart of all; but if anything diverse is found in the words or the writings (dictis vel scriptis) of any one of them, let it be judged which is most in accord
with sacred scripture and the catholic fathers, and give the palm to him who is most firm in the divine evidences.”
It seems to be perfectly clear that Alcuin’s plan was that he and his students should draw up a chain of passages from the Fathers, such as that which at an earlier stage he had himself sent to Felix;[169] that in this way they should spend the time till Karl had got answers by letter, or by the mouth of a messenger, or even at a personal interview, from each of the four, Pope, patriarch, and two bishops; and then that all the answers should be tested by the passages extracted from the writings of the Fathers. There is not the slightest sign of Pope Hadrian having a preponderant voice, or a voice on a doctrinal question more authoritative than that of the learned Bishop of Orleans. But if, as the Roman controversialist endeavours to maintain, the Pope was not included in the curious competition, and only the three others were to be counted, that is worse still for the position of the Pope; for Alcuin and Karl were to settle the matter without paying any attention to the Pope, indeed without considering anything that he might say. The Roman controversialist has to play tricks with the punctuation and with the Latin to separate off the Pope from the patriarch. There was no punctuation[170] in the letter, we must suppose; those who wrote in Latin as good as Alcuin’s could make a sentence clear in its meaning without commas and semicolons; and if the passage is read without stops the Pope is included, as he is also with any punctuation other than that of the Roman controversialist. But, as I have said, if he was included with the other three he was given a full chance of making his opinion felt on equal terms with that of each of the others; if he was not included, the verdict was to be final without him.
Ep. 11. July, 786.
Alcuin is drawn by the Romans into the controversy on Transubstantiation, which, as we have seen, had not commenced in his time. In a letter to Paulinus, the Patriarch of Aquileia, dated about 787, he requests his correspondent not to forget him in his prayers. “Store up my name in some treasure-house of your memory, and bring it out at that fitting time when you have consecrated the bread and wine into the substance of the body and blood of Christ.” If that expression had
been used after the long controversy on the subject, it would have been very much more important than at most it is. But it comes nearly fifty years before the controversy was raised by Paschasius Radbert of Corbie in his treatise De Corpore et Sanguine Domini ( . . 831). Paschasius wrote that after consecration “there is nothing but the Body and Blood of the Lord”, a material statement which Ratramn at once controverted. It was Ratramn’s treatise, denying the carnal presence and maintaining a spiritual view, that had a dominant influence on Ridley and Cranmer. The more subtle refinement of the schoolmen of later times, which we know as transubstantiation, avoids the blunt materialism of Paschasius by distinguishing between an essential and a non-essential element of an existence such as that of bread; giving to the essence which cannot be apprehended by the senses the name of substance, and to the non-essential the name of accident. The change effected by consecration did not, in their view, affect the non-essential, the accident, the part that can be perceived by the senses; it affected only that which can not be so perceived, the essential, the substance. But all this is very far beyond any point which had been reached in Alcuin’s time, or was reached for some long time after him. From him we do not hear anything of substance and accident, of essential and non-essential. He presumably used the expression quoted as a simple and strong statement of his belief in a very real presence, which he and the men of his time unquestionably held, but did not attempt to define.
We have an interesting opportunity of realizing the true feeling of leading personages of Alcuin’s time in this matter of the Presence in the Eucharist, just where we might not have expected to find it, namely, in the controversy on the use of images, of which we must now see something. The Holy Eucharist is used as an illustration in this controversy. The Synod of Constantinople, which decided that the images of the Saviour must be destroyed, declared that the Eucharist is the only true image of the Saviour; meaning that the union of the divine grace with the earthly elements represents that union of Godhead and manhood in His Person which images failed to convey, inasmuch as images of the Lord could only set forth His humanity. The objection was raised by the opposition Council of
Nicaea that none of the Fathers had applied the term imago to that which is His Body and His Blood; but otherwise they did not raise objection to the force of the comparison. If the modern Roman doctrine had been held by either side in the controversy, it must have shown itself in a declaration that a comparison was impossible, on the ground that the consecrated elements actually are, by a change of substance, that which an image can never be, namely, the very Body and Blood of Christ. The controversialists of the time would certainly have brought out, in one form or another, this vital point, if they had held it or even had only heard of it.
The controversy about images is so entirely a part of general Church History, that our mention of it must be only in relation to the part which Alcuin played in it. In the year 754 a Council at Constantinople had decreed the abolition of images, and this decree was carried out with terrible cruelty towards those who defended the images. In the year 787 a Council was held at Nicaea to re-establish the use of images of the Saviour and the Blessed Virgin, of angels and of saints, whether in painting or in mosaic or in any other suitable material, as objects of reverence, not as objects of that worship which is due to God alone. This decision restored peace between the East, which had previously condemned images, and the West, which had retained their use. The Pope, Adrian, sent the decrees to Karl, no doubt expecting that he would accept them. It was never quite safe to expect that Karl would do what he was expected to do.
The subject was not a new one among the Franks. They had held a mixed assembly of clergy and laity under Karl’s father in 767. There were present representatives of the then Pope, Paul I, and the iconoclast Emperor Constantine; and it is supposed that the decision, which is not recorded, was in accordance with the national feeling. That national feeling was guided by abhorrence of the abominations of the idol-worship of the pagans by whom they were surrounded. Karl himself strongly shared this feeling. He sent the decrees, which the Pope had sent to him, to Alcuin, who, as we have seen, was then in England. Alcuin made remarks on them in a letter, out of which grew a treatise in four books called the Libri Carolini, the
chief author of which was Alcuin, who was no doubt assisted by other ecclesiastics. Probably Karl himself kept his hand upon the work up to the time of its publication. The general line of the treatise is that images are useful for ornament and historical remembrance, and therefore they must not be destroyed; but worship of them must not be required. We must bear in mind that the word image means any kind of representation, the Nicaean Council of 787, as we have seen, specifying paintings and mosaics. One of the points on which these Caroline Books condemn the iconoclasts is, that they do not distinguish between images and idols; but this is a less grave mistake, the Caroline Books declare, than that committed by the Nicaean Council, in confusing the use of images with the worship of them. The former error is attributed to ignorance; the latter—it was a severe remark considering that the Pope had forwarded the decrees —is attributed to wickedness. It may be well, in this connexion, to recall the fact that the imago, the image of our Lord, which was carried in procession by Augustine and his monks at their interview with Ethelbert of Kent, was not an idol, but a painting on a tablet[171] . We of the Church of England keep this meaning of imago, in the allowance of paintings and mosaics in our churches, quite separate from the idea of an idol, which we disallow.
Adrian made a long but feeble reply to the Caroline Books. The great Frankish Council of Frankfort, in 794, which had the double character of an imperial diet and an ecclesiastical synod, and was presided over by Karl in person, held in strong terms the views of the Caroline Books; indeed, it appears to be far from certain that they were published before the Council was held. Alcuin, though he had not proceeded beyond deacons’ orders, was admitted to the Council on account of his learning. The Council spoke with contempt of the Greek synod; showed no regard to the Roman view; refused both adoration and service of all kinds to images. It was a tremendously independent blow to the Pope as an arbiter of faith and morals. But Karl was much too important a person in the eyes of the Pope to be quarrelled with, and Adrian remained on excellent terms with him. Adrian died in 796, when his successor Leo sent the keys of the Confessio of St. Peter and the standard of the City of Rome to Karl,
and begged him to send some of his chief men to Rome, to bind the people of Rome by oath to subjection and fidelity to the Pope.
These Caroline Books are so important in their unexpected bearing on the current belief on the nature of the real Presence in the Holy Eucharist, that we must look into their phrases with some little care.
In the second book of the four Libri Carolini Karl deals with the question of the adoration of images. In the twenty-seventh chapter he argues against the temerity and absurdity of those who presumed to compare, as of equal importance, images and the Body and Blood of the Lord. He quotes these absurd persons as saying that “as the Body and Blood of the Lord passes across from the fruits of the earth to a remarkable mystery, so images pass across to the veneration of the persons whom they represent”. No one of Karl’s arguments against this parallel or equivalence gives the slightest indication of a belief or idea on his part that in consecration there is a change of substance. He says, “The sacrament of the Body and Blood of the Lord is effected by the hand of the priest and the invocation of the divine name to the commemoration of His passion and to the grant to us of our salvation by the same mediator between God and men”; whereas images are completely made by skilled workmen, &c. For the consecration, the vested priest, mingling the prayers of the people standing round with his own prayers, with groaning of spirit makes memorial of the Lord’s Passion, of His resurrection from the dead, and of His most glorious ascension into Heaven, and entreats that these may be borne to the sublime altar of God by the hands of an angel and into the sight of His Majesty; the painter of images merely looks out a suitable place to execute his works, and paints them that they may look beautiful. Thus any one who attempts to compare on equal terms images and the Body and Blood of the Lord strays very far from the path of truth, of reason, and of discrimination. The commemoration of His most sacred Passion is not in the works of artificers, but in consecration of His Body and Blood. That elect vessel Paul the Apostle says that the Sacrament of the Lord’s Body and Blood is not to be put on an equality with all sacraments, but is to be set before almost all sacraments, when he
says, He that eats and drinks unworthily eats and drinks his own damnation. Nothing of that kind is said of those who will not adore images. Karl sums up the discussion by stating concisely ten points of vital difference between the Lord’s Supper and images. For our present purpose we need only take the ten points as they relate to the former. Our purpose is to consider how far the points stated can indicate a belief in the doctrine of transubstantiation, and how far they square better with that reticent doctrine of a Real Presence which is consistent with the formularies and the services of our own most truly Catholic Church of England. These are the ten points: The Sacrament of the Lord’s Body and Blood (1) is effected by the invisible operation of the Spirit of God; (2) is consecrated by the priest by the invocation of the divine name; (3) is carried by angel hands to the sublime altar of God: (4) by it sins are remitted; (5) it has no growth or diminution of power; (6) it is confirmed by new antiquity and ancient newness; (7) it is the life and the refreshment of souls; (8) it leads by eating thereof to the entrance of the heavenly kingdom; (9) it cannot be abolished from the Church by persecution: (10) without reception of it no one is saved.
CHAPTER XI
Karl and Rome. His visits to that city. The offences and troubles of Leo III. The coronation of Charlemagne. The Pope’s adoration of the Emperor. Alcuin’s famous letter to Karl prior to his coronation. Two great Roman forgeries, the Donation of Constantine and the Letter of St. Peter to the Franks.
We must now turn to the connexion of Karl with Rome, and especially to Alcuin’s advice to him in the matter of declaring himself or being declared emperor. It is a highly noteworthy fact that the Englishman Boniface was the most trusted counsellor of Charlemagne’s father Pepin at the time when it was proposed to raise him from Mayor of the Palace to King of the Franks, and that Alcuin the Englishman was the most trusted counsellor of Charlemagne himself, when it was under consideration that he should be raised or should raise himself from King of the Franks to Emperor of the West.
In 773 Pope Adrian had invited Karl to come to Italy and rid him of the oppressions of the Lombards. The Pope’s messenger could not get through by land, by reason of the Lombard power, and he went by sea. Karl agreed to do as the Pope asked. He went with all his force to Geneva. There he divided his army into two parts, sending his uncle Bernard with one portion by the Mons Jovis (the great St. Bernard, called the Mount of Jove because of the statue of Jupiter Peninus placed at its summit) and himself went by the Mont Cenis. The two parts joined at Clusae on the south side, between Susa and Turin, and proceeded to the siege of Pavia, the Lombard capital. Karl spent his Easter at Rome, and on his return to Pavia took the city and captured the king with his family and treasure.
At this visit he was received at Rome with the highest honours. In return, he confirmed and enlarged the donation of Pepin his father, adding, it is said, large parts of Italy—indeed, almost the whole peninsula. He laid the deed of gift on the tomb of the Apostle Peter
