Wednesday, February 27, 2013

Eisinger: the madness of revolving door politics, American-style

Jesse Eisinger of ProPublica has a dealbook entry today, A Revolving Door in Washington With Spin, but Less Visibility, with insightful comments about governance. It would be a provocative and shocking article were it not for the utter familiarity of the story it tells about lobbying and lawmaking in America:
Obsess all you’d like about President Obama’s nomination of Mary Jo White to head the Securities and Exchange Commission. Who heads the agency is vital, but important fights in Washington are happening in quiet rooms, away from the media gaze. 
...For lobbyists, the real targets are regulators and staff members for lawmakers.
Eisinger correctly states that while White herself will be subject to public scrutiny, her staff will mostly work in "untroubled anonymity." Cue the revolving door: on Jan. 25, Senate majority leader Harry Reid hired Cathy Koch to be his chief adviser on tax and economic policy. Eisinger points out an oddity:
The news release lists Ms. Koch’s admirable and formidable experience in the public sector. “Prior to joining Senator Reid’s office,” the release says, “Koch served as tax chief at the Senate Finance Committee.”
...[but in fact] immediately before joining Mr. Reid’s office, Ms. Koch wasn’t in government. She was working for a large corporation.
Namely, GE--yes that one, that hugely profitable multinational that just doesn't seem pay tax anywhere, anytime. And the one that can't even get it's own story straight on the issue.  More from Eisinger:
Just as the tax reform debate is heating up, Mr. Reid has put in place a person who is extraordinarily positioned to torpedo any tax reform that might draw a dollar out of G.E. — and, by extension, any big corporation. rules prevent Ms. Koch from meeting with G.E. or working on issues that would affect the company. 
...In a statement, the senator’s spokesman said, “The impulse in some quarters to reflexively cast suspicion on private sector experience is part of what makes qualified individuals reluctant to enter public service.”
But that's a silly thing to say because of course Ms. Koch just did enter public service, so either the spokesman is saying we couldn't get anyone qualified so we had to go with her, or we must imagine that the reluctance has been overcome by some expected reward. We don't have to think too hard to come up with some ideas about what that reward must be.

Eisinger moves on to a particularly fluid relationship between the Office of the Comptroller of the Currency and the Promontory Financial Group, which Eisinger calls "a classic Washington creature that is a private sector mirror image of a regulatory body." Julie Williams, who was chief counsel for the OCC last year, is now at Promontory, while her replacement, Amy Friend, is coming to the OCC from Promontory. Eisinger suggests that maybe they can swap back next year; that would at least save the taxpayers all the moving expenses back and forth between these two offices. Hey, we've got money problems here and it's not looking like they are going to be fixed--every litte bit helps. Eisinger concludes:
Washington today resembles something like the end of “Animal Farm.” People move from one side of the table to the other and up and down the Acela corridor with ease. An outsider looking at a negotiating table would glance from lobbyist to staff member, from colleague to former colleague, from pig to man and from man to pig and find it impossible to say which is which.
What can we expect when this passes for democratic governance? Nothing but more of the same, I think.

Growth for the sake of growth, plus ignorance and expertise in complex situations: two depictions

Edward Abbey said “growth for growth’s sake is the ideology of the cancer cell":
Mappleton quote graphics 1
From a series called Illuminating Quotes, Visualised by Maggie Appleton. I like this drawing because it shows that there is plenty of room in the concept of capitalism that isn't infected by this destructive ideology. That's where we ought to concentrate our energies.

Appleton also nicely visualized Edward R. Murrow's statement that "Anyone who isn't confused doesn't really understand the situation," which seems particularly apt when it comes to tax law, especially international:

Mappleton quote graphics 9

Sunday, February 24, 2013

Fix the Debt: bipartisans fooling some of the people all of the time (a primer on the solidarity of the 1%)

Gaius Publius is upset with bipartisan support for Fix the Debt, and points out the class-based solidarity of the rich (which of course aligns interests both within and beyond the nation state in ways that appear unprecedented to us today, but remind us of how things were during the last gilded age). He says:
Most left-side commenters paint "Fix the Debt" — the well-funded campaign to scare Americans into believing the debt is not only going to destroy us all, but that massive cuts to Medicare, Social Security and Medicaid are the only way to "fix" the "problem" — as a billionaire-led, CEO-led operation to kill (or at least seriously maim) the social programs by delivering one blow after another. But Fix the Debt is also a bipartisan operation.
This is about bipartisanship — real bipartisanship, bipartisanship in the bad way. 
...The real divide in this country is not Left versus Right — it's the Rich versus the Rest. It's the horizontal division between the people taking all the money they can, and those they're taking it from.
Among the rich, there's a widely-agreed center position — more for us, less for everyone else on the planet.
GP directs us to research done by watchdog group SourceWatch: a Fix the Debt portal, where they say:
The Campaign to Fix the Debt is the latest incarnation of a decades-long effort by former Nixon man turned Wall Street billionaire Pete Peterson to slash earned benefit programs such as Social Security and Medicare under the guise of fixing the nation's "debt problem." Through this special report -- and in partnership with The Nation magazine -- the Center for Media and Democracy exposes the funding, the leaders, the partner groups, and phony state "chapters" of this $60 million "astroturf supergroup," whose goal is to achieve a grand bargain on austerity by July 4, 2013.
SourceWatch lays out the various supporters and their bipartisan credentials, corporate ties and conflicts of interest; most have transitioned at least once from politician to lobbyist and/or vice versa, and big pharma, big oil, big finance, and the health insurance industry are all well-represented.  This is a delightful romp through the revolving door of democracy, American style.

GP says many (or most) of these individuals also have big-time conflicts of interest, as documented by Source Watch; they stand to benefit personally if what is now public becomes private and for-profit. They are all simple rent seekers, in other words, and the national debt is their trojan horse (or is it a rabbit).  This is not (or should not be) news, yet time and time again we see that you can fool some of the people all of the time...and, per George W. Bush,  "those are the ones you want to concentrate on.”

For an absolutely terrifying view of what that kind of concentrating looks like, GP ends with this video (which I can't even get all the way through so I can't tell you how it ends). The sheer number of rhetorical games played in the first 15 seconds alone is enough for me; when they get to the dancing I just want to weep.

Taxpayer morale--a case study in Detroit

Someone could write a PhD dissertation on the fiscal devolution of Detroit and the role of taxpayer morale. Between the below story and the continuing sage of the attempt to make a tax haven out of Belle Island, it would be a fascinating study.

Half of Detroit property owners don't pay taxes:

47 percent of the city's taxable parcels are delinquent on their 2011 bills. Some $246.5 million in taxes and fees went uncollected, about half of which was due Detroit and the rest to other entities, including Wayne County, Detroit Public Schools and the library.
Delinquency is so pervasive that 77 blocks had only one owner who paid taxes last year, The News found. Many of those who don't pay question why they should in a city that struggles to light its streets or keep police on them.
"Why pay taxes?" asked Fred Phillips, who owes more than $2,600 on his home on an east-side block where five owners paid 2011 taxes. "Why should I send them taxes when they aren't supplying services? It is sickening. … Every time I see the tax bill come, I think about the times we called and nobody came."
...Detroit's delinquencies are so pervasive that some owners have been allowed to keep their property even if they don't pay taxes. Wayne County treasury officials are so overwhelmed by foreclosures that they ignored about 40,000 delinquent Detroit properties that should have been seized last year and said they will look the other way on about 36,000 this year.
...Leola Wesley questions what services she gets for her taxes. ...She was the only resident on her 32-parcel block who paid.
"It makes me not want to pay," said Wesley, 85, who would move from her home of more than 20 years if she could afford it. "If nobody else is paying, why should I?"
...In the past five years, the city has lost out on $317 million in taxes, county records show.
"It makes me wonder why I pay my taxes and keep my property up," said Kisner, a North Rosedale Park resident and former top finance official for the city and Detroit Public Schools. "I keep asking myself, 'Am I the stupid one?'"
The billionaires looking to liberate Belle Island don't want any part of this problem, and if they are successful they most certainly won't be any part of its solution.

Thursday, February 21, 2013

Supreme Court does algebra; hilarity ensues

Over at SCOTUSblog I've got a recap of the arguments in yesterday's hearing on the PPL Corp foreign tax credit case.  The justices seem to have had some fun with the formula and its many algebraic reformulations, but at the end of the day the discussion was not terribly enlightening.

I will note that by the end of oral argument I started thinking that maybe the government conceded too much in the case by stipulating that the windfall tax is a "tax" in the first place.  The government's answers to Justice Breyer's questions suggest that they now look at the windfall tax as in effect a purchase price adjustment, nothing more than an attempt for the UK to go back and claim a higher sale price in the privatization. Maybe you can call that a tax on value, but it's odd to say the least. Nothing to do now but wait for a decision, in which it will also be interesting to see what question the Court decides to answer.

Taxcast: opening the black box on who makes global tax policy and how they do it

I'm pleased to have been part of the February 2013 Taxcast from Naomi Fowler and the Tax Justice Network  In this edition of the taxcast Naomi looks at current trends in transparency and taxing the digital economy and then delves into the question of global tax reform, asking whether we should expect real progress from the OECD, a rich country thinktank/inter-governmental organization/lobbyists network.

Readers here will not be surprised that I am critical of norm-making from the OECD, given its essential character as a forum for back-room dealmaking between business interests and government. NGOs have been trying to gain greater access, but it is a slow and arduous process, as we saw recently with an informed citizen trying to gain access to something the OECD advertised as a "public" meeting. In the taxcast Richard Murphy is cautiously optimistic that the pressures being brought to bear on the OECD will bear fruit--that governments are starting to see that they have to be responsive to constituents beyond the business community, and they will have to make real changes at some point.

I am less optimistic given the institutional structure in place but I am hopeful because at least the right questions are being asked: good policy is a product of good process, and the converse is also true.  That means that who is in the room is of vital importance when it comes to developing norms. If NGOs, watchdog groups and citizens are paying attention they will pester the OECD if it tries to develop global transparency standards on tax from inside its own black box.

Wednesday, February 20, 2013

US tax reform: 11 working groups to watch, but don't get your hopes up

US tax reform is so big and so bad it needs 11 working groups to handle it all!  From the Camp/Levin press release:
Each of the 11 groups will review current law in its designated issue area and then identify, research and compile feedback related to the topic of the working group.  The working groups will be responsible for compiling feedback on its designated topic from: (1) stakeholders, (2) academics and think tanks, (3) practitioners, (4) the general public and (5) colleagues in the House of Representatives.  Once the work of those groups has been completed, the Joint Committee on Taxation will prepare a report for the full Committee, due by April 15, 2013, that describes current law in each issue area and summarizes the other information gathered by the Committee Members.
And the 11 working groups and their chairs (R) and vice-chairs (D) are:

  • Charitable/Exempt Organizations--David Reichert (R-WA), John Lewis (D-GA)
  • Debt, Equity and Capital--Kenny Marchant (R-TX), Jim McDermott (D-WA)
  • Education and Family Benefits--Diane Black (R-TN), Danny Davis (D-IL)
  • Energy--Kevin Brady (R-TX), Mike Thompson (D-CA)
  • Financial Services--Adrian Smith (R-NE), John Larson (D-CT)
  • Income and Tax Distribution--Lynn Jenkins (R-KS), Joseph Crowley (D-NY)
  • International--Devin Nunes (R-CA), Earl Blumenauer (D-OR)
  • Manufacturing--Jim Gerlach (R-PA), Linda Sanchez (D-CA)
  • Pensions/Retirement--Pat Tiberi (R-OH), Ron Kind (D-WI)
  • Real Estate--Sam Johnson (R-TX), Bill Pascrell, Jr. (D-NJ)
  • Small Business/Pass Throughs--Vern Buchanan (R-FL), Allyson Schwartz (D-PA)

I will try to keep tabs on International, but Financial Services will inevitably veer toward international as will many of the other groups. Income and Tax Distribution really ought to be international in scope too but probably won't be. I don't know either Devin Nunes or Earl Blumenauer but a quick look at both gives no reason to be optimistic that anything like comprehensive reform will come out of this working group. Let's take a quick look:

Devin Nunes is a Tea Party darling, new to Ways & Means, looks like an energy and national security guy all the way, but background and education in agriculture. As to tax, pretty quiet until he signed on as co-sponsor to Paul Ryan's H.R. 4529, "A Roadmap for America's Future", which is all about cutting medicare and social security, and now he's promoting his "American Business Competitiveness (ABC) Act", which apparently would abolish corporate tax all together and maybe advocate for a consumption tax instead.  I think we can see which way he's going to go in this working group. Let's look for him to use the words "competition" and "freedom" and maybe "fair" or "level playing field" a lot and therefore to push for less taxation on multinationals in general (if he can't get rid of it all together) and to be against anything like unitary taxation (formulary apportionment) or corporate tax transparency, the two pillars that would be central to any comprehensive tax reform in the US or really anywhere.  On the other hand, he does seem to favor transparency sometimes [don't miss the impressive list of supporters].  So surprise me, Devin! I do love surprises.

How about his vice chair? Earl Blumenauer has been in Congress since 1996, has a law degree (Lewis & Clark 1976), and is certainly from Portland: he's into mass transit, bicycle commuting, various conservation/environmental causes, PBS, and weed. But he's also a free trade guy, supportive of all the FTAs you can throw at him, that's earned him some protests from the left. He seems pretty quiet on tax, though in 2012 he started getting vocal about big oil subsidies, the AMT and the Bush tax cuts. It looks to me like the tax issues on his radar are domestic ones, mostly involving saving entitlement programs and increasing progressivity--both are safe, vague ground for democrats. I expect he'll use the word 'fair' a lot, but it won't mean what Nunes means when he says it, and Blumenauer will focus on the distributional impact of any proposed reforms, looking for signs it violates progressivity. But I don't expect him to offer all that much, overall. International tax doesn't seem to be anywhere at all on his list of priorities.

So the working group charged with major overhaul of international tax law in the US will be chaired by one anti-tax tea party young gun, and one seasoned and mild-mannered Portlandia character with his mind on other things.

Should be fun to watch this.

Tuesday, February 19, 2013

I do love these US Dept of State "Remarks to Global Business Conference"

I have no idea why these remarks ended up in a State Dept email distribution I got today, as they date back to a year ago, but they are fascinating anyway: a speech given by Thomas Nides, Deputy Secretary for Management and Resources, to something referred to only as "Global Business Conference." That's not very specific, but I think you'll agree the remarks tell us a lot about the audience and the speaker (and governance, and the revolving door between business and government, and the role of law and the rule of law, and the stories we tell ourselves about those things, and etc etc). Excerpts of note: Deputy Secretary of State and as a recovering businessman myself, I am delighted to welcome so many of my friends from my past and present lives all in one room.  
...First, why do we, as diplomats, care about economics? The simple answer is that good diplomacy is good economics, and good economics is good for diplomacy.
A reminder: what's good for GM is good for America. 
America's global leadership and our economic strength at home are fundamentally a package deal, and we need to shore up both of them. We live in an era where the size of a country's economy is every bit as important to exercising global leadership as its size of its military.
Was that ever not the case? It takes big money to build a big army and supply it with big guns.
The reach of our corporations extend far beyond where even our most aggressive diplomats and development workers hope to go. And, closer to home, America's people are hungry for economic recovery. In a global economy, there's no such thing as a purely domestic recovery. That means the State Department, which manages our relationships around the world, is essential to exercising our economic influence, keeping America prosperous, and creating jobs here at home. 
Second, why did we invite you? Because we believe that building sustainable global growth and creating jobs at home is fundamentally a joint venture. The private sector innovates and allocates capital, and delivers remarkable products and services. And the government opens new markets and ensures the rules are fair. At a time when competition is fierce and jobs are still too far scarce, we in diplomacy and business have to bring our partnership to the next level
You innovate, we make things fair, everybody's happy, to a whole nother level indeed. So, who got invited, who is in the room? Why, it's "Business leaders from across American industry, from large companies to small ones ... as well as organizations working to promote American business and fair competition, including my old friend, Tom Donohue." Don't know who that is? Read Matt Stoller's take from several years ago, it's important. And with whom will these business leaders be networking in the halls between remarks lauding their innovation and sheer excellence in creating jobs in America? "Vice President Biden, Commerce Secretary Bryson, our Trade Ambassador Ron Kirk, and the heads of Ex-Im, TDA, and OPIC and Secretary Clinton." And yet there's more, so much more to come.
Which brings me to my third question: What do we, as the State Department, bring to the table? I would submit that the answer is: a huge amount. We are the face of the United States in over 190 countries and at 274 posts around the world. We fight for your rights.
I know you want to add "to party" and I think overall, you'd be right to add it there.
...Over the past 60 years, we have helped establish the rules and institutions to safeguard healthy economic competition and spur unprecedented global growth.
Yikes. Just, yikes. But then there is this absolute gem:
...We have over 1,000 State Department economic officers around the world who wake up each day and ask themselves how they can help American companies large and small compete, connect, and win. From bilateral trade and investment treaties to open skies agreements, we open markets for your companies. We advocate on behalf of U.S. companies exporting to just about every country in the world. We make it a priority to help American companies take part in the growth unfolding across the developing world.  
...And whenever we have seen barriers to open and free and fair and transparent competition, our embassies around the world push back. We push back against unfair barriers to investment. We push back to protect intellectual property, to protest discrimination against our companies, and to guarantee that all companies get a fair shake, whether the owners sit in corporate boardrooms or government ministries. When American businesses are not fairly treated, that's not just an economic issue; it's also a diplomatic issue. 
And let me be clear. We just don't seek a fair shake for American companies; we seek a fair shake for all companies. ... We know that when the competition is open and free and transparent and fair to all people, American companies have what it takes to compete. And we know the same values that help our companies will also help local entrepreneurs, foreign businesses, and ultimately everyone for one simple reason: They create economic growth that improves lives.
Yeah!  That's how winning is done!  Don't forget to visit your mother.  Really, I just had no idea that the State Department had a pep squad of 1,000 "economic officers" [what is that? ah, negotiators of fair competition, economics knowledge helpful but not required] all over the world who woke up every day asking themselves those questions and then answering them. That really is remarkable.
Fourth and finally, what do we hope to accomplish here together? We want to hear from you. We want to know your concerns, where you see opportunities, where you see gaps in our work. We also want you to know that you can turn to us for support. 
...We at the State Department want to help create the conditions that will empower American businesses to get out there and take the risks that will drive a recovery around the world. ... The idea that business, on the one hand, and government, on the other hand, can simply operate in parallel worlds just doesn't cut it. We have to work together. That's what this conference is all about, and that's why I'm glad you're here. Thank you very much. (Applause.)
Then he introduces Ron Kirk. I always do enjoy a speech like this, even if I am a year late to the party. Number of times he used the word fair: 11.  The word compete or competition: 8. The word help: 8. The word jobs: 6. The word business: 17. The word lobby: 0.

Giving credit where credit is due: argument preview for PPL Corp v Cmr

I've got a post up over at SCOTUSblog on the PPL Corp case, which involves the 1997 UK windfall tax imposed on energy companies that had been privatized under Thatcher--the US parent wanted to take a foreign tax credit for the tax but the IRS said it's not an income tax so no credit allowed. Yes, the year in question is 1997.  Fifteen years of litigation!  $$ at issue: $10M.  Who's got the better side of the argument: the Commissioner, in my view. The tax is a clawback to remedy a too-low flotation price, not a retroactive income tax. Oral arguments tomorrow, and I'll have a recap asap thereafter.

Sheppard: OECD report on base erosion demonstrates OECD is not serious about base erosion

Lee Sheppard has a column today on the OECD's new-found vision for reversing course on the international regime of tax base erosion it created [gated]. She's not buying it. Highlights:
...the OECD Centre for Tax Policy and Administration has been adept at sweeping huge problems under the rug. It was long in the habit of denying the multinational tax avoidance problems that OECD guidance and the international consensus enabled. 
But the problems are now blindingly obvious, as leading investigative journalists have attached corporate names and faces to tax avoidance. The person on the street now knows that some household-name companies pay no corporate income tax anywhere in the solar system. And a new group of managers has come to the OECD, ready to at least admit to the problems. So with its newly issued report, "Addressing Base Erosion and Profit Shifting," the OECD promises to do something about the income shifting problem and meet its critics. 
The report contains some astonishing admissions against interest about the causes of the zero-tax results under the current international system. Putting the best face on it, the report is a baby step toward practical proposals -- which are supposed to be ready for the G-20 meeting in a mere four months! 
The report provides little in the way of proposals, and it leaves the reader worrying that the OECD will jump in front of the parade and carry on with its useless projects
Pressure Points 
The report identifies six pressure points in the international system, without ascribing blame. Here is the list, annotated with blame: 
  • hybrid structures and instruments (U.S. check-the-box rules and European formalistic characterization rules); 
  • treaty treatment of remote commerce (OECD model treaty); 
  • tax treatment of related-party financial transactions (OECD model treaty); 
  • transfer pricing, especially separation of income from relevant activity (OECD transfer pricing guidelines); 
  • antiavoidance measures (American, British, and commonwealth courts); and 
  • harmful preferential regimes (Vienna Convention on the Law of Treaties). 
Despite these admissions, the report is strangely solicitous of tender corporate feelings. The drafters appear to have inherited the OECD's long-standing fear of incurring the displeasure of the United States and its mighty multinationals. 
...The report makes the seemingly harmless statement that member countries have a common interest in stopping base erosion and establishing a level playing field. As the drafters understand, it is not at all clear that every OECD member is on board. The British are systematically dismantling their corporate tax base, and the Americans are being urged to follow. Those are the home countries of the most tax-aggressive multinationals. 
And ever mindful that its real constituency is multinational business, the OECD proposes to come up with its coordinated action plan in consultation with all the stakeholders! It was considerate of the OECD to include "civil society" among those to be consulted. The old order ignored nonbusiness groups. 
One could well ask why multinationals should be invited to this particular discussion -- not that they don't appear to have veto power over every OECD project. They have cast their votes already. They don't feel like paying corporate income taxes, thank you very much. What are they expected to do, apologize for stripping income out of every market country? 
... Maybe it's easier to blame globalization than to blame a highly discriminatory system that is a vestige of World War I. The international consensus was designed by the Europeans and Americans to minimize taxation of multinationals. 
...The report does not admit that a large part of the problem is the international consensus itself. Like a manager firing workers, the OECD blames globalization. 
...The report's suggested fixes are already being pursued by member governments: more government-to-government cooperation, more transparency, simplified transfer pricing guidelines, better documentation, antiabuse rules, and controlled foreign corporation rules. The report recognizes that some of these fixes are difficult to administer, leading only to counterproductive litigation against well-represented multinationals. 
A constructive suggestion is that intragroup financial transactions be subject to restrictions. This is a startling admission from the organization whose transfer pricing guidance has required recognition of nonsensical legal arrangements and self-serving intragroup contracts in all but the most drastic cases. 
...The report suggests that something be done about harmful preferential tax regimes. But the previous mangled effort was squelched by the United States two decades ago, and hypocritical to boot. European enablers were not included in the list of harmful regimes. The OECD gives itself credit for the Global Forum on Transparency, an effort to accommodate tax havens while signing a lot of unenforceable tax information sharing agreements. 
...The degree to which the OECD still acts like this is a real risk is shown by the report's suggestion that it should be easier for multinationals to get their money back in mutual agreement procedures. The real risk of collective action is, as always, veto by the United States, whose multinationals pioneered the techniques complained about in the report. 
...Having blessed restructuring to stripped-risk distributors and contract manufacturers as business motivated, the OECD now admits that it is a component of the base erosion problem. The restructuring nonsense recently added to chapter 9 of the transfer pricing guidelines hardly merits a mention in the base erosion report, which seriously undercuts that guidance
...If the OECD were serious, it would advise member governments to disallow deduction of payments by and to entities treated as tax nothings by the other government. Some governments treat hybrids the same way their home governments treat them. Either straightforward fix would claw back the benefits of the U.S. check-the-box rule. Essentially a check-the-box switchover clause, either approach would ensure that the income represented by the payment was taxed somewhere. 
...Several times, the report describes tax planning as reducing profits attributed to substantive operations while increasing the profits associated with legal constructs like intangibles holding companies. This is a huge admission for an organization whose own transfer pricing guidelines call for intragroup contracts to be respected except in drastic circumstances. 
...The report does not explain why affiliates with no assets and no activities should be respected in the first place -- only that the transfer pricing rules entitle them to very little income! Google had an APA approving its transfer of intangibles outside the United States. Google's Irish affiliate has 2,000 employees. The point of the arrangement was to keep intangibles income out of the United States and to siphon it out of Europe. 
What would the OECD do if it were serious about intangibles migration? It would be compelled to think about factor allocation of intangibles income to countries where they are exploited. ...
Oh so much more at the link. This is a lengthy and detailed criticism. I am with Lee that the OECD is not likely a true apostate when it comes to base erosion. I would like to be wrong but the institutional structure of tax policy norm-making being what it is, there is no reason for optimism. The OECD used to like referring to itself as the "market leader in international tax policy," as if tax policy was a commodity they were particularly adept at creating and selling. Recent developments show tax policy is a commodity all right, but the OECD understates its own market share: it holds 100%. It is a monopoly that created the regime it now professes to view as having failed to keep up with the times.

You can't call it base erosion when you've been operating the backhoe and preventing anyone from building a retaining wall for 50 years.

Monday, February 18, 2013

What an OECD "public briefing" teaches about the rule of law.

The ACA representative who attended the OECD public briefing on FATCA posted a comprehensive description here. The substance of the briefing is important of course and it is well explained in the post, but I note that we can also learn a little more about the OECD and about international tax lawmaking from this participation, and these are things worth noticing for anyone interested in how the rule of law develops in taxation.

  • There were no other members of civil society present (non-government, non-business), and there were empty seats, even though Victoria was initially denied entry because space had to be reserved for business interests. So the OECD is still an epistemic community talking with itself. That is important in terms of framing public discourse about what matters and what doesn't for taxation, as well as what questions ought to be answered and what the answers ought to be.
  • The issues are all cast as technical compliance ones, as if the politics and policies are all resolved. They are not, but casting things as merely technical in nature makes it easier to turn aspiration into law; it's a common modus operandi for tax regimes, and the OECD has used it consistently over its lifespan.
  • Treaty competent authorities will be working out the technical details on how automatic information sharing is going to take place, including registering FFIs and sending info through the IRS portal.  So more and more international tax will get worked out through these obscure, opaque, non-law making diplomatic channels, and there will be less and less law to work with as a result.
These are notable phenomena in the context of simultaneous calls for transparency and accountability in governance, including from the OECD itself.

Wednesday, February 13, 2013

US hammering out details on corporate tax disclosure/EITI?

Today the State Department hosted the first meeting of the US Extractive Industries Transparency Initiative Advisory Committee, the "multi-stakeholder group of civil society representatives, extractive sector companies, and federal and state government agencies that will guide implementation of this important transparency initiative in the United States."  From the notice:
The group’s meeting today is hosted by Secretary of the Interior Ken Salazar, the senior official leading USEITI in the United States. The State Department represents the United States on the EITI International Board, which is the EITI’s global governance structure. 
Today’s meeting represents an important milestone for the vision President Obama presented in September 2011 when he announced the United States intention to pursue full participation in EITI. This commitment underscores the Administration’s belief that this initiative benefits countries in all regions and at all levels of development. The United States has long supported transparency as a critical component of sound governance in countries’ oil and other extractive industries. Implementing EITI is one of the commitments made by the United States in its Open Government Partnership National Action Plan, which is an international effort to promote transparent, accountable and open governments.
The EITI international Secretariat posted this transcript of remarks by Secretariat Head Jonas Moberg, excerpt:
...the EITI in the US can contribute towards improved natural resource governance. It can contribute to the rebuilding of trust in offshore activities, towards natural resource governance without corruption and with greater certainty about companies paying the taxes and royalties they should be paying. 
An added bonus for the rest of us is that you send a clear global leadership message, demonstrating a willingness to practice what you preach. This global message is particularly important if we are to work together with the world’s large growing economies on improved natural resource governance. 
37 countries are implementing the EITI, and so you are joining a global community of multi-stakeholder groups that are working on these issues. 
...The interest around the world in what you are doing is considerable. Along the way there are some key decisions that need to be taken: on how the MSG will function, the scope of the reporting, the government and private sector entities that should participate, defining materiality and agreeing how much detailed information should be disclosed. 
I don't have any more info on how the meeting actually went and unfortunately the media doesn't seem at all interested in this movement forward for corporate tax transparency. More's the pity since everyone seems to be getting exercised about corporate tax avoidance and here is one very real and tangible approach being hammered out as we speak even as the industries campaign hard to prevent it coming to fruition.

Hearings on tax evasion & tax havens in the Canadian parliament tomorrow

Meeting of the Standing Committee on Finance beginning at 8:45 in Room 7-52, 131 Queen Street, featuring a fascinating line-up:

Tax Evasion and the Use of Tax HavensFraude fiscale et le recours aux paradis fiscaux
Canadian Bankers AssociationAssociation des banquiers canadiens
Marion Wrobel, Vice-President
Policy and Operations
Marion Wrobel, vice-président
Politiques et opérations
Darren Hannah, Director
Banking Operations
Darren Hannah, directeur
Opérations bancaires
Canadians for Tax FairnessCanadiens pour une fiscalité équitable
Dennis Howlett, Executive DirectorDennis Howlett, directeur exécutif
Videoconference - Cambridge, United KingdomVidéoconférence - Cambridge, Royaume-Uni
Tax Justice NetworkTax Justice Network
Richard Murphy, DirectorRichard Murphy, directeur
Videoconference - Austin, TexasVidéoconférence - Austin, Texas
As an individualÀ titre personnel
Arthur Cockfield, Professor
Faculty of Law, Queen's University, Fulbright Visiting Chair in Policy Studies, University of Texas

US and Canada do some more dancing on energy

From the FT: US approves $18bn Cnooc bid for Nexen. That headline struck me as odd--why would one non-US company acquiring another non-US company require US approval? But this is the oil & gas industry, and that impacts US security, so bring on a committee review:
Tuesday’s approval from the Committee on Foreign Investment in the US, a multi-agency body that reviews large deals that could affect US security, gives Nexen “all of the requisite approvals to proceed to close”...

Late last year it looked as if Cfius might challenge the deal. In November, Cnooc and Nexen resubmitted their agreement for approval, raising concerns that Cfius was taking a hard line.
Though less than a tenth of Nexen’s assets are in the US, those that are include a series of oil platforms in the Gulf of Mexico. Some of those are near US military assets, leading some to believe that Cfius might block the deal or require mitigation agreements.
The US (or at least two American brothers) has pretty high financial stakes in the Canadian oil & gas industry, as a recent real news interview of BBC's Greg Palast reveals: if the Koch brothers (yes, those down-home folks with their "plan to reshape America")  can get that pipeline through, they can cut out their Venezuelan competition with a cheap alternative, putting an additional $2B or so in their pockets each year. But this time the US interest is not about its energy security, at least according to Palast. Rather, the plan here is to sell the supply on to the Caribbean. From the transcript:
[The Koch brothers says to themselves] If we can use our political muscle to jam a pipeline through the guts of the United States down to Texas...we can make a killing. 
And by the way, they're making an extra killing. When the Republicans were talking about the XL Keystone pipeline making us energy-independent...We're not energy-independent if it comes from Canada. But if it comes from Canada, let's assume that this is our buddies, because they'll give us the oil cheap, and that's what makes them our buddies. 
It also undermines Hugo Chávez. They have to undermine Chávez, which they want to do for geopolitical reasons. 
But then the oil will not be used in the United States. It will be refined mostly for gasoline that will be sold at a premium in the Caribbean. Remember, these refineries are in the Gulf coast. Selling it, then running that stuff back into New Jersey is not a moneymaker. The way you make the money is you sell gasoline in places that don't have the refining capacity and will pay a premium, like, you know, Jamaica, Santa Domingo. That's where your money's going to be made. So this is oil from Canada which will then go into the Koch refineries and sold into the Caribbean.
I admit I am puzzled. How is it in the interest of either Canada or the US to build a mechanism for the Koch brothers to insert themselves as intermediaries in an energy supply chain to the Caribbean? From Canada's perspective, why not cut out the middleman, or to out it another way, why be such good buddies?  Is this a question of risk, cost, technological capacity, logistics, something else? And for the US, if the environmental hazards to communities across the nation are as Palast describes, why subsidize that risk for the greater personal profit of billionaires when the political costs of support for the pipeline seem so high? 

I also don't know the financing of the pipeline, haven't studied it. I am scared to go and look, if I am going to find out that the entire infrastructure is to be underwritten by government.

Tuesday, February 12, 2013

Protesters Confront "Fix the Debt" Leader over Corporate Tax Breaks

And they do it with a big sign:

The protestors are calling themselves "Flip the Debt."  From truth-out:

While speaking at a Fix the Debt conference on Monday, Honeywell International Inc. CEO David Cote [he of "union busting for dummies" fame] was interrupted several times by Flip the Debt protesters over tax loopholes that allow companies like Honeywell and General Electric to pay far less taxes than ordinary Americans. 
Three minutes into Cote's keynote address, the first heckler trumpeted: 
...Fix the Debt is nothing more than a CEO lobby whose real objective is huge corporate tax breaks and drastic cuts in Social Security, Medicare and Medicaid. David Cote and his CEO friends receive a lot from government: In 2011, Honeywell received $725 million in government deals, making it the 35th largest federal contractor. However, Honeywell and other companies pay next to nothing in taxes. Honeywell's tax rate from 2008-2011 was 2 percent. Does anyone in this room pay 2 percent?"
 The crowd applauded, but Cote only laughed nervously.
So, he neither confirmed nor denied whether he paid 2%.  An interesting nod to the UK, similar to the spread of the "Uncut" movement across the atlantic:
Gan Golan, cofounder of Flip the Debt, laid out his group's goals. "We will disrupt Fix the Debt meetings across the country to elevate our message that the biggest corporations in the country aren't paying taxes, and now they want the rest of us to pay for it. Sustained public pressure against corporate tax dodgers in the UK has put the issue at the top of the agenda there, and we hope to do the same."
The article mentions the Sanders bill to end deferral, and ends on the connection between tax dodging by multinationals and the dismantling of the welfare state:
Charlie Balban, president of the Alliance for Retired Americans-New Hampshire, grilled Cote during a question-and-answer period. "We should do something about the debt, but we don't need to cut programs that people depend on. Instead of reducing the deficit on the backs of working Americans, corporations should pay taxes like the rest of us."
It can't be too much longer before someone draws up a menu of welfare state expenditures in the US and then ties each item to a specific company and what they might have paid in taxes had they incurred the statutory rate on their income for the year.  If you see such a thing, please send me a link.

The Dubious Legal Pedigree of FATCA intergovernmental agreements (and why it matters)

My latest column in Tax Analysts' Tax Notes International is here.  I argue that the IGAs have a dubious legal pedigree because they are not treaties, not congressionally-authorized executive agreements, and not interpretations of existing agreements; therefore they are sole executive agreements--entered into by the executive branch with no authorization or oversight from Congress. This puts them on very shaky ground in terms of the constitutional process for binding the US internationally, and I argue that this is both unhelpful to other governments as a practical matter (IGAs override the statute, so if they fail, then what) and an unnecessary muddling of the rule of law, which should make other governments wary (if you have a process in place to bind the US under international law, why aren't you using it).

Monday, February 11, 2013

US fights EU on data privacy law, says EU should respect US right to regulate

For the life of me I cannot understand the FT's headline, which reads "Brussels fights US data privacy push."  No, it's the US sending a team of lobbyists to fight against EU regulation--the penultimate sentence of the article even labels this "aggressive lobbying."

Why are the US lobby troops going into battle? Because the EU seeks to impose a fine of 2% of global annual revenues for any company, anywhere in the world, that violates the data rights accorded to EU citizens. US lobbyists and a sympathetic administration seem all too eager to push other countries to ease up on their regulatory burdens on US companies, so it is not surprising to see them in full force against the EU parliament here. But this effort is especially rich given that it comes at the very moment that the US is seeking to impose a fine of 30% on any company, anywhere in the word, that violates its own data sharing requirements. From the story:

Viviane Reding, EU commissioner for justice, said that the EU was determined to respond decisively to any attempts by US lobbyists – many working for large tech groups such as Google and Facebook – to curb the EU data protection law.

“Data protection is a fundamental right in Europe which is clearly enshrined in the Charter of Fundamental Rights. Whilst this may not be the case in other parts of the world, one thing is clear: if companies want to tap into the European market they have to apply European standards.” 
Ms Reding’s firm approach is likely to spark a diplomatic battle between Brussels and Washington, which has actively been trying to water down the EU’s tough new privacy legislation by handing US companies a de facto exemption from it. 
“Europe, the United States and other democracies around the world share many of the same values,” said William Kennard, US ambassador to the EU at a conference on European data protection and privacy. “We need to accept that each of these democracies has the right to choose whatever legal framework is suited best for them to defend and protect those values.”
Translation: respect our sovereign authority to write the laws we want to write to regulate our companies; don't use sanctions or threat of sanctions to force our companies to abide by your laws.  Or, do that to other countries, but give us an exemption because we're good guys that share your values.  Further:
US tech companies are trying to shield themselves from the legislation as they argue that it would be unfair for them to be subject to EU laws that are too stringent and could result in expensive administrative burdens and hefty fines for errant companies.
So here we have a US ambassador stating the cause for US companies that complain of the "unfairness" of stringent and expensive compliance costs backed by hefty penalties for noncompliance. The EU's position is, we are trying to protect our people wherever they go in the global market. The world is our jurisdiction to the extent it impacts the people we call "ours," and we aim to protect our people.

Are we not coming to a place where it is becoming obvious that global markets cannot peacefully co-exist with autonomous states?  Not one world government at all but instead an impenetrable mass of overlapping and conflicting regulatory states, a venn diagram of massive and chaotic proportions, and no possible way for anyone to comply with all of it.  Stock tip: invest in data compliance companies, they might be the most important drivers of the global economy in the near future.

Thursday, February 7, 2013

OECD "public briefing" --update


A development on the public briefing. After being turned away, Victoria Ferauge has now been given the green light to attend tomorrow's FATCA/TRACE briefing on behalf of American Citizens Abroad. I am very glad to see this resolution. It worries me when international bodies ostensibly working on behalf of society try to manage which sectors of society count when it comes to policymaking.  Access to meetings is the barest form of participation in such matters.  I look forward to hearing from Ms. Ferauge regarding what she hears and sees at the meeting, and am glad that she will be able to attend with only one day's notice.  (be sure to note if you are asked for your passport to gain entry).


Last Thursday I mentioned that the OECD had advertised a "public meeting" on their website about TRACE and FATCA, and I said: can also attend in person for 100EUR if you are a financial institution, a practioner, or a journalist, according to the information.  Though it is not stated, I will simply assume that non-interested observers, such as academics, NGO reps, etc., are also warmly invited.  
I am sorry to have to report that this is apparently incorrect, at least, when one NGO (American Citizens Abroad) tried to send a rep, she was rebuffed because space is running out and "government and business have priority."

Frankly, this is outrageous.  The OECD has been a club for the revolving door crowd for far too long.  When I have criticized the absence of NGOs and other disinterested observers at the OECD I am told  they are represented by government. If that ever was the case, I think we can safely say it is not the case now. The OECD cannot simply isolate anyone who doesn't stand to benefit from government-big business collusion forever. Eventually it must lose its ability to state with a straight face that it works on behalf of the peoples of its member states.

Message to OECD therefore: do not call it a public meeting if it is not a public meeting, if it is only another forum for government bureaucrats and business leaders, call that what it is: an international lobbying session.

Now, if I am wrong and there is an NGO or any other disinterested, non-business person who is going to be allowed to go to this "public meeting" at which what is going to be discussed by bureaucrats and busienss leaders is how governments will be monitoring and taxing human taxpayers who constitute the peoples represented by the member states, then please, please someone let me know.

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

Germany rejects Swiss Rubik deal...again

Also from Tax Analysts [again, gated]:
The upper house of the German parliament (Bundesrat) has again voted to reject the agreement with Switzerland aimed at taxing the undeclared assets of German taxpayers. 
This was the Rubik deal: basically, Switzerland won't share any information on individual accounts but will collect withholding taxes and pay them over. Here's a short explanation with a horrid graphic. I haven't discussed the deals much here, but it's had lots of play over on TJN [shorter and more to the point here]--it's a pretty wacky deal, really. I mean, how do you keep anyone honest in terms of withholding and paying over the "right amount" of tax if you can't pry any info from them?  From Tax Analysts:

The agreement was similar to one reached between Switzerland and the United Kingdom. It called for a one-time charge on all undeclared assets held in Switzerland as well as an ongoing withholding tax on income earned in undeclared accounts. The agreement also would have allowed German tax authorities to make a limited number of information requests that would not require the level of detail expected for standard treaty requests. 
Social Democratic Party lawmakers have long objected to the agreement, saying it was too lenient and that tax evaders should not be allowed to remain anonymous.
I take it that the deal was little more than an end run around the European Savings Directive. Certainly with Switzerland talking FATCA with the US it's hard to imagine any country in Europe settling for Rubik's weak tea.

Exit taxes and human mobility

An interesting article in Tax Analysts [gated] talks about exit taxes (taxes imposed on assets when a person or entity migrates to another nation) as an impediment to human mobility. I'd say yes, exit taxes do impede mobility, and whether and when they are justified is debatable and under-studied. But there's no universally recognized human right to mobility across national borders, as we well know. (There should be, of course, but that's a discussion for another day).

Instead, every country has high barriers to entry, some more onerous than others, and many have high barriers to exit, some more onerous than others. The US is high on both sides. Many people want to come in and are denied the chance; many others want to leave and can't escape the clutches. It's an odd world.

In any event, the Dutch exit tax has run into trouble becuase Europe has created a right to mobility within the EU zone, via the "freedom of establishment," under article 49 of the Treaty on the Functioning of the European Union (TFEU). The ECJ deemed the Dutch exit tax a violation of that freedom in Commission v. Netherlands (C-301/11), saying that while an exit tax may be justified to ensure a balanced allocation of taxing rights between member states, the Dutch obligation to immediately pay the exit tax was "disproportional." Tax Analysts explains:
Under Dutch tax law, when a taxpayer operating a business moves its place of management to another country, including another EU or European Economic Area member state, the taxpayer becomes subject to a tax assessment for the (deemed) capital gain upon exit. The tax is imposed on the unrealized profits (for example, goodwill, hidden reserves, and tax reserves) attributable to that business. 
The exit tax rules apply both to legal entities and to individuals that relocate their businesses' place of effective management from the Netherlands to another country. 
...As could be expected, in its January 31 decision, the ECJ referred to its previous decision in National Grid Indus. That case concerned Dutch exit tax imposed on a company that relocated its place of effective management from the Netherlands to the United Kingdom. The ECJ approved of the concept of exit taxes because of the need to ensure a balanced allocation of taxing rights between member states. However, a "balanced allocation measure" of this type must satisfy the proportionality test, and the ECJ found the immediate payment obligation disproportional. Because the cross-border relocation exposed the taxpayer to a cash flow disadvantage that would not have existed if the relocation had been domestic, the ECJ deemed the immediate taxation of the unrealized (foreign exchange) gains under some circumstances to be in violation of the TFEU principle of freedom of establishment. 
...This judgment comes as no surprise, as both the state secretary of finance (through the above policy statement) and the lower house of the Dutch parliament (through a draft bill) had already recognized this restriction in domestic law. On December 4, 2012, the lower house approved a bill of law concerning the deferral of exit tax. ... After the bill of law is approved by the upper house (which is expected in early 2013), the new rules will take effect retroactively from November 29, 2011 (the date of the ECJ decision in National Grid Indus). 
The Dutch parliament has drafted a bill to allow for deferral on a retroactive basis and the authors conclude that hopefully, a lesson has been learned. For those outside the EU zone, of course, there is no great comfort to be had but this is another interesting development on the connection between the state and the individual in a world featuring ever-increasing mobility.

Monday, February 4, 2013

Obama admin taking the high road on FATCA reciprocity?

I have predicted that real FATCA reciprocity would not fly in the US once people began to understand what the details entailed, but I would like to be wrong about that, and I have argued that the best course forward for FATCA is real reciprocity coupled with adherence to residence-based taxation. Here's a sign from the Chicago Tribune that I could get at least one of my wishes:
Foreigners' accounts in U.S. banks eyed in tax crackdown
The Obama administration may soon ask Congress for the power to require more disclosure by U.S. banks of information about foreign clients' accounts to those clients' home governments, as part of a crackdown on tax evasion, sources said on Monday. 
In a move facing resistance from some in the U.S. banking industry, two tax industry sources said the administration was considering asking Congress in an upcoming White House budget proposal for the authority to require more disclosure from U.S. banks. 
...At the heart of FATCA is a law requiring more disclosure by non-U.S. banks of information about Americans' accounts to the Internal Revenue Service, with the goal of exposing Americans' efforts to dodge U.S. taxes through secret offshore accounts. 
As Treasury has implemented FATCA, some countries - possibly including France, Germany and China - were said to be driving a hard bargain. They have been saying that if their banks have to tell the IRS about Americans' secret accounts, then U.S. banks should have to reciprocate by disclosing more information about the U.S. accounts of French, German and Chinese nationals. 
...China has been publicly dismissive of FATCA, but it is talking with U.S. officials behind the scenes, sources said.
...France and Germany "have been asking for something more like full reciprocity," said Jonathan Jackel, a lawyer with the law firm of Burt Staples & Maner LLP in Washington, D.C. 
The story says that "The IRS this year started disclosing to some foreign governments information about bank interest payments earned by their citizens with U.S. bank accounts."--but I am not sure that that is true, given that the only country currently on the list for automatic info sharing on portfolio interest is Canada-and Canada was already on that list anyway.

The story quotes Itai Grinberg, who has to be the foremost expert on the legislation and really ought to be listened to on the underlying principles:
"The United States should be moving toward full reciprocity," said Georgetown Law School Professor Itai Grinberg, a former Treasury official, adding it would be "deeply hypocritical" of the United States to ask for U.S. taxpayer information "without offering some kind of reciprocity."

Progress, perhaps. But this is America, so here comes a lawsuit:

The Texas Bankers Association is considering a lawsuit against the government to stop accountholder information sharing with Mexico, said Eric Sandberg, the group's president.
Why, what s the problem?  Well, you see, it's financial privacy.
"We are concerned with Latin American countries like Mexico," said Fran Mordi, senior tax counsel at the American Bankers Association. "In the past, U.S. banks didn't report interest payments to non-resident aliens ... IRS is now saying you have to report that."
Translate how you will. I think it's a clear illustration of the state at war with itself over how to gain the maximum advantage from a combination of cooperation and competition with other states on taxation. Information sharing is going to benefit the US more in terms of dollars in the economy if it is one-way street that catches US shirkers but doesn't prevent taking advantage of other countries' ignorance about the location of their own taxpayers' resources. I think the mercenary state will prevail in the end--cooperate in principle, defect in practice--but I am very much hoping to be wrong.

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.

No sugar industry sans big gov

From Tim Carney: 
Last fiscal year, Americans paid about 69.9 cents per pound of refined sugar. The world price was less than 27.8 cents. 
Why is that? Why, industrial policy/central planning of course: state-provided infrastructure, subsidies, import quotas, tariffs, etc. But according to the beneficiaries of all of this central planning, it's not all the planning.  It's global competition from mercenary states that don't have things like...wait for it....labor and environmental protections!
"Go down to Brazil," [anti-NAFTA sugar farmer James Dickson] says. "Check out the working conditions." Brazil's labor costs are much lower, and so are its environmental regulations. "They do stuff to their sugar we would never do."
Carney says not so fast, there's plenty of that to go around:
The federal government also made it possible for the industry to get cheap labor from the Bahamas and Jamaica. Through the British West Indies program, which was created during the Great Depression, "the United States government played a direct role in negotiating employment contracts for offshore laborers," explained Everglades historian David McCally. Uncle Sam even paid to ferry cane-cutters from the islands to Florida. 
The guest-worker program put in place exploitative pay levels and work rules. For its part, Florida helped the industry by making it difficult or even illegal for cane cutters to quit. One farmer, lobbying the USDA against allowing Puerto Rican cutters, explained his reason: "Labor transported from the Bahama Islands can be deported and sent home, if it does not work, which cannot be done in the instance of labor from domestic United States or Puerto Rico." 
All of this was the subject of a little known film called H2 Worker by Stephanie Black (who also produced Life and Debt, a must-see for anyone interested in development economics) which you should watch if you haven't yet, even though it is admittedly quite slow in parts.

Carney concludes:
Florida sugar cane is an industry literally built on big government, and growers know it will wither in a free market.
Not literally. But otherwise true enough.

International tax as revealed in SEC filings

I've written before about how opaque international taxation is because most of the law is worked out in ways that are not made visible to the public, namely through non-judicial review of transfer pricing and related disputes among nations.  I've argued for both corporate tax disclosure and publication of competent authority agreements as a remedy to much of this opacity. Tax Analysts' Transfer Pricing Roundup [gated] offers a fascinating window onto this world:
Transfer Pricing Roundup summarizes significant tax disputes that publicly listed firms have disclosed to regulatory authorities. The regular monitoring of these disclosures sheds light on the friction points within the U.S. system of transfer pricing enforcement. Many of the disputes profiled here involve adjustments resulting from controversial cost-sharing arrangements.
Some of the highlights:

  • Accenture PLC, a global management consulting, technology services, and outsourcing company, reported its unrecognized tax benefits could decrease by $637k or increase by $208k depending on how things go with some settlements, lapses of statutes of limitations [read: if they were going to catch us with our fingers in a cooky jar, it's about to be too late] and other adjustments relating mostly to transfer pricing matters 
  • Amazon is disputing transfer pricing adjustments in the US that would result in additional tax of $1.5 billion, and in France to the tune of $250 million. 
  • Amazon also recorded reserves for tax contingencies of $336M for 2012 and $266M for 2011, to cover transfer pricing, state income tax, and research and development credit positions.
  • Cooper Cos. Inc., a medical device company, has $29.5M in "unrecognized tax benefit," $5M of which relate to transfer pricing and other issues "that could significantly change in the next 12 months because of expiring statutes [see above] in unnamed jurisdictions." 
  • Dell continues an ongoing battle with the IRS over transfer pricing adjustments dating back to 2004-2006. Dell reports that "An unfavorable outcome in this matter could have a material effect on the company's operations, financial position, and cash flows."
  • Microsoft is also involved in a protracted battle with the IRS over transfer pricing involving 2004 to 2006, which could have a "significant impact" on the company's financial statements if it is not resolved in Microsoft's favor. Microsoft does not expect resolution any time soon: must be some thorny issue to work out there. Microsoft's tax contingencies and liabilities are huge: $7.7B and $7.6B as of December 31, 2012, and June 30, 2012, respectively.
Much, much more at the link. Most of these are pharma and software companies--i.e., lots of IP that has been moved offshore and is busy stripping income out of high-tax countries with variations on the dutch sandwich, which looks a little something like this:
Now with Less Fiber!
My feeling is that it is a real shame that most or all of these cases will get settled and eventually quietly erased from balance sheets with little or no explanation and therefore no advancement in the development of international tax law whatsoever, despite all of the resources that will have been sunk into the cause by the private sector and government alike. What a shame.

Galt's Gulch Chile, Randian Utopia?

I've called charter cities "the ultimate gated community," and it turns out that characterization wroks well as a marketing strategy designed to appeal to Randians with visions of state-free utopias dancing in their heads:
With the oppression of the over regulated, over taxed, war riddled and welfare riddled society consuming the world, Ayn Rand's famous protagonist character, John Galt, came to conclude that he would not use his talents to support such a society any longer...driving him to create a community where scientists, inventors, entrepreneurs and many others would come together to escape from the confines of their daily lives to not only be free...but to thrive.  
In today's world, it is becoming more and more difficult to find true freedom from very much the same oppressive forces Ayn Rand wrote of...which drove John Galt and others to a place where they found their freedom, success and peace of mind. 
But you can find yourself in just such a utopia for a modest investment:
Residential lots at Galt's Gulch Chile will be offered at much more affordable price points than one would expect for a community of this caliber. In the initial phase of the project, which is over 4,200 acres, lot sizes will range from 1.25 acres up to over 10 acres, within the separate neighborhoods of the master planned community, which is projected to have well over 1,000 lots on over 10,000 acres at build out. 
I have no idea what price point to expect from a community of that caliber.  Doesn't it depend on the height of the retaining wall built to keep the bands of roaming marauders out of my libertarian paradise?

Pictured: libertarian paradise
See that? No walls.  Also: no pesky roads, schools, hospitals, police stations, firehouses, courts, legislative bodies, telecommunications equipment, etc. But wait, here's another image:

These walls appear inadequate to protect paradise.
Galt's Gulch does have a facebook page...good thing facebook is still "free"!  But ...what is this?
The lots, roads, lakes and community amenities of Galt's Gulch Chile are currently being laid out by the architecture and engineering team. The on-site sales office is being retrofitted with solar panels and upgraded a bit inside and out, with a proposed opening sometime in March. Our Santiago office should be open sometime in the next two weeks as well. We look forward to getting in contact with everyone and meeting you down in Chile!
and, from their website:
Galt's Gulch Chile is slated to have all of the world-class amenities ...including a championship-caliber golf course, community clubhouses, tennis facilities, spa and fitness centers, hiking trails, horse facilities and trails, vineyards, underground storage facilities, downtown main street shopping, farmer's market, 24-hour guard-gated security and many others.  
Since there will be no imposing of onerous regulations or taxes here in Galt's Gulch, these items will obviously have to be priced into those "much more affordable price points than one would expect for a community of this caliber." But at least you won't have to use your talents to support a society. Your benevolent dictator GALT'S GULCH TRUSTEE LIMITED in Menlo Park, CA will contract you right out of all that messiness. Right? ....or, perhaps not.

Will this be like Independence, USA, "an entire city, developed around patterns?"

Actually, it does sound a little alike:

Galt's Gulch Chile is being designed to be a fully self-sustaining community, affording those who live there an abundant and unending supply of fresh drinking water from the natural springs located throughout the mountains and valleys of the community, clean and renewable energy from hydroelectric and solar power generation, organic fish from the scenic manmade lakes...and a plethora of organic fruits, vegetables and nuts, born from the fertile soil and the ideal year round climate of the region. 

Well then! Oh, how I yearn to sign up for more information on Galt's Gulch, if only it wouldn't mean being inundated with advertising from some trustee company in California trying to prey on my basic mistrust of government.