Last week, US Congressman Mike Quigley (D-IL) introduced the Transparency in Government Act of 2014, a bill "to amend the Ethics in Government Act of 1978, the Rules of the House of Representatives, the Lobbying Disclosure Act of 1995, and the Federal Funding Accountability and Transparency Act of 2006 to improve access to information in the legislative and executive branches of the Government, and for other purposes." I am always worried about those other purposes, because funny things tend to get slipped into law this way, but the bill is interesting.
Government Executive Oversight calls it "a grab-bag transparency bill" that would "use technology to boost public oversight of program spending, standardize agency reporting on use of the Freedom of Information Act, shed greater light on lobbying and add new requirements for judges to disclose financial investments," as ell as "toughen online disclosure requirements for lawmakers’ personal finances, office expenses, gift reports and foreign travel." All that sounds like it is worth doing.
I especially like the idea of putting completed FOIA requests online, but would like to see the law go even further: if it's FOIAble it ought to be automatically disclosed and available to the public, not have to wait for individuals to file applications. I realize that this presents administrative costs but FOIA is a constructed barrier that unnecessarily imposes costs on individuals to release information that is of public benefit. If a government is producing thousands of pages of ultimately public documents I don't see why the individual must be forced to compel publicity in the vast majority of cases; the opposite should be true.
The other main part of the bill is its attempt to make public officials more honest about their backroom dealings, including politicking and rule changing.
Finally it's about time for another attempt to stop Congress from inside trading after they "quietly" undid the 2012 Stop Trading on Congressional Knowledge (STOCK) Act which was meant to curb this behavior. Congress, it seems, was worried that transparency would expose members to identity theft. This is something that Congress worries about a lot when it comes to themselves but seems incapable of determining how to stop when it comes to those not in Congress.
It is nice to see at least one Congress person push for transparency and accountability in Congress, but given past experience there is unfortunately all too much room for doubt that any reforms will stick even if they pass. I always hope to be proven wrong in this skeptical view.
Sunday, March 23, 2014
Scott Wilkie: Next Wednesday at McGill Law
I am very pleased to be hosting international tax guru Scott Wilkie at McGill Law next Wednesday, where he will deliver a talk on current topics in international taxation, more info here. The talk is scheduled to commence at 12:30 pm; members of the public are warmly welcomed.Location: McGill Faculty of Law, 3644 Peel Street,
Old Chancellor Day Hall, Room 16.
Date and Time: Wednesday, 26 March, 12:30–14:00.
This event is free and open to the public.
Tuesday, March 18, 2014
Next Week at NYU: Tax and Corporate Social Responsibility Symposium
I'll be taking part in this symposium on corporate taxation next Tuesday at NYU. Here is the description:
Tuesday, March 25, 2014 | 9:00 AM - 12:00 PM
D'Agostino Hall, Lipton Hall
This symposium will feature two panels, “Should Corporations Pay Tax?” and “Should Corporate Tax Returns Be Public?”
Participants include Reuven Avi-Yonah (Michigan), Allison Christians (McGill), Peter Barnes (Duke), Michael Schler (Cravath), Joshua Blank (NYU), Helen Scott (NYU), David Kamin (NYU), and possibly others.
The event will be co-hosted by the Graduate Tax Program and the NYU Journal of Law & Business.
It will take place from 9:15 AM to 12:30 PM on March 25th in Lipton Hall, D’Agostino Hall at NYU Law School, located at 110 West Third Street.Additional info here, including this description:
From the enactment of the corporate excise tax in 1909 to the present, the corporate tax in the United States has generated intense debate. Topics at the center of this debate have ranged from the fundamental purpose of the tax to moral obligations of corporations to pay tax to tax transparency and accountability. This half-day symposium will continue the discussion by addressing two questions: Should corporations pay tax? And should corporate tax returns be public? Each panel will feature leading tax and corporate law scholars and distinguished practitioners. Participation from the audience in the discussion will be encouraged.My recent writing on these subject includes a short essay entitled "How Starbucks Lost its Social License — And Paid £20 Million to Get it Back" on Starbucks' tax-dodging related image problems in Europe, a book chapter entitled "Tax Activists and the Global Movement for Development Through Transparency," on the global corporate tax transparency movement, and an article article entitled "Drawing the Boundaries of Tax Justice" which analyzes the fundamental justice questions surrounding the taxation of corporations (as well as humans).
Is It Time for a Taxpayer Bill of Rights? Tax Analysts Conference: March 27
Chris Bergin of Tax Analysts & Forbes will be hosting and he has a number of articles on the problems of taxpayer rights and IRS accountability that should be read by everyone who cares about tax policy. Here are just a few:
- It's Not Just About Lois Lerner
- More Arrogance And Secrecy From The IRS
- Transparency: Worth Fighting For and Tax Analysts v. Internal Revenue Service
- 'Your Voice At The IRS' Silenced
It should be noted that, of course, the IRS already does have a declaration of taxpayer rights. However, it is declaratory and not legal in nature, so apparently has no legal effect (though as far as I know, this has not been tested through litigation). The taxpayer advocate has been calling a legislated version for a long time, as I discuss here.
Conference details:
Thursday, March 27, 2014
9 - 11 a.m.
Continental breakfast at 8:30 a.m.
The event is free and seating is limited.
Ronald Reagan Building
Polaris Suite
1300 Pennsylvania Ave. NW
Washington, DC 20004
Cockfield on Taxpayer Privacy and FATCA
Professor Art Cockfield has two upcoming talks of note, on the topic of "The Privacy Implications of the Foreign Account Tax Compliance Act (FATCA)". The first talk will be held on Friday 21 March starting at 3:15pm at the University of Toronto (Faculty Club) as part of the CCLA 'Pathways 2 Privacy' conference. The second one will be held on Sunday, March 30 starting at 10 am at Glendon College, York University, as part of the 19th Annual International Studies Symposium. Professor Cockfield's remarks will be based on the Finance Department submission he and I co-authored, which you can find here.
Thursday, March 13, 2014
Tomorrow at McGill Law: Panel on Distributive and Labour Justice
Catherine Lu of McGill and Pablo Gilabert of Concordia will be presenting on the topic of global principles of distributive and labour justice tomorrow at 12:30 pm as part of McGill Law's Speaker Series on Economic Justice, sponsored by the Centre for Human Rights and Legal Pluralism. I will be moderating the discussion. This event is free and open to all, details:
Date: 14 March 2014
Time: 12:30-14:30
Location: Room 609 New Chancellor Day Hall
3644 rue Peel
Montreal Quebec Canada , H3A 1W9
I have started reading Catherine Lu's 2006 book, Just and Unjust Interventions in International Law: Public and Private. In it, she argues that the concept of state-to state intervention as a moral problem rests on an image of sovereignty as privacy, and therefore uses the same imagery of intrusion that we see in the domestic privacy context as a basic element. The domestic case against government intrusion into private affairs of individuals and social groups (family) involves balancing between curbing domestic abuse and government intruding too deeply into family lives. Lu argues that the same principles animate the question of legitimacy in intervention, making similar normative claims to privacy accorded to families in the domestic realm. Lu thus argues that:
It will be interesting to discuss the pressures involved in the area of labour. I have viewed it as essentially necessary for states to trap labour in order to extract enough revenues to pay for the state (in the form of taxation or otherwise). It is clear that governments have come to rely on labour as their primary resource of such revenues over the past century, so cannot let labour move as capital does, footloose and free of obligation.
Date: 14 March 2014
Time: 12:30-14:30
Location: Room 609 New Chancellor Day Hall
3644 rue Peel
Montreal Quebec Canada , H3A 1W9
I have started reading Catherine Lu's 2006 book, Just and Unjust Interventions in International Law: Public and Private. In it, she argues that the concept of state-to state intervention as a moral problem rests on an image of sovereignty as privacy, and therefore uses the same imagery of intrusion that we see in the domestic privacy context as a basic element. The domestic case against government intrusion into private affairs of individuals and social groups (family) involves balancing between curbing domestic abuse and government intruding too deeply into family lives. Lu argues that the same principles animate the question of legitimacy in intervention, making similar normative claims to privacy accorded to families in the domestic realm. Lu thus argues that:
The concept of intervention .. assumes some distinction between private and public domains. In the Westphalian model of interstate relations, the posited sovereignty of states functions like privacy to give states a right to be free from interference by outside parties --especially other states, as well as non citizens, nongovernmental organizations, and even the international community -- in their own internal affairs."The public/private argument is an interesting and I think controversial position that adds to a discourse about sovereignty that we see being challenged all the time in taxation, including (especially of late) in taxation. Consider the OECD's project on BEPS, the US imposition of FATCA on the rest of the world, the rise of global tax justice activism, the addition of taxation to the corporate social responsibility discourse, and the UN tax group's attempt to change the conversation on transfer pricing. There are many other examples in recent and not so recent history.
It will be interesting to discuss the pressures involved in the area of labour. I have viewed it as essentially necessary for states to trap labour in order to extract enough revenues to pay for the state (in the form of taxation or otherwise). It is clear that governments have come to rely on labour as their primary resource of such revenues over the past century, so cannot let labour move as capital does, footloose and free of obligation.
Video & Audio Resources on Political Theory, Inequality, Finance, and Governance
Russell Haggar, a Sociology and of Government and Politics teacher in the UK, has put together a a visually alarming but very useful "Compendium of Video and Audio Materials for Advanced Level Government and Politics and Sociology Students and for the General Reader," with sections on Political Theory, Welfare and Inequality, Labor Politics, the Financial Crisis, and others. Here is but a sample of what you will find:
- Stephanie Flanders’ three part series for the BBC: Masters of Money: John Maynard Keynes: Friedrich Hayek: Karl Marx
- Laurie Taylor : Thinking Allowed on Capitalism with Ha-Joon Chang and David Harvey
- Who Owns the World? by Noam Chomsky
- Why Equality Is better for everyone [Video on The Spirit Level from The Equalities Trust]
- Gordon Brown and the Financial Crisis [Andrew Rawnsley for Channel 4]
- RBS : Inside the Bank that ran out of money
- Meltdown: The Global Financial Collapse (four part series)
- 3 Part BBC Series by Michael Cockerell on The Great Offices of State, with part 3 entitled The Secret Treasury
Many, many more resources at the link.
Tuesday, March 11, 2014
This Sunday at McGill: Info Session on FATCA
This Sunday there will be a Foreign Account Tax Information Act (FATCA) Information Session at the Faculty of Law at McGill, featuring John Richardson from Toronto and Andrew Grossman from London (UK); each has extensive experience with U.S. taxation issues. The session will be geared toward those with US status and the speakers will discuss issues of disclosure, compliance, and other obligations raised by this legislation.
This event is free and open to the public. Please note that it is St. Patricks' Day so attendees are advised to plan their travel arrangements accordingly. Details:
This event is free and open to the public. Please note that it is St. Patricks' Day so attendees are advised to plan their travel arrangements accordingly. Details:
16 Mar 2014
12:00 to16:00
Location: Chancellor Day Hall, Maxwell Cohen Moot Court (NCDH 100)
3644 rue Peel Montreal Quebec Canada, H3A 1W9
Monday, March 10, 2014
Christians & Cockfield: Submission to Finance Dept on FATCA in Canada
I have just posted on SSRN a submission to the Canadian Finance Department co-authored by myself and Professor Arthur Cockfield of Queen's University. Here is the abstract:
I want to add that in my view, the Department of Finance unnecessarily inhibited public debate on the impact of the proposed legislation by setting an arbitrarily short period for comments. The agreement itself is complex and must be analyzed in the context of the underlying U.S. law and regulations as well as the more than twenty agreements the U.S. has signed to implement FATCA with other countries. In the little more than one month’s time that the Department of Finance allotted for public comment, these thousands of pages of applicable law and regulations have been augmented by several hundred new pages of guidance from the United States tax authorities, and will be further augmented when the Canada Revenue Agency (CRA) publicly releases its own guidance for Canadian financial institutions.
In restricting the time for Canadian tax practitioners and policy observers to review this lengthy, complex, and fundamentally global regime, the Department of Finance has deprived itself of the opportunity to receive more meaningful and thorough consideration of the many policy and practical issues involved in implementing FATCA in Canada. I hope that the Finance Department will extend its time to receive comments, especially if and when further guidance is issued.
The United States enacted a tax reform in 2010 known as the Foreign Account Tax Compliance Act (FATCA), which will impose an extensive third-party monitoring and disclosure regime on financial institutions around the world in an effort to “smoke out” American tax cheats and expose their undeclared foreign assets to the U.S. Internal Revenue Service (IRS). The flow of information from Canadian financial institutions directly to the IRS that is required by FATCA would violate a number of laws in Canada. Accordingly, the United States has requested changes to these laws. The Canadian government now seeks to accommodate these requests in the form of an “intergovernmental agreement” (IGA) with the United States, which will be enacted into law as the Canada–United States Enhanced Tax Information Exchange Agreement Implementation Act (the Implementation Act) pursuant to a proposal released for comment by the Department of Finance. The Department of Finance invited public comments on these documents. We examined the proposed Implementation Act and the IGA and we find that they raise a number of serious issues ranging from likely constitutional violations to violations of international law. We submit these comments in the hope that they will help lawmakers and the public understand that FATCA, while intended to catch tax evaders, is poised instead to impose serious and unjustified harms on people who live around the world as non-resident U.S. citizens and green card holders, as well as their family members and business associates.I know that some of my good friends and colleagues view FATCA as a net positive step toward a much-needed global automatic information sharing regime, and some have not understood my reasons for caution. I hope that this submission will help explain some of these reasons.
I want to add that in my view, the Department of Finance unnecessarily inhibited public debate on the impact of the proposed legislation by setting an arbitrarily short period for comments. The agreement itself is complex and must be analyzed in the context of the underlying U.S. law and regulations as well as the more than twenty agreements the U.S. has signed to implement FATCA with other countries. In the little more than one month’s time that the Department of Finance allotted for public comment, these thousands of pages of applicable law and regulations have been augmented by several hundred new pages of guidance from the United States tax authorities, and will be further augmented when the Canada Revenue Agency (CRA) publicly releases its own guidance for Canadian financial institutions.
In restricting the time for Canadian tax practitioners and policy observers to review this lengthy, complex, and fundamentally global regime, the Department of Finance has deprived itself of the opportunity to receive more meaningful and thorough consideration of the many policy and practical issues involved in implementing FATCA in Canada. I hope that the Finance Department will extend its time to receive comments, especially if and when further guidance is issued.
Wednesday, March 5, 2014
Alain Deneault--Paradis fiscaux: La Filière Canadienne/Tax Havens: The Canadian Connection
* La première séance sur les liens historiques entre le Canada et les paradis fiscaux, à l'Upop.
Date : Mercredi, 5 mars 2014, 17h
Location: Salle des Boiseries, UQAM Pavillon Judith-Jasmin - Salle des Boiseries
405, rue Sainte-Catherine Est Salle J-2805
Revue de Presse
Voici une vidéo de Deneault, où il discute du livre:
J'ai lu le livre et j'aimerais fournir le commentaire suivant:
C’est avec enthousiasme et plaisir que je recommande le livre d’Alain Deneault, Paradis fiscaux : La filière canadienne. Cet ouvrage aborde une question importante et très actuelle, celle de la concurrence que se livrent les États sur le plan de la fiscalité pour séduire le capital et privilégier certaines industries. Ce faisant, ils imposent au reste de la société des coûts dont on ne mesure pas l’ampleur.I read the book and was happy to provide the following comment:
Deneault dépeint habilement le portrait de ce régime mondial en mettant l'accent sur les acteurs canadiens qui ont facilité sa mise en place. En tant que professeure et chercheuse dans le domaine du droit fiscal, je considère que ce livre est une ressource indispensable; il offre une riche mise en contexte culturelle, sociale et historique dont on a grandement besoin pour comprendre comment la concurrence fiscale est devenue le phénomène mondial qu’on connaît aujourd’hui.
I am happy to enthusiastically recommend Tax Havens: The Canadian Connection, by Alain Deneault. The book deals with the timely and important topic of how governments engage in tax competition in order to lure in capital and privilege certain industries, at an unmeasured cost to the rest of the society. Deneault deftly weaves a narrative about tax competition by focusing in on the unique roles Canadian players have had in enabling and facilitating this global landscape. As a tax law professor and scholar, I view this work as an indispensable resource, providing a rich cultural, social, and historical context that is surely needed for understanding how tax competition developed into the global phenomenon it is today.
Tuesday, March 4, 2014
Apple not solely focused on Shareholder value
Business Insider reports on a recent Apple shareholder meeting, during which a representative from a decidedly far right thinktank asked Tim Cook "to commit on the spot to only making moves that were profitable for the company," to which Cook replied
"When we work on making our devices accessible by the blind, I don't consider the bloody ROI." He said that the same thing [applies] about environmental issues, worker safety, and other areas where Apple is a leader.This is an interesting comment on the role of corporate social responsibility in shaping how CEOs talk about their management practices. One area where Apple is a leader is in its tax dodging capacity, though perhaps its leadership in this respect is less well known than that associated with its contract manufacturing practices. If those activities are not ROI-focused, it is difficult to know why they form such an integral part of Apple's global business strategy. I continue to look for signs that the aggressive tax planning is becoming anathema to Apple's polished CSR image, but none have yet emerged.
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.
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.
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).
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:
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.
- it is based on the global standard of residence-based taxation
- 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.
Saturday, February 8, 2014
Canada-US Agreement Reached on FATCA Data Sharing
Things have been exciting the past few days as a long-expected agreement on FATCA between Canada and the US was announced and Canada's Department of Finance released a flurry of accompanying materials. The US Treasury has now added Canada to the list of jurisdictions deemed to have an agreement in effect. I will have more analysis soon but just wanted to provide some of the most useful links to get things up to speed.
First, here is the text of the intergovernmental agreement--it is not a signed copy unfortunately, which leaves a couple of technical questions unanswered for now. Here is the Press Release from the United States. Here is the Press Release from Canada, and here are explanatory notes to the agreement, a "backgrounder", and an FAQ,
Canada's Department of Finance has also produced a draft legislative proposal that would implement the agreement into Canadian law. This includes text for a new section on Enhanced International Information Reporting in the Income Tax Act. Assuming that the agreement is considered to be a treaty, Parliament needs to be officially notified that an agreement has been signed and 21 sitting days must pass before legislation is introduced to implement the agreement into Canadian law, which would take us to roughly March 27.
During Thursday's Parliamentary proceedings, MP Murray Rankin offered some pointed questions on the pact and the implications for the financial privacy of Canadians, but I am afraid the answers may actually sow confusion, more on that later.
Comments on the legislative proposal can be submitted to the Department of Finance at IGA-AIG@fin.gc.ca or to the address below. The closing date for comments is March 10, 2014.
Tax Policy Branch: Department of Finance
140 O’Connor Street Ottawa, ON K1A 0G5
The media, mostly Canadian at first, has taken notice of the agreement and many are commenting on the privacy concerns as well as the reciprocity and scope of the deal:
More to come as things unfold in the coming weeks.
First, here is the text of the intergovernmental agreement--it is not a signed copy unfortunately, which leaves a couple of technical questions unanswered for now. Here is the Press Release from the United States. Here is the Press Release from Canada, and here are explanatory notes to the agreement, a "backgrounder", and an FAQ,
Canada's Department of Finance has also produced a draft legislative proposal that would implement the agreement into Canadian law. This includes text for a new section on Enhanced International Information Reporting in the Income Tax Act. Assuming that the agreement is considered to be a treaty, Parliament needs to be officially notified that an agreement has been signed and 21 sitting days must pass before legislation is introduced to implement the agreement into Canadian law, which would take us to roughly March 27.
During Thursday's Parliamentary proceedings, MP Murray Rankin offered some pointed questions on the pact and the implications for the financial privacy of Canadians, but I am afraid the answers may actually sow confusion, more on that later.
Comments on the legislative proposal can be submitted to the Department of Finance at IGA-AIG@fin.gc.ca or to the address below. The closing date for comments is March 10, 2014.
Tax Policy Branch: Department of Finance
140 O’Connor Street Ottawa, ON K1A 0G5
The media, mostly Canadian at first, has taken notice of the agreement and many are commenting on the privacy concerns as well as the reciprocity and scope of the deal:
- Patrick Cain explains the agreement and its implications;
- James Fitz-Morris explains how the pact takes some heat off Canadian banks but leaves several problems unresolved;
- Louise Egan and Patrick Temple-West discuss the agreement and challenges that remain;
- Robert Wood discusses the shrewdness of using the CRA to bypass privacy protections;
- Windsor Star Editorial discusses enduring privacy concerns;
- Theresa Tedesco at the Financial Post comments on the scope of FATCA and what reciprocity really means.
More to come as things unfold in the coming weeks.
Wednesday, February 5, 2014
Brian Arnold talks about BEPS: Next Monday at McGill Law
I am very pleased to be hosting internationally renowned tax expert Brian Arnold at McGill Law next Monday, where he will deliver a talk on the OECD's ongoing initiative with respect to Base Erosion and Profit Shipping ("BEPS"). The talk is scheduled to commence at 12 pm; members of the public are warmly welcomed.
Location: McGill Faculty of Law, 3644 Peel Street, New Chancellor Day Hall, Room 202.
Date and Time: Monday, 10 February, 12:00–13:30.
Location: McGill Faculty of Law, 3644 Peel Street, New Chancellor Day Hall, Room 202.
Date and Time: Monday, 10 February, 12:00–13:30.
Friday, January 31, 2014
Shachar & Baubock on Citizenship for Sale
Ayelet Shachar, who previously published The Birthright Lottery, a book about how citizenship is an inheritance that can make or break individuals' life chances, has edited a compilation of twelve short essays on the question of whether citizenship should be a commodity, together with Rainer Baubock. Here is the abstract:
On 12 November 2013 the Maltese Parliament decided to offer Maltese and European citizenship at the price of € 650,000, but implementation of the law has been postponed due to strong domestic and international critiques. On 23 December, the Maltese government announced significant amendments, including a higher total amount of € 1,150,000, part of which has to be invested in real estate and government bonds. Several other European states have adopted ‘golden passport’ programmes. Should citizenship be for sale? In November 2013 EUDO CITIZENSHIP invited Ayelet Shachar of the University of Toronto Law School to open a debate on these controversial policies. Twelve authors have contributed short commentaries, most of which refer to the initial law adopted by the Maltese Parliament. An executive summary by Rainer Bauböck provides an overview over the main questions raised in our forum. For further information on investor citizenship programmes see Jelena Dzankic’s EUDO CITIZENSHIP working paper on the topic and consult the news section of our observatory.The issue of taxation is peripheral at best in most of these contributions. Yet for those interested in fundamental questions about belonging that are as yet unanswered in the tax policy literature, and specifically how FATCA and other automatic information exchange developments increase the possibility of citizenship-based taxation like never before, understanding whether and why citizenship should be a tie that binds a person to a state is fast becoming a critical issue.
Tuesday, January 28, 2014
Canadian Government Responds to FATCA Questions
Last October, Canadian MPs Ted Hsu and Scott Brison issued a set of questions to the Canadian government on FATCA (on which I consulted). Today I received two pdfs with the Government's answers to the questions, and I have put them in dropbox in order to share them:
Here are the government's answers to Ted Hsu's questions.
Here are the government's answers to Scott Brison's questions.
Most of the questions remain unanswered for one of two reasons: (1) FATCA is US law, not Canadian law, so no one in Canada is in charge of enforcing it, and therefore most agencies have little or no information and (2) Canada is negotiating with the US on an IGA and so nothing can be estimated about the scope, cost, implications, or consequences of FATCA in Canada unless and until such agreement is in place. (costs to the government in negotiating and internal briefing on the law "have been absorbed within existing resource levels.")
More review to come.
Here are the government's answers to Ted Hsu's questions.
Here are the government's answers to Scott Brison's questions.
Most of the questions remain unanswered for one of two reasons: (1) FATCA is US law, not Canadian law, so no one in Canada is in charge of enforcing it, and therefore most agencies have little or no information and (2) Canada is negotiating with the US on an IGA and so nothing can be estimated about the scope, cost, implications, or consequences of FATCA in Canada unless and until such agreement is in place. (costs to the government in negotiating and internal briefing on the law "have been absorbed within existing resource levels.")
More review to come.
Citizenship-Based Taxation and Taxpayer Rights Don't Mix
In this brief analysis, Taxpayer Rights, On and Offshore: the 2013 Taxpayer Advocate's Report to Congress, I looked at the problem created when an under-resourced tax agency is charged with implementing an over-expansive tax jurisdiction. Abstract:
As a practical matter, globally rounding people up based on one government's ideas about their legal status is quite obviously unenforceable without assistance from other governments. This assistance fundamentally conflicts with a universally recognized (and far more just) jurisdictional claim based on actual residence. It is one thing for the US to say to individuals: if you have status under our law you must follow all of our laws no matter where you are. It is another to say to other countries--and much less individuals in other countries--if people who live in your country have US status as we define it, you are harboring potential criminals and you must help us find them and enforce our claim over them even if your government also claims them and even if our claim conflicts with your government's own law.
Thus status-based taxation is no less a poaching of other countries’ internationally recognized jurisdictional claims over taxpayers than the kind of poaching FATCA was ostensibly designed to attack (namely, that of the US tax base by other countries via bank secrecy). The basic unenforceability of status-based taxation coupled with its poaching of other jurisdictional claims would make it a total non-starter were nations to get together and discuss a multilateral adoption of status-based taxation as a policy everyone could get behind.
But FATCA is a big stick that is bypassing any such conversation, going straight to the technical problem of compliance and enforcement under the banner of stopping tax evasion. There might be no remedy in international law for tax jurisdictional overreach but that only confirms that it must be challenged from both within and without the nation engaging in the bad behavior.
In the 2013 National Taxpayer Advocate's Report to Congress, two concerns take center stage: the need for greater protection of taxpayer rights, and the increasing pressure on the system created by the U.S. tax regime’s extraterritorial reach. Neither of these issues is new; indeed, the NTA has repeatedly attempted to raise awareness of each over several years. But the Report demonstrates that these two concerns are on a collision course, and impact looks imminent for 2014 as the US doubles down on long under-enforced jurisdictional claims over nonresidents with US nationality or legal status. The basic impracticality of finding and claiming nonresidents with US ties is compounded by the violation of internationally recognized tax jurisdiction norms, creating an unsustainable enforcement rift that directly challenges the voluntarism theme that Olsen views as key to the fiscal system as a whole.Further in, I argued that the NTA Report illustrates that taxing people on the basis of their nationality or legal status rather than their actual residence poses a serious problem for tax administration and violates international norms.
As a practical matter, globally rounding people up based on one government's ideas about their legal status is quite obviously unenforceable without assistance from other governments. This assistance fundamentally conflicts with a universally recognized (and far more just) jurisdictional claim based on actual residence. It is one thing for the US to say to individuals: if you have status under our law you must follow all of our laws no matter where you are. It is another to say to other countries--and much less individuals in other countries--if people who live in your country have US status as we define it, you are harboring potential criminals and you must help us find them and enforce our claim over them even if your government also claims them and even if our claim conflicts with your government's own law.
Thus status-based taxation is no less a poaching of other countries’ internationally recognized jurisdictional claims over taxpayers than the kind of poaching FATCA was ostensibly designed to attack (namely, that of the US tax base by other countries via bank secrecy). The basic unenforceability of status-based taxation coupled with its poaching of other jurisdictional claims would make it a total non-starter were nations to get together and discuss a multilateral adoption of status-based taxation as a policy everyone could get behind.
But FATCA is a big stick that is bypassing any such conversation, going straight to the technical problem of compliance and enforcement under the banner of stopping tax evasion. There might be no remedy in international law for tax jurisdictional overreach but that only confirms that it must be challenged from both within and without the nation engaging in the bad behavior.
Monday, January 27, 2014
Tax Competition: Not a Law of Nature but a Policy Decision
This was published this back in December but I neglected to post it here: "What the Baucus Plan Reveals About Tax Competition" is a brief (5 pages only!) analysis of US Senator Max Baucus' "Option Y" plan to reform the US corporate tax regime, by in effect imposing a global minimum corporate tax on US-based multinationals. I argue that the plan demonstrates that tax competition is not and has never been a law of nature operating outside of the control of individual governments, but instead it has always been the product of policy decisions that can be reversed by other policy decisions. Accordingly, political will is the reason why tax competition has become the overwhelming force that it is today.
I suggest that the Baucus plan demonstrates that the US has been a major force in creating the conditions for global tax competition and its language implies that the US could, should it chose to, act unilaterally to put a stop to the practice. As always, I welcome your comments.
I suggest that the Baucus plan demonstrates that the US has been a major force in creating the conditions for global tax competition and its language implies that the US could, should it chose to, act unilaterally to put a stop to the practice. As always, I welcome your comments.
Thursday, January 23, 2014
Rick Mercer explains how the rest of the world sees FATCA in one hilarious minute
Must see for anyone who is, or was, or may be or might have been an American...
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