Friday, January 30, 2015

Samaha and Strahilevitz on Information policy and legal design

Adam M. Samaha and Lior Strahilevitz recently posted a paper called Don't Ask, Must Tell — And Other Combinations, which on its face looks like it has nothing to do with tax but it is relevant to questions about compliance and enforcement, so I thought it worth reading. Here is the abstract:
The military’s defunct Don’t Ask, Don’t Tell policy has been studied and debated for decades. Surprisingly, the question of why a legal regime would combine these particular rules for information flow has received little attention. More surprisingly still, legal scholars have provided no systemic account of why law might prohibit or mandate asking and telling. While there is a large literature on disclosure and a fragmented literature on questioning, considering either part of the information dissemination puzzle in isolation has caused scholars to overlook key considerations. 
This Article tackles foundational questions of information policy and legal design, focusing on instances in which asking and telling are either mandated or prohibited by legal rules, legal incentives, or social norms. Although permissive norms for asking and telling seem pervasive in law, the Article shows that each corner solution exists in the American legal system. “Don’t Ask, Don’t Tell,” “Don’t Ask, Must Tell,” “Must Ask, Must Tell,” and “Must Ask, Don’t Tell” each fill a notable regulatory space. 
After cataloguing examples, the Article gives accounts of why law gravitates toward particular combinations of asking and telling rules in various domains, and offers some normative evaluation of these strategies. The Article emphasizes that asking and telling norms sometimes — but only sometimes — are driven by concerns about how people will use the information obtained. Understanding the connection to use norms, in turn, provides guidance for a rapidly advancing future in which big data analytics and expanding surveillance will make old practices of direct question-and-answer less significant, if not obsolete. In any event, the matrix of rule combinations highlighted here can reveal new pathways for reforming our practices of asking and telling in life and law.
The authors cover taxation under the category Must Ask, Must Tell (MAMT). A highlight:
The personal income tax regime is perhaps the most familiar MAMT regime to many Americans. ... Strikingly, because it collects tax information from third parties like employers, banks, and brokerages, IRS already has much of the most important information that a taxpayer will provide on the applicable 1040. This redundancy has sparked reformers to call for replacement of the current, high-transaction costs MAMT regime with one where the government automatically calculates each taxpayer’s liability (or refund) each year and sends her a bill (or check). Notwithstanding the substantial time savings for taxpayers that such plans may entail, these proposals for reform have not been implemented. What gives?
The authors propose that MAMT might be explained by a need to resolve agency problems, which I don't really buy, and then they suggest that making people make tax declarations themselves is a way to make sure they value their citizenship or participate in democracy or make socially good choices, all notions I have heard before but cannot possibly believe when I read that the vast majority of taxpayers pay a tax prep service to help them get through their tax filing every year. Remember, the tax prep service makes money by making it so the taxpayer doesn't have to understand the form, much less the law. The tax preparation industry would definitely find it a hardship if they could not rent-seek off the complexity of tax filing. Remember California's ready return? TurboTax didn't like it.

Rent-seeking by tax compliance professionals, and the ongoing battle to keep the IRS from being able to serve taxpayers properly, are inter-connected key aspects of tax compliance and enforcement. The more hideously complex the law, the more the tax return preparer can charge for the service (I note that paying premiums to overcome tax complexity and attendant risk of error is but one reason why the US practice of treating certain nonresidents as permanent tax residents cannot possibly be fair).

The authors of this paper seem to understand the interplay between complexity and rent-seeking but they dramatically under-emphasize this in the analysis, and that is a pity. This paper barely scratches the surface of the "must ask, must tell" nature of income tax declarations, and I would have liked to have seen more discussion, especially regarding the global scope of the US tax system. But that is a lot to ask of non-tax experts. The paper concludes with a normative discussion that I am still working through, and I'm not sure if there are lessons there for taxation, or not. In any event, a novel paper that raises some interesting points about mandating the furnishing of information.


Thursday, January 29, 2015

Responses to Questions on Canada's Adoption of FATCA IGA

Back in November I noted that MP Ted Hsu presented an order paper question (OPQ 816) on the topic of the unusual process surrounding Canada's adoption of an intergovernmental agreement on FATCA. He asked a series of detailed questions about the treaty tabling and ratification process, and today he got his answers, the substance of which I have reproduced below; you can find the full document here.

I note that there is a common answer to many of the questions: "Information pertaining to Memorandums to Cabinet which are less than 20 years old is considered a cabinet confidence and details of these are excluded from disclosure under the principles of the Access to Information Act." Therefore, most of the answers are: you will find out in 20 years.

Though the government continues to claim that it "followed the treaty tabling policy" and that it made procedural exceptions deliberately, according to stated procedures, and out of urgent need, the facts and the nonexistence of key documents declare otherwise.

Bottom line: if there is a treaty policy in Canada, it is that a sitting government can bind the nation to any agreement of any sort with no parliamentary oversight of any kind and with no transparency, and if that agreement violates existing laws and rights, then it will be up to those whose rights have been violated to mount legal action to assert those laws and get their rights restored. This is not just a matter of some arcane technical procedure. It is fundamentally a problem of access to justice. Law is not free. It is, in fact, quite expensive.

I note that all the answers below are from the Minister of Foreign Affairs except with respect to three answers from Finance, which are indicated in brackets.

ORDER/ADDRESS OF THE HOUSE OF COMMONS
No. Q-816
By Mr. Hsu (Kingston and the Islands) 
Date November 24, 2014 

With regard to the Agreement Between the Government of Canada and the Government of the United States of America to Improve International Tax Compliance through Enhanced Exchange of Information under the Convention Between the United States of America and Canada with Respect to Taxes on Income and on Capital (the Agreement), the government's Policy on Tabling of Treaties in Parliament (the Policy), and the statement of Peter Van Loan, Government House Leader, in the House on Monday, April 28, 2014, that "in this case, the fact is that the government, the cabinet, actually did grant such an exemption to the tabling policy. As such, the very words of the policy, the
requirements of the policy, have been followed. The processes for obtaining the exemption were obtained. As a result, the requirement that it be tabled in the House 21 days in advance of the legislation being introduced is not necessary and the policy is fully complied with" (the Statement):

(a) was an exemption to the government's Policy granted with respect to the Agreement;
Yes.
(b) what is the difference between an "exemption" and an "exception" in terms of the Policy;
Either term could be used in the context of the Policy.
(c) if the word "exception" is substituted for “exemption" is the Statement accurate;
Either term could be used in the context of the Policy.
(d) on what basis was the Statement made;
The Statement was made because the Agreement was granted an exemption to the normal treaty tabling process under the Policy.
(e) how was the Government House Leader informed of the exemption or exception being granted to the Policy;
The Department of Foreign Affairs, Trade and Development (the "Department") has no information on how the Government House Leader was informed,
(f) what documents or memos were created regarding this exemption or exception and what are their access or control numbers;
Information pertaining to Memorandums to Cabinet which are less than 20 years old are considered cabinet confidences and details of these are excluded from disclosure under the principles of the Access to Information Act
(g) who was involved in this decision to grant an exemption or exception and at what stage were they involved;
Information pertaining to Memorandums to Cabinet which are less than 20 years old are considered cabinet confidences and details of these are excluded from disclosure under the principles of the Access to Information Act
(h) what was the process, step-by-step, by which this Agreement was granted an exemption or exception;
Information pertaining to Memorandums to Cabinet which are less than 20 years old are considered cabinet confidences and details of these are excluded from disclosure under the principles of the Access to Information Act
(i) who reviewed the decision to grant an exemption or exception, (i) when, (ii) why, (iii) how;
Information pertaining to Memorandums to Cabinet which are less than 20 years old are considered cabinet confidences and details of these are excluded from disclosure under the principles of the Access to Information Act.
 (j) does the Policy apply to the Agreement, and how;
Yes. The Agreement was granted an exemption to the normal treaty tabling process under the Policy,
(k) between what departments does correspondence exist-regarding the tabling of the Agreement under the Policy and what are the file numbers for these documents;
There is some correspondence between the Department, and the Department of Finance. There are no file numbers for the correspondence,
(l) on what date was the Agreement concluded;
[Finance] The Agreement was signed and made public on February 5, 2014.
(m) on what date was the Agreement tabled in Parliament;
In the context of the Policy, "If an exception is granted, the Minister of Foreign Affairs will inform the House of Commons that Canada has agreed to be bound by the instrument at the earliest opportunity following the ratification." (6.3b of the Policy), The Agreement was publicly tabled on September 15, 2014 by the Parliamentary Secretary to the Minister of Foreign Affairs as per Standing Order 32.2. That was the earliest opportunity for the Government to inform the House that Canada had agreed to be bound by the Agreement following its ratification - also the first sitting day of the House after the summer Parliamentary recess.
(n) on what date was the Agreement ratified;
Canada ratified the Agreement on June 27, 2014.
(o) when was the House made aware of the text of the Agreement;
In the context of the Policy, "If an exception is granted, the Minister of Foreign Affairs will inform the House of Commons that Canada has agreed to be bound by the instrument at the earliest opportunity following the ratification." (6.3b of the Policy)". The Agreement was publicly tabled on September 15, 2014 by the Parliamentary Secretary to the Minister of Foreign Affairs as per Standing Order 32.2. That was the earliest opportunity for the Government to inform the House that Canada had agreed to be bound by the Agreement following its ratification - also the first sitting day of the House after the summer Parliamentary recess. Additionally, the text of the Agreement was set out in Schedule 3 to Bill C-31, the Economic Action Plan 2014 Act, No. 1, which was introduced in the House of Commons on March 28, 2014.
(p) how was the House made aware of the text of the Agreement;
[Finance] Legislative proposals to implement the Agreement with the U.S., including related amendments to the Income Tax Act, were set out in Part 5 of the Economic Action Plan 2014 Act, No. 1 (Bill C-31 ). The text of the Agreement was provided in Schedule 3 of Bill C-31. Bill C-31 was introduced in the House of Commons on March 28, 2014.
In the context of the Policy, the text of the Agreement was publicly tabled in accordance with the Policy on September 15, 2014. Additionally, the text of the Agreement was set out in Schedule 3 to Bill C-31, the Economic Action Plan 2014 Act, No. 1, which was introduced in the House of Commons on March 28, 2014.
(q) when was the House made aware of the granting of an exemption or exception to the Policy in the case of the Agreement;
The House was first informed of the exemption through the Statement by the Government House Leader on April 28, 2014. In the context of the Policy, the House was made aware of the granting of an exemption when the Agreement was publicly tabled in accordance with the Policy on September 15, 2014.
(r) how was the House made aware of the granting of an exemption or exception to the Policy in the case of the Agreement;
The House was first informed of the exemption through the Statement by the Government House Leader on March 28, 2014. In the context of the Policy, the House was made aware of the granting of an exemption in the Explanatory Memorandum which accompanied the Agreement when it was publicly tabled on September 15, 2014.
(s) when and by what means is the House usually informed that an exception has been granted to the Policy;
In the context of the Policy, the House is usually made aware of the granting of an exemption to the normal treaty tabling process under the Policy in the Explanatory Memorandum which accompanies the treaty when it is tabled publicly.
(t) in the absence of the point of order prompting the Government House Leader's response, how and when would the House have been informed of the exemption;
In the context of the Policy, the House would have been made aware of the granting of an exemption to the normal treaty tabling process under the Policy in the Explanatory Memorandum which accompanies the treaty when it is tabled publicly.
(u) what steps and measures are in place to ensure that Parliament is informed of exceptions being granted to the Policy;
The Policy states: "If an exception is granted, the Minister of Foreign Affairs will inform the House of Commons that Canada has agreed to be bound by the instrument at the earliest opportunity following the ratification."
(v) what steps are in place to ensure that Canadians are informed when exceptions have been granted;
Informing Parliament publicly, as described under (u), is effective as a means of informing Canadians.
(w) what steps and measures are in place to ensure that Parliament is informed of exemptions being granted to the Policy;
The Policy states: "If an exception is granted, the Minister of Foreign Affairs will inform the House of Commons that Canada has agreed to be bound by the instrument at the earliest opportunity following the ratification."
(x) what steps are in place to ensure that Canadians are informed when exemptions have been granted;
Informing Parliament publicly, as described under (w), is effective as a means of informing Canadians.
(y) what does "urgent" mean in the context of the Policy;
The term "urgent" is not defined in the Policy.
(z) how was the ratification of the Agreement determined to be urgent;
The U.S. Foreign Account Tax Compliance Act ("FATCA") was enacted by the U.S. in March 2010. FATCA requires non-U.S. financial institutions to report to the IRS accounts held by U.S. persons. Absent the Agreement, obligations for Canadian financial institutions to comply with FATCA would have been unilaterally and automatically imposed on them by the U.S. as of July 1, 2014. These obligations would have forced Canadian financial institutions to choose between (a) entering into an agreement with the IRS that would require them to report directly to the IRS on accounts held by U.S. residents and U.S. citizens, which would raise concerns about consistency with Canadian privacy laws; or (b) being subject to the 30 percent FATCA withholding tax on certain U.S.-source payments for not complying with FATCA.
The Agreement takes into account the objectives and provisions of the FATCA, while supporting Canada's objectives for improving the integrity and fairness of the Canadian tax system. The Agreement addresses the Canadian concerns about FATCA described above, as well as others. It was realized that observing the Policy's requirement of waiting 21 sitting days would have made meeting the U.S. FATCA deadline of July 1, 2014, unachievable. As a result, the ratification of the Agreement was determined to be urgent, and a request for an exemption to the normal treaty tabling process under the Policy was granted.
(aa) who made the determination in (z), (i) how, (ii) on the basis of what information, (iii) with what authority, (iv) under what criteria;
Information pertaining to Memorandums to Cabinet which are less than 20 years old are considered cabinet confidences and details of these are excluded from disclosure under the principles of the Access to Information Act.
(bb) how was the decision in (z) reviewed, (i) by whom, (ii) how, (iii) when, (iv) by what criteria;
Information pertaining to Memorandums to Cabinet which are less than 20 years old are considered cabinet confidences and details of these are excluded from disclosure under the principles of the Access to Information Act.
(cc) who are or were the lead ministers with respect to the Agreement in terms of the Policy and how was this determined;
The Minister of Finance is the lead Minister with respect to the Agreement. The Minister of Foreign Affairs is responsible for tabling treaties under the Policy.
(dd) when and how did the Minister of Foreign Affairs and the lead ministers seek approval from the Prime Minister for an exemption to the treaty tabling process;
Approval from the Prime Minister was sought. Information pertaining to Memorandums to Cabinet which are less than 20 years old are considered cabinet confidences and details of these are excluded from disclosure under the principles of the Access to Information Act.
(ee) when was the approval in (dd) granted and how;
Information pertaining to Memorandums to Cabinet which are less than 20 years old are considered cabinet confidences and details of these are excluded from disclosure under the principles of the Access to Information Act.
(ff) what correspondence is available -with file and control number- to corroborate the information provided in response to (dd) and (ee);
Approval from the Prime Minister was sought. Information pertaining to Memorandums to Cabinet which are less than 20 years old are considered cabinet confidences and details of these are excluded from disclosure under the principles of the Access to Information Act.
(gg) was a “joint-letter that clearly articulates the rationale to proceed with the ratification, without tabling in the House of Commons" created;
No.
 (hh) with respect to the letter in (gg), (i) who created this letter, (ii) when is it dated, (iii) how can it be obtained, (iv) who has access to it, (v) to whom is it addressed;
No such letter was created.
(ii) was the letter drafted in consultation with the Treaty Section of the Department of Foreign Affairs and International Trade and the relevant Secretariat in the Privy Council Office;
Information pertaining to Memorandums to Cabinet which are less than 20 years old are considered cabinet confidences and details of these are excluded from disclosure under the principles of the Access to Information Act.
(jj) what documentation exists - with file or control number for each document - to corroborate the information provided in response to (ii);
No such document exists.
(kk) who is responsible for retention and access of such joint letters;
There are no special provisions for retention and access of such joint letters. Joint letters would be subject to the normal retention and access legislation, regulations, and guidelines for the Government of Canada.
(ll) with respect to the Agreement, were the responsible ministers and the Minister of Foreign Affairs aware early on of the need to request an exemption to the treaty process prior to obtaining Cabinet authority to sign a treaty;
Yes.
 (mm) how is "early on" defined for purposes of the Policy;
The term "early on" is not defined in the Policy.
 (nn) how is "aware" defined for purposes of this provision in the Policy;
The term "aware" is not defined in the Policy.
(oo) was a request made in a Memorandum to Cabinet, seeking policy approval for the Agreement;
Information pertaining to Memorandums to Cabinet which are less than 20 years old are considered cabinet confidences and details of these are excluded from disclosure under the principles of the Access to Information Act.
(pp) what Memorandums to Cabinet exist relative to this agreement, (i) what are their dates, (ii) are they subject to privilege, (iii) who made them, (iv) what are their record or control numbers;
The Department of Finance will respond to this question and sub-questions. Information pertaining to Memorandums to Cabinet which are less than 20 years old are considered cabinet confidences and details of these are excluded from disclosure under the principles of the Access to Information Act
[Finance] Information pertaining to Memorandums to Cabinet which are less than 20 years old is considered a cabinet confidence and details of these are excluded from disclosure under the principles of the Access to Information Act.
(qq) which document in (pp) can be said to "clearly articulate the rationale for the exception to the treaty tabling process";
Information pertaining to Memorandums to Cabinet which are less than 20 years old are considered cabinet confidences and details of these are excluded from disclosure under the principles of the Access to Information Act.
(rr) what is the rationale for the exception to the treaty tabling process with respect to the Agreement;
The response in (z) outlines the rationale for requesting an exemption to the normal treaty tabling process under the Policy.
(ss) who determines the rationale per the Policy;
The rationale was prepared through consultations by officials on behalf of the Minister of Finance, the Minister of Foreign Affairs, and the Minister of National Revenue.
(tt) what is an acceptable rationale per the Policy;
There is no definition of “acceptable rationale” under the Policy.
(uu) how is rationale defined in terms of the Policy;
The term "rationale" is not defined in the Policy.
(vv) is there a minimal level of sufficiency for a rationale per the Policy and if so what is it;
There is no definition of a "minimal level of sufficiency" for a rationale under the Policy.
(ww) when was the exception granted;
Information pertaining to Memorandums to Cabinet which are less than 20 years old are considered cabinet confidences and details of these are excluded from disclosure under the principles of the Access to Information Act.
(xx) did the Minister of Foreign Affairs "inform the House of Commons that Canada has agreed to be bound by the instrument at the earliest opportunity following the ratification" per the Policy;
Yes. The Agreement was publicly tabled on September 15, 2014 by the Parliamentary Secretary to the Minister of Foreign Affairs as per Standing Order 32.2.
(yy) when did the actions in (xx) occur and how;
The Agreement was publicly tabled on September 15, 2014, which was the first sitting day of Parliament after the Agreement was ratified.
(zz) in 2014, how many exemptions or exceptions were granted under the Policy before the Agreement;
In 2014, there were two exemptions granted under the Policy. The first was concerning the Agreement. The second was concerning the Canada-Korea Free Trade Agreement.
(aaa) in 2014, was the Agreement's rationale for exception unique;
Yes. The ratification of the Agreement was determined to be urgent, and a request for an exemption to the normal treaty tabling process under the Policy was granted.
(bbb) in 2014, was the Agreement the only item determined to be urgent in terms of the Policy;
In 2014, the Agreement was one of two items determined to be urgent in the context of the Policy.
(ccc) is the Government House Leader always informed of exceptions and exemptions under the Policy and, if so, how;
The Department has no information on how the Government House Leader would be informed of exemptions to the normal treaty tabling process under the Policy. There are no special provisions under the Policy to inform the Government House Leader of exemptions.
(ddd) is the House always informed of exceptions or exemptions under the Policy and, if so, how;
In the context of the Policy, "If an exception is granted, the Minister of Foreign Affairs will inform the House of Commons that Canada has agreed to be bound by the instrument at the earliest opportunity following the ratification." (6.3b of the Policy).
 (eee) how early could the Agreement have been tabled in Parliament;
It was realized early on that observing the Policy's requirement of waiting 21 sitting days would have made meeting the FATCA deadline of July 1, 2014, unachievable. As a result, the ratification of the Agreement was determined to be urgent, and a request for an exemption to the normal treaty tabling process under the Policy was sought, and subsequently granted. Since an exemption to the normal treaty tabling process under the Policy was granted, the Agreement was to be tabled at the earliest opportunity following ratification. This was done as early as it could have been when the Agreement was tabled, in accordance with the Policy on September 15, 2014. It should be noted that the text of the Agreement was also set out in Schedule 3 to Bill C-31, the Economic Action Plan 2014 Act, No. 1, which was introduced in the House of Commons on March 28, 2014.
(fff) how was the date in (eee) determined;
Since an exemption to the normal treaty tabling process under the Policy was granted, the Agreement was to be tabled at the earliest opportunity following ratification. This was done as early as it could have been when the Agreement was tabled, in accordance with the Policy on September 15, 2014. It should be noted that the text of the Agreement was also set out in Schedule 3 to Bill C-31, the Economic Action Plan 2014 Act, No. 1, which was introduced in the House of Commons on March 28, 2014.
(ggg) if the Agreement could have been tabled earlier in Parliament than the date in (o), (i) why was it not, (ii) what decisions were made in this regard, (iii) who made these decisions, (iv) how, (v) on what basis; and
Since an exemption to the normal treaty tabling process under the Policy was granted, the Agreement was to be tabled at the earliest opportunity following ratification. This was done as early as it could have been when the Agreement was tabled, in accordance with the Policy on September 15, 2014. It should be noted that the text of the Agreement was also set out in Schedule 3 to Bill C-31, the Economic Action Plan 2014 Act, No. 1, which was introduced in the House of Commons on March 28, 2014.
(hhh) if the Statement could have been made sooner in the House than Monday, April 28, 2014, (i) why was it not, (ii) what decisions were made in this regard, (iii) who made these decisions, (iv) how, (v) on what basis?
The Department has no information on this question.

Reply by the Offices of the Prime Minister and the Privy Council
With regard to the Agreement, the Privy Council Office has no information in relation to part (ii) regarding a letter drafted in consultation with the Treaty Section of the Department of Foreign Affairs and International Trade.




Wednesday, January 28, 2015

Luring the rich: investor residence and citizenship packages

CBC ran a story yesterday on Canada allowing rich people to buy permanent residency status, which provoked some discussion on twitter about whether such a thing was something associated with secrecy jurisdiction (aka tax haven) behavior. I don't know what kind of behavior this is, but I think it is widespread and growing. It's all part of the complicated dance politicians around the world are doing: all trying to lure rich people and multinationals from everywhere else, in a relentless quest to keep impossible electoral promises about jobs and growth.

I've done some research on and off on these residence and citizenship purchase programs. My student Alexander Robinson got interested in the topic and put together a table last year; below are some of the basic numbers, more detail available on file. All the programs listed here are for residency unless citizenship is indicated. One important recent development that is missing in the table involves Puerto Rico, which I suggested a long time ago was poised to be the last, best tax haven for US citizens (while the U.S. will remain the world's last, best tax haven for everyone else in the world, but that is a different story). Janet Novack ran a story on PR yesterday, Puerto Rico Expands Tax Haven Deal For Americans To Its Own Emigrants. It seems policymakers understand PR's unique position in the world vis à vis US citizens, but so far it is having a limited luring effect.


Country Type of Program Cost
Antigua &Barbuda National Development Fund (non-refundable) USD 675,000.00
Real-Estate USD 1,080,000.00
Business Investment (Sole Investor) USD 4,000,000.00
Business Investment (Two or more Investors) USD 13,500,000.00
Australia Significant Investor Program  AUD 5,000,000



Bulgaria Investor (Full Investment)  BGN 1,000,000
Investor (Financed Investment  BGN 180,000
Investor (Fast Track Option)  BGN 2,000,000
Canada Investment  CAD 800,000.00
Investment - Quebec Investment  CAD 800,000.00
Self-Employed Worker Program (Quebec)
Quebec Entrepreneur Program
Canadian Entrepreneur Program - (CDN Venture Fund)  CAD 200,000.00
Canadian Self-Employed Program (Start Up - CDN Angel Investor)  CAD 750,000.00
China Investor (1)  $2,000,000.00
Investor (2)  $1,000,000.00
Investor (3)  $500,000.00
Investor (4)  $500,000.00
Cyprus Direct Citizenship by Investment Program EUR 200,000.00
Dominica Package A:  Single Applicant (Non-Refundable) USD 100,000.00
Package B:  Family Application (Spouse, Non-Refundable) USD 175,000.00
Package C:  Family Application 2 (Spouse, 2 children, Non-Refundable USD 200,000.00
Package D:  Family Application Three  USD 250,000.00
Greece Residency - Strategic Investments EUR 250,000.00
Residency - Property Purchase EUR 250,000.00
Grenada Approved Real Estate Project  USD 500,000.00

Non-Refundable Donation  USD 200,000.00
Hong Kong Capital Investment Program - Applications After 14 Oct 2010  HKD 10,000,000.00
Capital Investment Program - Applications Before 14 Oct 2010  HKD 6,500,000.00
Ireland
5 Regimes
Investor - Government Bonds  EUR 2,000,000.00

Investor - Job Producing Irish Companies  EUR 1,000,000.00
Investor - Irish Publicly traded companies
Investor - Government Bonds  EUR 2,000,000.00
Investor - Venture Capital  EUR 1,000,000.00
Investor - Blend (50% Property & 50% Securities)  EUR 1,000,000.00
Investor - Endowment Funds  EUR 500,000.00
Start-Up Entrepreneur Program  EUR 75,000.00
Latvia
4 Regimes
Investor - Equity Capital Investment  LVL 25,000.00
Investor - Real Estate - (Regia area)  LVL 100,000.00
Investor - Real Estate - (Other)  LVL 50,000.00
Investor - Credit Institution  LVL 200,000.00
Malta Investor  EUR 650,000.00
New Zealand Investor Plus   NZD 10,000,000.00
Investor  NZD 1,500,000.00
Panama Macro Company Investment  USD 160,000.00
(Residency and Second Passport) Mixed Fixed Deposit/Real-Estate  USD 300,000.00
Economic Investment in Real Estate  USD 300,000.00
Forest Investor  USD 80,000.00
Fixed Term Deposit Real Estate  USD 300,000.00
Portugal Property Investment   USD 500,000.00
Financial Investment  1,000,000.00 €
Creation of 10 Permanent Jobs
Saint-Kitts and Nevis  Citizenship by Investment Real Estate Option
SIDF Contribution  USD 250,000.00
Singapore Global Investors Program - Option A  SGD 2,500,000.00
Global Investors Program - Option B  SGD 2,500,000.00
Spain Investment in Spanish Companies  EUR 1,000,000.00
Deposit with Spanish Financial Entities   EUR 1,000,000.00
Real-Estate Investment  EUR 500,000.00
Business Project  Undefined 
Entrepreneur  Undefined 
Highly Qualified Professionals  Undefined Investment 
Other Category  Employees transferred to Spain within the same group of companies 
Switzerland Swiss Lump Sum Taxation  CHF 150,000.00
United States Investor Visa (1) - EB 5  USD 1,000,000.00
Investor Visa (2) - EB 5  USD 500,000.00
United Kingdom Investor (type A)  £1,000,000.00
Investor (type B) net asset value of £2,000,000 plus loan £1,000,000 from a British Institution 
Exceptional Talent
Entrepreneur  £ 50,000 of venture capital money 

Saturday, January 17, 2015

Engineers Without Borders Panel on "Illicit Financial Flows"

Tomorrow I will be participating on a panel on "Illicit Financial Flows" at the Engineers Without Borders 2015 National Conference, currently taking place in Montreal. The goal of the session is to discuss the nature and impact of so-called illicit financial flows in Canada, the United States, and the world's developing countries.

I have been asked to address the question "what promising policy instruments or reforms could potentially curb outflows of illicit finance?" The use of the term illicit in this context seems to be an attempt to elide the distinction between avoidance and evasion. Those familiar with my work know that I approach this terminology with caution because I think it is a mistake to conflate evasion and avoidance into a single category for purposes of advocating generalized policy reform. In a paper I published last year on Evasion, Avoidance, and Taxpayer Morality, I argued why I think the phenomenon of tax evasion is distinct from tax avoidance, each represents a different type of governance failure, and each requires a tailored response. But I certainly understand the instinct to see both tax avoidance and tax evasion as essentially drains on public resources that we'd like to imagine would otherwise be available for various socially useful projects.

I'll try to lay out the field as I see it in the time allotted. It is a big topic to cover in a limited time. I suppose I could just plug Martin Hearson's very good work on this subject. I am curious as to how Engineers Without Borders came to concern itself with this issue; the rest of the conference focuses on innovative, sustainable, and inclusive development.  I think it is another sign that tax justice advocacy groups, like the Tax Justice Network, are successfully inducing NGOs across a broad spectrum to view taxation as a human rights issue that permeates all facets of social and economic development.


Friday, January 16, 2015

Devereux & Vella on Corporate Tax System for the 21st Century

Michael P. Devereux and John Vella recently posted in SSRN their new paper entitled Are We Heading Towards a Corporate Tax System Fit for the 21st Century? Here is the abstract:
The most significant problems with the existing system for taxing the profit of multinational companies stem from two related sources. First, the underlying “1920s compromise” for allocating the rights to tax profit between countries is both inappropriate and increasingly hard to implement in a modern economic setting. Second, because the system is based on taxing mobile activities, it invites countries to compete with each other to attract economic activity and to favour “domestic” companies. The OECD Base Erosion and Profit Shifting (BEPS) initiative essentially seeks to close loopholes rather than to re-examine these fundamental problems. As a consequence, it is unlikely to generate a stable long-run tax system. We critically examine the principle guiding the OECD’s reform proposals in its BEPS initiative and outline some more fundamental alternative reforms.

In my view the technical difficulties of taxing corporate income are dwarfed by the political ones. It is political will, not administrative ability, that makes GE/Google/Apple-style income tax payments in the low single digits a global reality.





Thursday, January 15, 2015

The Mercedes Benz of state tax competition

State-to-state tax competition continues unabated: Georgia has successfully lured Mercedes Benz away from New Jersey, presumably with a very generous package of employer- and capital-friendly tax and other regulatory policies. Politicians everywhere run on jobs & growth. Tax competition is about seeking a temporary displacement to your jurisdiction at the expense of another. Temporary because you are only as good as your last tax break, zero is not the bottom, and excessive tax reductions are unsustainable.

Wednesday, January 14, 2015

SCC says the Income Tax Act is not so bad that it's void for vagueness; your results may vary

I write on occasion about tax protestors and their persistent tilting at windmills to defeat the income tax. I find them fascinating and a reminder that income taxation is a really difficult tax to administer. Taxpayers will do everything they can to avoid it, justifying their actions in myriad ways. A major difference between the tax protestors (who usually represent themselves) and tax planners (whose business it is to represent others) is that the latter are well-trained and sophisticated. When tax planners make ridiculous arguments about the applicability of income tax, they typically do so in highly technical and targeted ways, and they can sometimes confuse administrators and courts into believing them. Not generally so with protestors. My student Marc Roy points me to a recently decided Canadian Federal Court of Appeal decision of interest: Brown v. Canada.  Marc describes the case as follows:

The Federal Court of Appeal decided against a novel argument presented by self-represented taxpayer whose business losses the CRA had denied. In his appeal, Ian Brown raised, along with a more technical argument, an argument that the entire Income Tax Act is void as a constitutional matter “due to vague and convoluted interpretations in the [Act].”

His argument was essentially that the definitions in s. 248(1) of “business,” “employee,” “employment,” “person,” and “taxpayer,” are incomplete and render the Act unconstitutionally vague. These are inclusive definitions, a non-exhaustive style frequently used to define terms in the Act, which leaves room for the defined words to encompass things not explicitly contemplated in the statutory definition.

Unsurprisingly, the Court rejected Mr. Brown’s challenge to these terms and to the act as a whole, walking quickly through the approach to vagueness — a law is only unconstitutionally vague if it is so imprecise that it fails to provide sufficient guidance to legal debate. The court indicated that even if these terms were entirely undefined, there is sufficient meaning that their precise definitions could be, and beyond their inclusive definitions are, judicially determined according to their ordinary meanings in accordance with standard approaches to statutory interpretation.

This case nonetheless raises the question of access to justice for individual taxpayers. It is not unfair to note that the Income Tax Act and its interpretations are at times incredibly convoluted, and it may be impossible for an individual without legal training to accurately and confidently determine her tax liability without costly advice from tax professionals. As in criminal law, in tax ignorance of the law is no excuse — but ordinary persons’ meaningful access to this knowledge is increasingly illusory.

Thanks to Marc, for this succinct summary.

Tuesday, January 13, 2015

Report by UN Special Rapporteur on Tax and Human Rights

UN Special Rapporteur Magdalena Sepulveda Carmona recently posted this Report of the Special Rapporteur on Extreme Poverty and Human Rights; of interest. Here is the abstract:
In the present report, the Special Rapporteur on extreme poverty and human rights presents fiscal policy, and particularly taxation policies, as a major determinant in the enjoyment of human rights. Taxation is a key tool when tackling inequality and for generating the resources necessary for poverty reduction and the realization of human rights, and can also be used to foster stronger governance, accountability and participation in public affairs. She outlines relevant human rights obligations to guide and inform State revenue-raising practices, including the duty to use the maximum available resources for the realization of economic, social and cultural rights. She also analyses the questions of how the principles of non-discrimination and equality and the duty of international cooperation and assistance should inform taxation policies at the global and national levels. After assessing how revenue-raising policies and practices can be strengthened through a human rights-based approach, she makes recommendations for fiscal and tax policies that are grounded in human rights and can lead to poverty reduction, sustainable development and the realization of transformative rights.

Friday, January 9, 2015

Lux Leaks: Revealing the Law, One Plain Brown Envelope at a Time

I recently published the above titled article, now available on SSRN here.  Abstract:
A group of journalists recently revealed “LuxLeaks”: a set of documents showing that Luxembourg’s tax authority has been systemically delivering secret deals to multinationals. In this column, I explain why LuxLeaks has revealed a feature, not a bug, in the international tax system. Governments around the world have intentionally placed much of international tax law outside of public view -- in letter rulings like Luxembourg’s, but also in other agency-level decision-making processes, notably in the context of tax treaty dispute resolution. The outcomes of these confidential processes are surely the world’s largest collection of the “real” law of international taxation. But law should not be something discovered through leaks to journalists. Lawmakers could alter this flawed status quo with greater disclosure. I conclude that they don’t appear to favor this approach, but they should.

Thursday, January 8, 2015

UPDATE: China does NOT follow US lead, taxing its global diaspora. (If they did, it would be a terrible idea).

This is an update of an earlier post. Earlier today I wrote that the NY times reported that China is embracing US-style citizenship-based taxation, by enforcing "a little-known and widely ignored regulation: Citizens and companies must pay domestic taxes on their entire worldwide incomes, not just on what they earn in China." The update is that this is entirely wrong, and that the NY Times just completely mangled this story by failing to understand the difference between defining income and defining residence (a distinction to which I alluded in my original post, below).

The reality is discussed at length by Eric over at Isaac Brock, who explains that "No, China does not have citizenship-based taxation." Eric's interpretation has been confirmed to me by a couple of people I know who are Chinese tax experts. So, I invite you to go there to read the full account, which I won't repeat here except to quote the takeaway, which is:
China as a country has many flaws and lacks many freedoms, but at least it uses the same basic system of taxation followed by nearly every democracy and dictatorship: a system which avoids placing unreasonable barriers in the way of the basic human right to leave a country.
Thanks to Eric and thanks to my colleagues who took the trouble to write me personally to correct the record. I hope that the Times acknowledges the errors and writes a new article on the subject to confirm that yes, the US is alone in its comprehensive treatment of non-residents as if resident solely on the basis of legal status as nationals.

In my earlier post I noted that last year when reviewing constitutional articulations of the taxing power, I noticed that China's constitution would suggest that its tax authority could have a global reach:
Article 56: It is the duty of citizens of the People's Republic of China to pay taxes in accordance with the law.
Accordingly, though it seems that China's constitution leaves open the possibility for China to follow the flawed US approach, it thankfully does not. The Times reported that the move would "[put] China on the same side as the United States in a global debate over whether taxation should be primarily national or global," and then says "On the other side of the issue are European nations, Japan, Australia and Canada, all of which tax people within their borders but exempt most expatriates and overseas subsidiaries from paying income taxes in their home countries."

This is not quite right. There is a global debate about taxing multinational companies on their worldwide (group) incomes, or not. However, there is no global debate about taxing individuals on the basis of their nationality. There is the United States, and then there is the rest of the world, with a very few and very limited number of exceptions (discussed below). If China were to align with the United States on this, it would be very big news not just for the global Chinese diaspora, but also for the ongoing OECD project on automatic exchange of information and for FATCA, because both regimes will struggle to implement the impossible demands of birthright tracing, which is necessary to enforce citizenship taxation.

The taxation of citizenship is about the definition of tax residence, rather than the definition of income.  Many or perhaps most developed countries tax all individual residents, regardless of nationality, on their worldwide incomes. This makes sense because taxation is the pooling of resources for shared expenditures, and nationality and citizenship are irrelevant to this project. It would be absurd to only require citizens and nationals to pay for health care, schools, roads, police, courts, financial systems, etc, when the population using all of these goods and services includes noncitizens and nonnationals. Likewise,  it is absurd to expect individuals to pay taxes in your country merely because your citizenship laws have conferred a legal status on them.

As a result, the OECD's AEoI project envisions a global system to identify the tax residence of every individual that owns virtually any financial asset, anywhere in the world, so that governments can assess their residents' tax obligations. The US project on FATCA goes further, requiring the global system to identify the nationality of every individual that owns virtually any financial asset, anywhere in the world. It won't be easy to build the OECD's residence identification database, but it is perhaps possible, with the help of tax treaties that resolve dual-residence problems. On the other hand, if the whole world gets into the business of nationality identification, we are going to have problems. This involves tracing bloodlines and will quickly become extraordinarily complicated, if not impossible, as we have already seen with FATCA.

Every income tax system necessarily has extensive residence assignment rules, including the United States; it is just that the United States also includes nationality in its definition, while almost every other country does not. The United States does this even if such persons achieved US nationality through the accident of birth, even if they never stepped foot in the United States and have never used any US goods or services of any kind, even if they are also citizens and permanent residents of other countries from their birth, even if they have never has a social security number or a US passport, even if they do not know that that they are US nationals, and even though the claiming of persons as subjects by birth by a distant sovereign was the foundation for America's war for independence.

All other nation-states tax on the basis of residence, not nationality, with a few minor and limited exceptions. Here they are:
  • Eritrea taxes nonresident citizens permanently, at a reduced flat rate of 2% of worldwide income. It does this to finance an ongoing war, and had been denounced by the United States and the UN for the practice.
  • Finland treats nonresident citizens as tax resident for three years after the emigrate unless they demonstrate that they no longer have any ties to Finland. 
  • France treats nonresident citizens as permanent tax residents if they move from France to Monaco, per a treaty between the two nations.
  • Hungary treats nonresident citizens as permanent tax residents of Hungary, unless they also have another nationality or reside in a country which has a tax treaty with Hungary. 
  • Italy treats nonresident citizens as permanent tax residents if they move to a blacklisted tax haven unless they demonstrate lack of ties to Italy. 
  • Spain treats nonresident citizens as tax residents for five years following a move to a blacklisted tax haven.
  • Turkey treats nonresident citizens as permanent tax residents if they work for the Turkish government or Turkish companies but exempts income that is taxed by the country where it is earned. 
Some countries used to but no longer practice citizenship-based taxation:
  • Bulgaria used to treat nonresident citizens as permanent tax residents, but ended the practice with the adoption of a new income tax in 1998. 
  • Mexico used to treat nonresident citizens as permanent tax residents, but ended the practice with the adoption of a new income tax law in 1981.
  • Myanmar used to tax the foreign income of nonresident citizens at a flat rate of 10% but ended the practice in 2012. 
  • The Philippines used to tax the foreign income of nonresident citizens at reduced rates of 1 to 3% but ended the practice with the adoption of a new tax law in 1998.
  • The Soviet Union used to treat nonresident citizens as permanent tax residents, but after the country was dissolved in 1991, none of its successor states continued the practice. 
  • Vietnam used to used to treat nonresident citizens as permanent tax residents but ended the practice in 2009. 
We can easily see how global AeOI might make it possible to reverse this trend. If China was to adopt citizenship taxation and exert the same pressure as the US has with FATCA to achieve it, two very important countries would be stretching the residence definition beyond the OECD's global AEoI database. Bearing the extra costs and burdens of these extra measures would surely convince other countries to consider following suit.

That's why I think this would be a terrible idea. Fundamentally, taxing on the basis of citizenship is wrong from a normative point of view. But it is also a terrible idea for practical reasons. First, it's invasive (to say the least) to make access to basic bank accounts contingent on tracing bloodlines. Second, doing so globally, including forcing the world's poorest countries to play along, is a huge waste of administration resources by everyone. Third, creating global asset databases for tax exchange purposes creates massive security issues that have not been assessed in light of the fact that this will be done on the basis of nationality rather than residence. Finally, and in the long run, taxing on the basis of citizenship effectively restricts labour mobility, serving a goal I have not heard explained by anyone.

In a world in which state's tax subjects include their globally dispersed diasporas, global asset information exchange will make it a duty of every state to sort its population for differential treatment according to the birthright laws of the other states. This has never been an agenda item on any of the discussions I have seen regarding tax information exchange. It should be.