Showing posts with label international law. Show all posts
Showing posts with label international law. Show all posts

Sunday, June 22, 2014

Rosenzweig: An Antigua Gambling Model for the International Tax Regime

Adam Rosenzweig recently posted An Antigua Gambling Model for the International Tax Regime. Here is the abstract:
The international tax world is facing a defining moment. While there is little agreement on anything within the field, there appears to be a growing consensus that the modern international tax regime — the so-called flawed miracle emerging from World War II — is irrevocably broken. As the countries of the world confront the challenges facing the international tax regime in the next century, new models for an institutional framework for international tax become increasingly crucial to its success. While significant progress has been made in developing underlying norms to serve as the basis for a modern international tax regime, less focus has been paid to building the institutions and structures necessary to implement these norms. To this end, this Essay proposes looking to the recent experience of the WTO in the Antigua Gambling case as a model for a new institutional framework for the new international tax regime. The Essay then proposes three potential ways to do so: (1) the creditable gross-withholding tax method, (2) the extraterritorial excise tax method, and (3) the WTO cross-retaliation method. 
By serving as an example of how to balance the needs of larger, wealthier countries and smaller, poorer ones, the Antigua Gambling model could help overcome one of the largest obstacles confronting the development of a modern international tax regime. Perhaps an Antigua Gambling model could serve as the basis for a new institutional framework for international tax.
Ambitious, and on my to-read list.

Tuesday, June 17, 2014

Bruce Zagaris on US Perspectives on Information Exchange

Bruca Zagaris has a two-part article on U.S. policies on the exchange of information in tax matters, published  by Tax Analysts on June 9 and  June 17, of great interest (but gated, unfortunately). He provides an overview of the applicable treaties (bilateral and MAATM), TIEAs and IGAs, and discusses the various forms of information exchange. He gives a nice level of detail on how information exchange requests are processed in the US and how the US achieves its information goals vis a vis other countries. He goes through the legal structures and the developments at the OECD and EU. He then provides a series of detailed hypotheticals focusing in on US information exchange policy with respect to Latin America. Bruce is very clear about the lack of reciprocity that characterizes the US position toward information exchange and notes, rightly, I believe, that this position is sure to lead to conflict going forward.

His conclusion is rather bleak but I don't disagree with anything he is saying. Here are a few excerpts:
The U.S. budgetary problems, the pay-as-you-go system, the revenue estimates obtained for the anti-tax-haven bills, and the proclivity of some members of Congress to focus on tax enforcement and compliance directed at U.S. taxpayers concealing money abroad ensures that the anti-tax-haven bills will constantly be appended to appropriations legislation in this session of Congress and in future sessions. There are so many anti-tax-haven initiatives and the lack of actual reciprocity by the U.S. government, as opposed to the rhetoric, may well lead to dispute resolution proceedings soon and to disagreements within the international initiatives of the OECD and FATF, as a result of the perceived lack of a level playing field. 
A global trend toward criminalization of tax compliance and enforcement will continue.... Governments will continue to try to privatize tax enforcement by deputizing FIs and service providers regarding reporting, ethics, and a range of other requirements. Criminal investigations and prosecutions of noncompliant institutions and service providers will continue. 
... Disagreements are likely to continue among the OECD and developing countries about the proper financial architecture, not only in tax policy, but also financial regulation. If possible, the G-8 countries will try to continue to centralize decision-making in elite informal groups, such as the G-20, the Financial Stability Forum, and the OECD and the groups it controls, such as the Global Forum on Taxation. 
... OECD and Latin American governments, including the United States, Argentina, Mexico, and Brazil, will continue to impose sanctions through blacklists and countermeasures against small financial center jurisdictions, both unilaterally and through international organizations (for example, the OECD and IMF) and informal groups (for example, G-20, FATF, and Financial Stability Board), even though small-state offshore financial centers do a much better job of enforcing the prohibition on anonymous companies and bank accounts than do large OECD countries, and the United States is the main offender in failing to enforce the international standards prohibiting anonymous companies 
The biggest potential impediment to the United States achieving its global tax priorities is the political gridlock, especially regarding the budget, spending, raising taxes, and raising the debt limit. ... 
The upshot of globalization and increased penalization of international tax and money movement flows is increased pressure on financial intermediaries, including lawyers, trust companies, banks, accountants, and other wealth management professionals who must advise clients. Increasingly, tax authorities, law enforcement, and regulators will be acting to obtain information and bring administrative and criminal cases for reporting violations, nonpayment, nonfiling, and allegedly fraudulent activities, or conspiracy to do the same.
All in all this is a tremendous resource for anyone wanting to understand information exchange from the US perspective. I hope that others will undertake similar analyses for other countries, so that we can start to understand what tax information exchange actually looks like now, and what it will likely look like going forward. The combination of non-reciprocity, a starved administration, and political gridlock in the US with a continued policy jealousy on the part of the US and its close "elite" allies that Bruce describes portends deep trouble ahead for the rest of the world, especially as these countries continue to reserve their own rights to act as tax havens.

Sunday, June 8, 2014

The World According to FATCA, In 3 Maps

As of 8 June 2014, this is the world according to FATCA:

Countries that have actually signed an intergovernmental agreement.

Countries treated as having signed an intergovernmental agreement.

Countries with no agreement, actual or implied; FATCA applies unilaterally.

There really isn't any doubt that some of the poorest countries in the world will be most unfairly treated in any multilateral regime for global information exchange which excludes the United States because it acts unilaterally to attain solely its own goals, with no regard for the price others must pay or the appropriateness of imposing that cost where no wrong has ever been accused much less proven.

Prof. Karen Brown wrote an important and influential article in 2002 called Missing Africa on the topic of US tax and trade policy toward developing countries in general, Sub-Saharan Africa in particular. Her article starts with a quote: "We're the... United States. Do we need Africa?"' (from a former World Health Organization official who resigned over the lack of commitment to control AIDS in Africa).

Here the pattern repeats itself: even if they wanted to, many of the countries in the third map cannot forestall the present threat of economic sanctions. The United States simply doesn't need them. Yet many, many of these countries suffer far more from bank secrecy provided by the US and elsewhere than the other way around.

The unjustified and virtually-ignored perfection of US citizenship taxation is one part of FATCA's unexamined legacy, the dismantling of comity in international taxation another; so, too, the repeated exclusion of the developing world from an institutional order that is becoming increasingly unjust.

Friday, May 9, 2014

Are Sole Executive Agreements Next on the Roberts Court Chopping Block?

Peter Spiro has a post up over at opinio juris on a pending US constitutional challenge to FATCA, of interest. No surprise, I agree with him that the strongest case is likely to be found in the violation of the treaty power (and not just because he points to my own work on the subject!) He says:
The Treaty Clause argument is a plausible one, the doctrinal terrain at least unsettled. The FATCA agreements enjoy implied congressional authorization, at best, in the form of prior tax treaties. ...There is a lot of history behind sole executive agreements but not much judicial precedent. ... Could this be another platform for the Supreme Court to advance its formalist turn in foreign relations law?
A very good question.

Monday, April 28, 2014

Diane Ring on The Influence of Experts

Diane Ring has a post up over at Jotwell reviewing Mai'a Cross' Rethinking Epistemic Communities Twenty Years Later, which was published last year. Professor Ring says:
Rethinking Epistemic Communities emerges from one broad strand of IR theory, cognitivism, which explores how we know what we want, what we value, and what we seek. That is, even if much of international relations activity concerns the use of power and/or bargaining games to secure “desired” outcomes, how do countries and other key actors determine what they want? Certainly in some cases the parameters of what a country seeks to achieve may seem relatively clear, but in many others the outcome or at least its particular form, is less obvious. 
...As Cross articulates, the study of epistemic communities, particularly in the context of transnational global governance highlights how both state actors and the increasingly important non-state actors are affected by epistemic communities and the constructions of norms, goals, and shared understandings. She acknowledges certain criticisms of the concept but sees them not so much as a constraint on further research but rather a road map of the important questions that future scholarship should address.
Head over to jotwell to read the rest.

Friday, February 28, 2014

FATCA in Canada-constitutional challenge mounting

A group of Canadians has put together a campaign to explore the constitutional violations posed by FATCA in Canada. Some of these issues were raised by pre-eminent constitutional scholar Peter Hogg, in this letter to Finance. Others arise because of the adoption of the intergovernmental agreement (IGA), which bypasses data protection laws and lacks even the minor anti-discrimination clause seen in other IGAs.

I've been asked if these issues are serious. I think they are. The issue FATCA raises for me is not so much sovereignty--though I perfectly understand the instinct on that front--but rather it is the problem of serious mismatch between the goals targeted and what will be attained by FATCA when law on the books meets law in practice. The constitutional challenge is a signal that something is seriously awry with FATCA. As with most activism, this effort demonstrates that a not-small number of people are experiencing some not-small violation of fundamental principles, and in light of government failure to respond, are forming grassroots responses in an effort to achieve a remedy.

Let's have a look at why this might be so.

The goals of FATCA are clear and the law writes a clear narrative that is palatable to the public: we must stop tax evasion. Who would possibly speak out against that goal? I don't know too many people that would.

However, the law in practice is a completely different story, with a normative dimension unique to the United States. This dimension has, as far as I can see, been completely ignored by lawmakers both in America and internationally. It involves the attempt by the United States to impose taxation of persons based on their legal status instead of their actual inclusion in American society.

I know that this s difficult to understand conceptually. An example might help.

A was born in Illinois to a Swedish mother and an American father. The family moved to Sweden when A was 6 months old, and she spent her whole life in Sweden, working there, paying taxes there, using the schools and the health care system there, and getting married to a fellow Swede. A is a US national, and therefore subject to US taxation as if A had done all of those things in America. A has always been subject to US taxation, and FATCA doesn't change that in the slightest. But A never paid any attention to US law or politics, decisions of the US Supreme Court, or Congressional hearings. Why would she? She is a resident of Sweden paying high taxes and living her life. A has bank accounts at her neighbourhood bank, and tax-deferred savings account sponsored by her government.

In the eye of FATCA, A is an offshore tax evader.

Since she is an evader, she must be monitored to ensure she is caught and brought to justice, and further that she goes forward in full compliance with all US tax laws. Since she cannot be trusted to come forward, her bank must disclose her personal and financial information, and that of her spouse (guilty by association), to the IRS. Since the bank has no incentive to do that, it must be threatened with sanctions if it fails to do so. Since banks don't want to work under that threat, Sweden must be compelled to step in and facilitate the data transfer.

As I have said often, this is an extraterritorial jurisdictional claim that requires the help of other countries. Getting help is not a choice, it is a necessity. One country simply cannot assert its jurisdiction over people who live in another country, without that other country's help. American scholars know this, and they say America should ask for the help it needs. The problem that we have seen FATCA reveal is that this help necessarily involves America's needs trumping domestic laws that apply to targeted persons in the country of their residence.

I do not think America should be demanding help from other countries in taxing the residents of those countries. America needs to learn to tax its own residents, like every other country must do. If the world's biggest economy cannot figure out how to make its own people pay for their own public goods, it is difficult to see why other countries should be enlisted to help it along.

This is why the mismatch between the law on the books and the law in practice is so troubling in the case of FATCA. Looking past the use of legal status instead of residence as a jurisdictional claim, a regime that requires financial institutions to report nonresident accounts to these account holder's home countries is absolutely necessary to protect the income tax base from widespread tax evasion facilitated by foreign bank secrecy laws.  Of that there is simply no doubt. To the extent FATCA can do that, it is to be applauded and most of all extended globally because this is a global issue. I explain and advance this argument here

Most countries cannot act alone in instituting this necessary regulatory structure, since foreign financial institutions would simply shun a given market rather than comply. This is the potentially positive side of what makes the United States different from most, maybe all, other countries. This also explains why the OECD is very very quickly trying to ride the coattails of FATCA (before it is too late and the US changes its mind about being part of a global data exchange system, as it has before), by gearing up to create a global FATCA, or call it a GATCA

GATCA is FATCA minus two key aspects: the normatively unjustifiable legal-status based tax, and most of the economic sanctions. The UK has done something similar with those same parameters with respect to a selected list of countries. (The OECD's GATCA is also fully reciprocal, but that deficiency in FATCA is another issue). These differences make a GATCA supportable exactly where FATCA is not (both systems have other major flaws but we can leave those aside for the big picture here).

FATCA's enforcement of legal-status based taxation renders it normatively unjustifiable. It violates the residence principle, which Reuven Avi-Yonah has gone so far as to call an international customary law. It is also of course completely unworkable on a global scale: imagine if other countries decided to learn from the US example and started smoking out their own disapora to enforce their own FATCA regimes. It is unimaginable that if the OECD countries got together and seriously debated status-based taxation, they would agree on a global standard to enforce it for all countries. The common reporting standard GATCA they have devised, which is so obviously based fundamentally on the residence principle, shows that the OECD recognizes that enforcing status-based taxation is not and should not be a goal of any project to counter tax evasion.

Yet no conversation is being had about the outlier, whose demands will make enforcement of GATCA more extensive and more expensive for every other country.

Residence based taxation is not perfect by any means but it is the least worst alternative if governments want to continue to use personal income taxes in a world in which individuals are to be allowed the freedom to move. FATCA deserves to fail to the extent it ignores this reality. A constitutional challenge will at minimum open a desperately needed political conversation about why this is so.

Friday, February 14, 2014

OECD's Plan for Global Tax Info Exchange: Could be Deja Vu All Over Again

The OECD has released its "Common Reporting Standard," a.k.a. a global "Standard for Automatic Exchange of Financial Account Information." The plan more or less tracks the so-called "intergovernmental agreements" (IGAs) that the US Treasury is using to try to get the Foreign Account Tax Compliance Act working. But the OECD's model for the world differs in two critical respects:

  1. it is based on the global standard of residence-based taxation
  2. it would require reciprocity

One obvious question is whether the US would sign on to this standard, since it represents a major reduction of the massive expansion of the US taxpayer base contemplated by FATCA. If not, can one really envision a world in which everyone shares data reciprocally except the United States, which not only does not share data reciprocally but also places the most expansive demands on everyone else? (For those not following along, the US claims people based on their legal status in the US as well as their actual residence, in contravention of the global norm reflected in the OECD standard, which rejects the former claim in favor of the latter. In terms of reciprocity, what the US calls reciprocal with respect to data sharing is so far reciprocal in name only).

A related issue that already exists under FATCA and will be expanded exponentially under the OECD plan is that reciprocity means every government bears the cost of incorporating expansive financial surveillance (in the case of the US, far beyond that required for all other countries) yet as the Tax Justice Network points out, this formal equality in fact introduces substantive inequality and potentially great harm to poorer countries.

Readers of my prior work (on soft law, on the OECD's norm-creating role, and on its grappling with the issue of sovereignty) will know that I am cautious about the premise of accepting proclamations of the OECD about "global" tax norms.

In the case of residence-based taxation, however, this is not an OECD-created norm but one that dates to the very beginnings of modern income taxation and while flawed is the best available structure if more than one country in the world is going to have an income tax and people are going to be allowed to leave their countries freely if they so choose. Relax either of those assumptions and legal status-based taxation might become technically feasible, though it would still be fundamentally unjust. Neither is the reciprocity norm an OECD invention: instead, its roots trace back to post-Westphalian fundamental international legal principles.

The OECD's forging ahead with a plan that more or less relies heavily on US acceptance is eerily reminiscent of the last OECD attempt to curb tax evasion, via the harmful tax practices initiative. The US first supporting and then completely reversing course eviscerated that effort, thus cementing the status quo we witness today.

US exceptionalism with respect to who should be considered its residents and what it can be compelled to share with other countries cannot help but perpetuate a grave reciprocity imbalance that will only be exacerbated if the US does not sign up to the OECD standard, and the OECD accepts a carve-out to accommodate it.

Given that efforts toward a repeal of FATCA and an ongoing legal challenge to data reporting by US banks are currently unfolding in the US, the OECD's report comes at an interesting juncture in the process of picking up where the harmful tax practices project left off. It could unfortunately foreshadow a repeat of the events that unfolded in that project circa 2001. Or, more optimistically, it could be that the OECD report is a means of giving the US a reason and the political cover to bring its antiquated status-based tax regime up to date with the global residence-based standard, and its one-sided view of the value of data sharing in line with how the rest of the world views things. That would make global automatic data exchange of offshore financial accounts a much more clearly positive development overall, leaving room to focus on solving the other outstanding issues. Only time will tell which way this will unfold.

Friday, January 10, 2014

Dorfman on the Cost of US Citizenship Abroad

I missed this student's point of view on the Cost of United States Citizenship Abroad when it was posted early last month, and it is of interest. The student notes that the US is the only country* in the world to impose worldwide taxation on the basis of citizenship instead of residence, that "there are no philosophical grounds" for this position, and that the position creates unnecessary obstacles to human mobility that serve no policy purpose. Excerpts of note that I wish US lawmakers could understand as well as this student apparently does:
[T]his archaic policy is not only unjustified, but is frustrating and alienating expatriates across the globe. 
... In general, [US] citizens pay the difference between their domestic taxes and what they would have been taxed in the US – so, if a citizen’s domestic taxes are higher than what they would owe in the US, they pay no additional taxes. However, an exemption from additional taxes is not an exemption from the inconvenience, penalties, and hidden costs that come with filing US taxes abroad.
... the vast majority of expatriates are not living abroad to duck taxation – they have simply moved away for work, education, or family reasons and have not returned. 
Many non-resident citizens have inherited United States citizenship by birth, but have never actually resided there– they’ve received no services from the US government, yet must file American taxes every year or face severe penalties. 
...In attempting to punish tax dodgers, the US government is heaping financial penalties, stress, and even criminal charges upon the blameless.
...At its core, citizenship based taxation makes it harder for American citizens to live and thrive outside of the United States. This is a significant obstacle to the freedom of Americans to emigrate abroad in an increasingly globalized world. 
The United States has also implemented barriers to renouncing American citizenship. ...The Economist has dubbed these obstacles “America’s Berlin Wall”.  
 The author concludes:
It is no wonder that American expatriates frequently report feeling frustrated, harassed, and persecuted – the United States system has been built to punish them for merely residing outside of its borders. The United States needs to get with the times and abolish citizenship-based taxation. The policy is tremendously unfair and detrimental to Americans living abroad, and it serves to anger and alienate citizens, many of whom have a lot to contribute to the United States in terms of international experience and skills. It is ironic that a citizenship so widely desired has come to feel like a burden for so many.
Well said, but I am afraid it is falling on deaf ears in Congress where every move concerning the taxation of humans--in stark contrast to that of multinational companies--is moving in the direction of protectionism and penalty rather than export and free mobility.

* Eritrea also apparently taxes its citizens abroad at a rate of 2 (two!) %. For this it has been condemned  and sanctioned by the United Nations Security Council after then US Ambassador, now US National Security Adviser Susan Rice stated that the country was "funding its [war-related] activities through its diaspora tax." Rice added that "Eritrea must confirm through its actions that it was ready to re-emerge as a law-abiding State." One can but hope that such statements can be made only by someone who is blissfully unaware of the comparatively much more expansive--and punitive--US disapora tax.

Wednesday, January 1, 2014

Cockfield on governance and the international tax regime

Art Cockfield has published his article, The Limits of the International Tax Regime as a Commitment Projector, which examines how governments use and abuse the pluralistic nature of the international tax law regime to achieve their goals. He presented this as a paper in draft form last year at McGill and it is highly recommended reading. Here is the abstract:
As explained by Ronald Coase, transaction costs are the costs associated with discerning a price on a given exchange. This article conceptualizes the international tax regime as a political and legal system striving to address transaction cost challenges, and claims it has an uneven record. On the one hand, the international tax regime lowers transaction costs and hence promotes global economic growth. It does this by facilitating credible government commitments to ensure that the same cross-border profits are not taxed twice by two countries. Multinational firms are thus protected against the risk that their cross-border activities will be unduly deterred by taxation, which encourages more global economic activities.On the other hand, governments are unable to offer credible commitments that they can effectively address other important international tax policy concerns. First, despite ongoing reform efforts governments are not able to offer reasonably reliable promises that they will inhibit aggressive international tax planning that dilutes revenues in countries like the United States. Second, the international tax regime affords governments opportunities to develop their own policy solutions (such as the 2010 U.S. anti-tax evasion initiative to create a global tax information reporting system through the Foreign Account Tax Compliance Act) and thus governments can renege on earlier promises to abide by traditional international tax norms.
The article includes a tremendously interesting section on "Breaking Commitments through Unilateralism," in which Prof. Cockfield discusses the US adoption of FATCA and how this legislation violated international tax norms as well as circumvented longstanding international commitments under existing treaties. Prof. Cockfield is optimistic that despite its faults, FATCA could help lead the world to global automatic information sharing. I am very much less optimistic because of the grave imbalance of resources and the high transaction costs he describes, and because I view the intergovernmental agreements that purport to commit the US to greater information exchange as aspirational at best.

In the conclusion, Cockfield sums up the current status quo of global tax governance:
The fact that the ITR [International Tax Regime] evolved as a largely noncooperative government game is understandable given the desire on behalf of governments to preserve political control over their tax systems. Nevertheless, by eschewing its traditional reliance on limited bilateral and multilateral cooperation, the recent U.S. initiative through FATCA to create a global tax reporting system to address tax evasion concerns — a system that operates in contravention of the formal and informal rules of the ITR — shows another limit of the ITR as a projector of reasonably reliable commitments. In a noncooperative game without any binding multilateral rules, governments may be tempted to break their promises to follow international tax norms in order to pursue their own domestic policy goals. 
...The analysis in this article has shown how, depending on how the context affects the ability of governments to exchange credible commitments, the ITR lowers or raises transaction costs. Thus, it disagrees with the tentative claim that, in the long run, international taxation will find its most transaction-cost-efficient governance structure. This conclusion is consistent with the view of North that, unconstrained by market forces, “the political market has been, and continues to be, one in which the actors have an imperfect understanding of the issues affecting them and equally in which the high costs of transacting prevent the achievement of efficient solutions.”

Monday, August 12, 2013

How Starbucks Lost its Social License--And Paid £20 Million to Get it Back

I have a new column in Tax Notes International [gated] today, pdf available here, about Starbucks's £20 million promise to the UK after a firestorm of controversy erupted last year when it was revealed to have paid no taxes despite 14 years of franchise expansion in the country. 

UK Uncut's logo for Starbucks Protests
It is well accepted that corporations require various legal licenses to do business in a state. But Starbucks’ recent promise to pay more tax to the UK regardless of its legal obligation to do so confirms that businesses also need what corporate social responsibility experts call a “social license to operate”. Companies may now in effect be required to pay some indeterminable amount of tax in order to safeguard public approval of their ongoing operations. This suggests that even as the OECD moves forward on a project to salvage the international tax system from its tattered, century-old remains, the tax standards articulated by governments will no longer be enough to guarantee safe passage for multinationals. Instead, companies may have to deal with a much more volatile, and fickle, tax policy regime: one developed on the fly by public opinion.
As always, I welcome comments.

Wednesday, July 17, 2013

TJN on the rule of law and the forthcoming OECD report on base-erosion

The OECD is expected to release its plan to implement its anti-base-erosion project this Friday, and the Tax Justice Network has issued a pre-emptive strike as it were, predicting that the OECD will do very little by way of fundamental reform. Instead, TJN predicts a patchwork of half-hearted measures that will be delivered through the toothless mechanism of non-binding recommendations, instead of a full-throated commitment to real change, which the TJN says would require endorsement of combined reporting & formulary apportionment for multinational companies. I am still not convinced combined reporting is a panacea, but I understand TJN's perspective that arms' length reporting probably isn't capable of delivering the result they seek with respect to taxing the profits of multinationals on a global basis. You can read TJN's whole report here.

But I wanted to note something that particularly struck me in this report, an issue that I worked through at length not too long ago and that has been bothering me for quite a while, and that is the recognition that for the international tax law system to work, we desperately need more transparency regarding what lawmakers actually do when it comes to international tax compliance. Here is what I said on the subject in an article called How Nations Share:
In the case of international income, it is [tax] disputes and their resolutions, and not the law on the books, that constitute the international tax regime. Yet it is all but impossible for citizens to observe exactly how, or how well, their governments navigate this aspect of economic globalization. [Tax treaties] provide only a design for allocating international income among nation states. It is the application of these agreements that determines how revenues are allocated in practice. This application has taken place over the years through hundreds of thousands of interpretive decisions, the vast majority of which are not accessible to the public. Instead, international tax disputes are mostly delegated to institutions that resolve issues in informal, “non-law” ways with minimal public access to the decision-making process and its outcomes. As a result, international tax law in practice features little or no “law.”
In the article, I explained that when actual decisions about the taxation of multinationals are made through processes that lack judicial oversight and feature no public access whatsoever, this creates a huge knowledge gap between the law as written (in legislation and in treaties among other documents) and the law in action (after the competent authorities make their decisions).

The OECD has exploited this gap to its own institutional advantage, by making itself a norm aggregator and filtering mechanism. It thus deliberately creates a non-legal alternative to direct access to legal decision-making. This is a major, even if not well-understood, impediment to the development of law in taxation that has serious consequences precisely because it shields from public scrutiny just how much base erosion is actually going on. We (the public) simply cannot know how big the base erosion problem really is because we cannot access the competent authority decisions that in fact allocate income internationally. The OECD presumably knows the answer but suits its own political and institutional purposes by publishing a highly-processed version of events in the form of reports, guidance, etc.

Because I view this as a major problem for the rule of law which is made ever more serious by being ignored as an issue altogether, I was very gratified to see TJN pick up on the theme and call for publication of competent authority decision-making:
Currently, the MAP [competent authority dispute resolution process] is very secretive, and decisions often involving hundreds of millions or even billions of dollars are not published. The secrecy of both MAP processes and APAs greatly increases the power of frequent actors in these processes, i.e. the international tax and accounting firms – to the great detriment of the system as a whole. Publication of both would be a great step towards a system which could both provide and more importantly be seen to deliver a fair international allocation of tax.
TJN's worries about the repeat-player advantage gained by tax and accounting professionals are well-founded, but I think what is most clearly articulated here is that this is fundamentally a rule of law matter. Moreover, TJN puts this issue third in line in terms of reform priorities but I actually think it is much closer to being at the top of the heap in terms of structures that cause intractable problems for international taxation. I will be very interested to see how the continued pressure TJN has been able to place on OECD decision-making to date plays out on this particular issue.

Friday, July 12, 2013

FATCA delayed again, this time Treasury giving itself 6 months to get the house in order. Lesson: internationalizing a unilateral legal regime is really difficult.

Treasury issued a new Notice 2013-43 today, pushing the withholding deadline to July 1, 2014 (was January 1 2014), the portal opening to August 19, 2013 (was July 15), and the deadline to register as a FFI is now six months from when the portal opens, which I believe would be February 19, 2014 (was October 25, 2013) (but for some reason this date doesn't seem to be indicated in the Notice, instead it says "On or after January 1, 2014, each financial institution will be expected to finalize its registration information by logging into its account on the FATCA registration website, making any necessary additional changes, and submitting the information as final. Consistent with this 6-month extension, the IRS will not issue any GIINs in 2013. Instead it expects to begin issuing GIINs as registrations are finalized in 2014"). Accordingly, no GIINs will be issued in 2013, IRS "expects to begin issuing GIINs as registrations are finalized in 2014," with the first posting of the compliant FFI list by June 2, 2014.

All of this is going to require Treasury to amend the regulations and the model IGAs to adopt these rules, but taxpayers are advised they can rely on the Notice until that happens. Here is the explanation:
Comments have indicated that certain elements of the phased timeline for the implementation of FATCA present practical problems for both U.S. withholding agents and FFIs. In addition, while comments from FFIs overwhelmingly supported the development of IGAs as a solution to the legal conflicts that might otherwise impede compliance with FATCA and as a more effective and efficient way to implement cross-border tax information reporting, some comments noted that, in the short term, continued uncertainty about whether an IGA will be in effect in a particular jurisdiction hinders the ability of FFIs and withholding agents to complete due diligence and other implementation procedures. 
In consideration of these comments, and to allow for a more orderly implementation of FATCA, Treasury and the IRS intend to amend the final regulations to postpone by six months the start of FATCA withholding, and to make corresponding adjustments to various other time frames provided in the final regulations, as described in section III below.
There is also language about jurisdictions that have signed IGAs but have not yet ratified them according to their internal procedures for ratifying international agreements, in line with what the IRS agreed to in the Norway IGA, but notice that there are no hard deadlines here. Instead, FATCA partner jurisdictions get a "reasonable" period of time to get the IGAs through their respective legislative processes. I cannot see how a foreign jurisdiction would have any recourse to an unfavorable IRS determination that its internal ratification period is "unreasonable." I'd say that falls into a rather delicate area of diplomacy: I doubt the IRS will be eager to tell some other country its legislative procedures are too slow, sorry, you're off our whitelist. In any event:
A jurisdiction will be treated as having in effect an IGA if the jurisdiction is listed on the Treasury website as a jurisdiction that is treated as having an IGA in effect. In general, Treasury and the IRS intend to include on this list jurisdictions that have signed but have not yet brought into force an IGA. The list of jurisdictions that are treated as having an IGA in effect is available at the following address: 
A financial institution resident in a jurisdiction that is treated as having an IGA in effect will be permitted to register on the FATCA registration website as a registered deemed-compliant FFI (which would include all reporting Model 1 FFIs) or PFFI (which would include all reporting Model 2 FFIs), as applicable. In addition, a financial institution may designate a branch located in such jurisdiction as not a limited branch. 
A jurisdiction may be removed from the list of jurisdictions that are treated as having an IGA in effect if the jurisdiction fails to perform the steps necessary to bring the IGA into force within a reasonable period of time. If a jurisdiction is removed from the list, financial institutions that are residents of that jurisdiction, and branches that are located in that jurisdiction, will no longer be entitled to the status that would be provided under the IGA, and must update their status on the FATCA registration website accordingly. 
More details in the link to the Notice. I have some questions about the various exceptions and wheretofores, including a general sense of confusion about which of the various procedures and penalties starts when, but I'll save these thoughts for another day.

Moral of the story: it's really, really difficult to get an international tax regime going on a unilateral basis. There is a story in this about the difference in making a unilateral rule first, and then repeatedly changing it to fix all the problems that inevitably arise, versus sitting around in international networks trying to make sure the rule will work first, before trying to implement it internationally. Empirical project for international law buffs!

Friday, May 3, 2013

Call for Papers: Annual Conference of the Canadian Council of International Law

The organizers of the CCIL's 2013 annual conference have issued a call for papers:

CCIL 42nd  Annual Conference: Call for Papers
Contemporary Actors and their Actions: A New Look at the Formation of International Law
November 14-16, 2013 - Ottawa, Ontario

The Canadian Council on International Law invites paper proposals or summaries of proposed presentations from faculty members, doctoral level graduate students in law and related disciplines, and practitioners, on topics dealing with the theme of its 42nd Annual Conference: “Contemporary Actors and their Actions: A New Look at the Formation of International Law”.

Paper proposals or summaries of proposed presentations in English or French should be no longer than a single page in length and should include a biographical statement or curriculum vitae.  Proposals are due June 3, 2013 and should be sent to

Great topic. More info at the link.

Saturday, April 20, 2013

Thoughts on the "you first, no you first" provision in Norway's FATCA agreement with the US Treasury

Norway signed an IGA with the US Treasury on April 15.  I blacklined the Norway agreement against the Model 1 FATCA, (you can download the comparison here) and note that some of the regular features appear, including deemed-compliance status for pension funds and "local" banks* but want to address in this post what I'll call the "you first, no you first" provision in Article 4, paragraph 6.

Some FATCA watchers were surprised to see this paragraph, and I admit I had not noticed it before so I assumed it was new--until I blacklined it and found that no, that paragraph is in the Model 1 Agreement (however it is not in the IGAs with Mexico or the UK), and the Model language is identical to that in the Norway agreement.

In any event, having now read this Art. 4 paragraph 6 more closely, I notice there is actually a good bit of maneuvering going on here. Here is the language:

6. Coordination of Timing. 
Notwithstanding paragraphs 3 and 5 of Article 3:
a) Norway shall not be obligated to obtain and exchange information with respect to a calendar year that is prior to the calendar year with respect to which similar information is required to be reported to the IRS by participating FFIs pursuant to relevant U.S. Treasury regulations;
b) Norway shall not be obligated to begin exchanging information prior to the date by which participating FFIs are required to report similar information to the IRS under relevant U.S. Treasury regulations;
c) the United States shall not be obligated to obtain and exchange information with respect to a calendar year that is prior to the first calendar year with respect to which Norway is required to obtain and exchange information; and
d) the United States shall not be obligated to begin exchanging information prior to the date by which Norway is required to begin exchanging information.

This is actually not at all easy to read (on purpose? One always wonders).  But for sure this does not say, as some readers initially thought, that Norway can wait to give info to the IRS until the IRS begins to give info to Norway. In fact, it rather says quite the opposite. Nor, as I thought when I first read it, does it say that Norway need not exchange until Treasury begins to require equivalent information be reported on Norwegian account holders by US FIs to the IRS.

Instead, it says very simply that Norway need not exchange information with the IRS before the US Treasury regulations require FFIs to begin reporting to the IRS, and the IRS will not exchange info with Norway before Norway starts exchanging. All this use of negatives is confusing so let me try to put it in positive terms: it in effect says that Norway will start giving the IRS info once the IRS requires FFIs to begin reporting per the Treasury regs. Notice that Treasury makes no affirmative commitment on the part of the IRS to actually exchange thereafter--only that in any case it will not exchange before Norway does. It implies that it will be obligated to automatic exchange thereafter, but I am not sure even that is so clear.

The Mexico IGA--the only agreement that is technically in force right now--should provide ample proof that the Treasury has not committed to actual automatic exchange of information with its IGA partners (regardless of para. 6), and certainly that the Treasury is not going to go first. On the contrary, Treasury has only said that it will begin requiring US banks to provide the IRS with information on IGA-country account holders, which could be exchanged with such IGA partners if Treasury determines that such sharing would be appropriate. According to the Treasury, "Even when [an info exchange] agreement exists, the IRS is not compelled to exchange information… if there is concern regarding the use of the information or other factors exist that would make exchange inappropriate.”

No word on what those other factors might be, so read this as a broad grant of discretion to the Treasury, with no accountability required toward the IGA partner.

Mexico, it appears so far, has not yet been given the green light, so I can only assume that the status quo right now is Mexico dutifully turning over (on a monthly basis I believe) IGA-compliant information, while the IRS provides Mexico nothing in return. You might like to see what the American Banking Association thinks about this status quo. I think it is safe to say that the Florida and Texas Bankers Associations are determined to at minimum delay reciprocal automatic information exchange as long as possible, if they cannot eliminate it all together.

Now, if I have these facts incorrect and the IRS is actually exchanging information with Mexico under the IGA, I hope that someone will please correct me right away because this is tremendously important--as I have suggested before, the information Mexico could get from the IRS under such an arrangement could be explosive in terms of exposing the volume and direction of tax evasion as between these two countries (not that the public will get much or any information on these things--on the contrary we most likely will learn absolutely nothing, more's the pity).

One might say the USA won't similarly refuse to share information with Norway as such behavior smacks as bad faith, and countries have a positive duty to on the contrary act in good faith with respect to "international agreements". Moreover, it strains credulity to think that Treasury would start collecting information on Norwegian account holders from US banks, without actually planning to share it.

To that I would counter, presumably Norway knows exactly what it got in this deal: the same promises as have come before.

This is consistent with the rest of the IGA, which suffers from the same lack of reciprocity that in my view belies the character of these instruments as international agreements at all, even beyond their likely constitutional violation in the USA.  I recently wrote an article about the lack of reciprocity in the IGAs, why I think that is so problematic in terms of creating a perverse market advantage for the USA to facilitate tax evasion, and why there is not much reason for being optimistic that the necessary sea change will occur to make FATCA a viable multilateral regime with equal applicability to the world's largest destination for foreign capital. You can read that article here, and as alway I welcome feedback, especially to correct any of my misunderstandings.

To sum up, in my view the "you first, no you first" provision adds nothing in terms of greater reciprocity in the Norway IGA, while the same procedural and substantive defects we have already seen continue unabated.

* I also note a new conditionality to the local bank exception, in Annex I Part II.A.(e):
"provided thatNorway provides information on an automatic basis to the relevant Member State;"
This seems to mean that until Norway is actually exchanging info, its local banks will not be deemed compliant but will be withheld upon once the "you first" rule kicks in (i.e., once FFIs must begin reporting per Treasury regs).  

The local bank exception is a get-out-of-FATCA-free card for banks whose account holders--including US citizens--mostly live in the country. I've been told the provision is meant to help Americans living abroad whose local banks are dropping them in the (mistaken) hopes that this will relieve the FI of FATCA scrutiny. I have a lot of trouble with this local bank exception in terms of what the US appears to be trying to do with it, tempering citizenship-based taxation with an escape hatch that potentially encourages and even invited casual noncompliance, but that's a conversation for another day.

My intrigue with the new language in the Annex here is that I'm not sure why this condition applies only to local banks, and not other deemed compliant FIs. Those who think the FATCA regime is now deliberately aimed not at catching HNW Americans living in the USA and stashing cash offshore (few of whom hold large amounts of cash in accounts with their own names attached, as Lee Sheppard has repeatedly pointed out) but instead at imposing upon US citizens living abroad with their middle class wage earnings and their lack of effective representation in Washington, could have a field day with this provision. 

Thursday, March 21, 2013

Can States Shame Each Other into Good Behaviour?

Interesting new paper by Sandeep Gopalan & Roslyn Fuller, Enforcing International Law: States, IOs, and Courts as Shaming Reference Groups. From the abstract:
We seek to answer the question as to whether international law imposes meaningful constraints on state behaviour. Unabated drone strikes by the dominant superpower in foreign territories, an ineffective United Nations, and persistent disregard for international law obligations suggest that the sceptics have won the debate about whether international law is law and whether it affects state behaviour. We argue that such a conclusion would be in error because it grossly underestimates the complex ways in which IL affects state behaviour. ... We show that IL is enforced by states, courts, and international organizations by the imposition of shame sanctions on offenders and that these sanctions affect state behaviour in the same ways that traditional coercive sanctions do. In doing the above, we also develop the concept of a shaming reference group.
I'm in general a skeptic, viewing the tripartite failures highlighted in this abstract as overwhelming evidence that in the international community, might makes right, full stop. The tenth anniversary of America's unprovoked war on Iraq, which is now clearly characterized as a strategy to gain control over its oil resources that was planned far in advance of 9/11, seems too ample evidence backing the skeptical view. But I'm willing to engage that social pressure might have some amount of impact on state behaviour in some cases. At least, I am willing to believe that states will work hard to appear to be good citizens in the international legal order, and that this might cause some leaders to make decisions differently than they might absent shaming in the international community. But I remain at heart a skeptic so I will continue to believe that in practice states will use any power they have to achieve their ends at the expense of other states (much as leaders will do the same at the expense of their own people if they can get away with it).

This skepticism is reinforced by the part in the paper that talks about how shaming is undertaken and shows that the resources of the "shamer" come to bear in important ways on who and what gets shamed:

States are likely to be the principal enforcers of shame sanctions. ... States make evaluative opinions about other states all the time. Some have the resources to make elaborate justifications and provide evidence for those opinions in a legal manner. One example is the United States State Department’s annual human rights reports. These have come in for harsh criticism as being partisan. ...partisanship is a major problem for shaming. The US has also been accused of hypocrisy. 
Attacks based on the lack of neutrality and credibility to engage in shaming are severely debilitating, and do suggest that neutrality, or a perception thereof, is important if shaming sanctions are to work. This is not to say that shaming by individual states should be ignored altogether. Some states will be persuaded by the US State Department’s reports, and it must ultimately fall to a process of democratic debate to determine if the state being shamed is indeed deserving of punishment. There is nothing stopping Iran and Venezuela from issuing shaming reports of their own. If members of the international community believe these reports are the products of serious investigation and research, they will be credible. On the other hand, if they are merely propaganda, they are likely to be ignored. 
This suggests major cognitive bias problems if shaming is to be a regime for uncovering egregious offenders, at least, if we seek any sort of even-handed regime. If we don't worry about that problem, I think we're back to might makes right, and shaming just becomes another resource for wielding power to act in self-interest, while simultaneously shielding the shamer from reciprocal pressure.

It also suggests the major role of geo-politics in the name and shame game. In a footnote to the above paragraph, the authors highlight a particularly disturbing example:
...William Schulz, executive director of Amnesty International USA, remarked on the occasion of the release of the State Department’s annual human rights report: “The content of this report has little correspondence with the administration’s foreign policy; indeed, the U.S. is increasingly guilty of a ‘sincerity gap,’ overlooking abuses by allies and justifying action against foes by post-facto references to human rights. In response, many foreign governments will choose to blunt criticism of their abuses by increasing cooperation with the U.S. war on terror rather than by improving human rights.” 

This is a frightening and ultimately very discouraging status quo. It suggests that when we talk about shaming the result will not necessarily be better behaviour, but rather behaviour aimed at currying the favor of those who decide whom to shame. It worries me if that is the best we can do to guard against states doing terrible things to each other and state leaders dong terrible things to their people.

Wednesday, March 6, 2013

Treaty angle on PPL, the US foreign tax credit case

David Cameron has a fresh take on the PPL case which is worth a read, in yesterday's Tax Notes [gated]. He's wondering why no one has raised the US-UK tax treaty, which he thinks would resolve the creditability issue with ease.  He says:
... Because neither PPL nor Entergy raised the treaty issue, the Tax Court, the Third Circuit, and the Fifth Circuit relied solely on the requirements of section 901 and the regulations that define a creditable tax. The complete lack of any reference to the U.K.-U.S. tax treaty is extremely curious because the treaty provided more than adequate grounds to conclude that the windfall tax was creditable under U.S. law. 
...The [applicable] U.K.-U.S. tax treaty identified specific existing taxes imposed by the United Kingdom and designated them as income taxes for which a credit would be available (covered taxes).  
Importantly, covered taxes may well include foreign taxes that would not qualify as income taxes under domestic law.... 
...[T]he language describing the indirect credit under article 23(1) does not specifically refer to an "income tax" but only to a "tax paid to the United Kingdom by that corporation with respect to the profits out of which such dividends are paid." 
... The failure of the taxpayers in PPL and Entergy to raise the treaty issue is all the more curious given the IRS's recognition in a coordinated issue paper that the windfall tax involved a treaty issue.[The IRS claimed that the Windfall Tax would not be creditable because it was a one-time levy imposed on appreciation in value, but the] IRS's analysis of the treaty issue is not ... convincing. 
... The Supreme Court need not decide whether a formalistic or substantive analysis applies under section 901 because the U.K.-U.S. tax treaty provides an alternative argument -- a definition of an income tax at least as broad as that under section 901 and the application of a substantive analysis to determine if a tax satisfies that definition -- to conclude that the windfall tax is creditable based on the Tax Court's findings. 
...By ignoring the existence of the U.K.-U.S. tax treaty, the parties and the lower courts in PPL have overlooked a significant aspect of the case. The Supreme Court should not repeat their mistake.
I agree with David that the treaty argument should have been made, even though I am less convinced than he is that on substance the "windfall tax" is really even a tax at all--I think it looks like a purchase price adjustment. But that was also not an argument brought up by anyone at trial, instead the IRS conceded that the "tax" was in fact a tax. Having done so, the treaty does seem to present the more permissive regime.

But a big part of this story is David's puzzlement about the treaty being overlooked by all the parties and all the judges, despite the IRS having previously articulated a treaty-based position on the very tax in question. Can it be that the parties just assumed the treaty did not apply, or if it did apply, did not provide a different result? Can it be that they all made those assumptions without undergoing a close analysis, without doing any research?

If so David is suggesting that a big mistake has potentially been made, and if the Supreme Court rules against the taxpayer in PPL, it may have been a quite costly mistake. That's bad for the taxpayer and bad form on the part of the lawyers, but intriguingly, it also suggests that even in a top fight litigation situation like this, it is possible that the tax law experts on both sides overlooked an applicable legal regime, most likely because the regime in question involved international law rather than a statute in the tax code.

That is a fascinating observation for those of us who like to think about the rule of law as the product not of legal texts by themselves but of their dynamic implementation in practice. If a legal text exists but is ignored by the legal system, can it really be said to be law at all? David is suggesting that the US-UK treaty is a tree falling in a forest, unheard by anyone. Usually I am worried that people will imagine that they hear trees falling in forests when there are no trees at all--that is, I worry about non-legal assertions being treated as equivalent to law (for example, OECD guidelines). David's article suggests that the opposite may have happened in this case.

Monday, March 4, 2013

IRS brushes aside the constitution to make way for FATCA

In a Tax Notes International article [gated] today, Lee Sheppard discusses remarks about FATCA by Jesse Eggert, Treasury associate international tax counsel, at a March 1 IFA meeting. The most troubling aspect for me comes in the last part, when Sheppard describes a Q&A over the intergovernmental agreements and the IRS rep casually dismisses any constraints on the Treasury's attempt to bind the US with these documents as a matter of international law. There are two main questions here and both answers strike me as deeply problematic. First, there is this:

Can there be an IGA with a country that has no treaty or tax information exchange agreement? Yes, Eggert responded. It would have to be a Model II or nonreciprocal Model I . Amendments would have to be made to add information protections and assistance provisions.
With respect, this does not accord with what we have been given to understand so far about these IGAs. One need only read the preambles to the IGA models and signed agreements and consider the treaty power briefly to see that there is a very large legal difficulty here. As I have said before (and have a feeling I will be saying repeatedly), the Executive Branch cannot simply bind the US to any agreement it wants to without doing violence to a constitutional process that has been expressly laid out and subject to decades of analysis and debate by the country's most preeminent legal minds.

This is why the IRS has been very quietly implying that the IGAs interpret existing treaties. I don't agree on the merits that this could possibly be true, but the IRS needs it to be true because if it is not true, the only alternative is that the IGAs are sole executive agreements entered into by the executive branch with no congressional oversight whatsoever. That puts them on the most precarious legal ground in terms of foreign policy power in the US, and by this statement Eggert pushes them closer in that direction.

Second, there is this:
Does Treasury have authority to make IGAs? Eggert argued that IGAs are within Treasury's statutory authority to make FATCA regulations (section 1471(b)). Treasury and IGA signatories are discussing how to make domestic implementing laws consistent.
Again with all due respect, this just simply is not true as a matter of US law. The executive branch does not have the power to authorize itself to enter into treaties without congressional oversight. It is the constitution that provides the treaty power, and Congress is expressly involved. Congress could have granted the executive specific authority in this case, as it has done in other cases, but it clearly did not do so here. It is not clear what Eggert means by "making domestic implementing laws consistent." Maybe that refers to the domestic laws of treaty partner countries, which will have to change their data privacy laws to accomodate the information sought by the IRS. If so, that has nothing to do with the US. From what we have seen so far, it seems clear that the IRS is treating the IGAs as operational once the other country so indicates it is operational from their perspective (cf Mexico).

Arguing that the authority is implied within Congress' mandate to Treasury to issue regulations under 1471 is blowing a hole through the treaty power. It argues that Congress empowers the Executive Branch with treaty making authority with each and every directive to enact regulations. It makes a farce of the congressional executive agreement process that has been begrudgingly accepted as authentic by most constitutional scholars today. And never mind the old standard, the Article II treaty power. By this logic if the President wants an international agreement--any international agreement of any kind--he never needs to consult the Senate again, he can simply find some reference by the Congress directing his regulators to regulate. If Eggert is right in this assessment, it is not a stretch to see this as the beginning of the end of the Article II treaty ratification process in the United States. In other words if this works, then it's anything goes when it comes to the Executive Branch overriding domestic law with an international agreement.

Finally, I note that one other Q&A Sheppard mentions is also intriguing, though on the surface it seemed uncontroversial:
Existing IGAs will be interpreted to say that countries may choose the definition of an item in the final regulations which came later in time. Treasury will not amend IGAs wholesale when regulations change, Eggert explained.
This may seem benign--it provides flexibility despite the apparently rigid parameters of the documents (which are treaties, after all, and not so easy to just unilaterally alter at whim). But this is in fact very interesting as a legal matter because it quietly moves the world a little closer to yet another US tradition that many people in other countries find odd if not outright incompatible with international law, namely, the treatment of treaties as equal in legal status to other laws, including statutes and case law, so that treaties can be overridden at any time by a new statute or judicial decision. But it goes a further step to include regulations within that overriding scope--where they might not so clearly belong even under US law.

In other words, the IRS is saying that not only does the "last in time" rule apply to IGAs (as they would to any US international agreement), but we'll apply the last in time rule to other countries too (even if under their own laws the treaty would override later-enacted domestic laws); moreover the last-in-time rule is now extended to treasury regulations (a unilateral law that will be used to "interpret" a bilateral agreement, yet another controversial treaty interpretation position), and finally we are going to make it the treaty partner's choice to pick among the regimes to get the best result (which treats treaty partners not as negotiators in a bilateral agreement but rather in the same way as taxpayers subject to an elective regime).

It is getting progressively more difficult to keep up with the sheer volume of violations of laws and norms being undertaken by the IRS in order to get FATCA to work. It is rather disheartening (in the sense of being a scholar who studies legal process as though it matters) to realize that to many or most people involved in this project, all of these violations are just technicalities and semantics getting in the way of a result everyone wants.

Wednesday, February 6, 2013

Tax, Law and Development

Yariv Brauner and Miranda Stewart have posted their introductory chapter to Tax, Law and Development, a book to which I am contributing with a chapter on global tax activism.  Here is the abstract:
This book is the first collection of independent legal scholarship exploring the relationship between tax, law and the quest for human development. While acknowledging fully the challenge of tax competition in a global economy, this book rejects calls to end taxation of mobile capital even if this may be perceived to be a theoretical economic inevitability due to the difficulty of collection in an uncooperative environment. New approaches to economic development suggest we must abandon – or significantly downplay – the dominant normative approaches to tax policy, replacing these with contextualized, diverse, partial and incremental tax law reform approaches that take seriously the legal, social and political context. The innovative scholars who contribute to this book examine the role of law in national and international tax regimes across a range of topical tax issues, from the perspective of countries including China, Brazil, South Africa, India and the United States. Chapters discuss the reform of tax laws that are central to economic globalization, including tax incentives for foreign direct investment, their relationship with tax treaties and other international tax law, the problem of how to address fundamental equity concerns, and institutions of budgeting, tax law making and administration in a global era.
They conclude:
The variety of chapters presented in this book forcefully demonstrate the deep need and the wealth of opportunities for progress in this avenue of study of tax, law and development. The primarily economic and ‘one size fits all’ focus of tax policy to date has not been sufficiently matched by detailed legal, historical and contextual policy analysis that can fortify and enrich it, supporting the implementation of tax reforms within real world social and legal structures. A range of alternative approaches to development arise out of the critique presented by the authors in this book and surveyed in this Introduction. The chapters call for a direct acknowledgement of the challenges and contradictions of tax law reform for development, and emphasize patience, diversity, a trial-and-error approach, transparency, legitimacy or ‘ownership’ and constant feedback and evaluation in tax reform approaches. Although less apparently streamlined and ‘correct’, these alternative approaches to tax, law and development do not imply a loss of focus, even if they are slow, difficult to implement, and lack the appeal of promised panacea. Moreover, they often require careful coordination within and between countries that does not exist in the current international tax regime. This new approach does, however, promise some actual success. The goal of this book is unashamedly idealistic, to serve as the foundation that would jump-start further scholarship, and support real change in the global and national tax laws for economic development.
I'm looking forward to seeing the book in print.

Shaffer on Transnational Legal Ordering

Gregory C. Shaffer has a new book of interest: Transnational Legal Ordering and State Change. Abstract:
Law can no longer be viewed through a purely national lens. Transnational legal ordering affects the boundary of the state and the market, the allocation of power among national institutions, the role of professions and their expertise, and associational patterns that provide new normative frames. This book breaks new ground for understanding the impacts of transnational legal ordering within nation-states in today's globalized world. The book addresses the different dimensions of state change at stake and the factors that determine these impacts. It brings together leading scholars from sociology and law who study the effects of transnational legal ordering within different countries. Their case studies illustrate how transnational legal ordering interacts with national law and institutions in different regulatory areas, and cover anti-money laundering, bankruptcy, competition, education, intellectual property, health, and municipal water law and policy in different countries. The book explains the extent and limits of transnational legal ordering in today's world.

Tax law is not specifically covered but international tax law folks will find much of interest here for thinking about how law emerges through networks and norms and evolves through transplantation into national spheres.

H/T Int'l Law Reporter

Monday, February 4, 2013

Should you (virtually) go to Antigua to gamble or download?

What an odd story from Above the Law last week:
Antigua & Barbuda can now legally offer downloads of copyrighted U.S. works, and there's not a damn thing the U.S. can do about it. The decision marks the latest chapter in the long-running trade dispute between the U.S. and the tiny Caribbean nation over Antigua's internet gambling industry. The U.S. banned Antigua's internet casinos, Antigua took the U.S. to court through the WTO, and Antigua won — and has continued to win — consistently throughout the appeal process.
ATL describes WTO dispute resolution thusly:
"Because you pulled Sally's hair, she gets a free shot to kick your friend from school in the nuts. Justice!!!"
But what Antigua really wants is a deal:
"The economy of Antigua and Barbuda has been devastated by the United States government's long campaign to prevent American consumers from gambling online with offshore gaming operators," Harold Lovell, Antigua's finance minister, said in a statement. "We once again ask our fellow sovereign nation and WTO member, the United States of America, to act in accordance with the WTO's decisions in this matter, before we move forward with the implementation of the sanctions authorized this day by the WTO."
I have two multi-part questions and two asides.

  1. just as a factual matter, can people currently download US-copyrighted works from Antigua with impunity? That is, would that not be a breach of copyright on the part of the downloader, even if it is not for the download-facilitator? Obviously i have no understanding of copyright law.
  2. can a nation state, as a matter of power/capacity, prevent its people (however it defines them) from gambling offshore via the internet?  And if it can, why shouldn't it?  This is a loaded question.