Here is the only reason why Ted Cruz's citizenship is interesting.

It is not whether he's natural born and therefore eligible for the presidency. It is that Ted Cruz has suggested that he did not even realize he might be a Canadian citizen until the Dallas Morning News suggested it to him and asked a few experts on Canadian citizenship law to confirm that Canada, like the US, like many, many countries, confers birthright citizenship on people born in the territory whether they request it, or want it, or not.

This is interesting because this is all happening during America's ongoing roundup of every person on the planet who may be a US citizen because they were born in the US or by birthright through their lineage, for the purpose of imposing draconian penalties for failure to file tax returns and asset information reports under the US citizenship-based tax regime. This is the only tax regime in the world that treats lineage alone as a justification to impose worldwide taxation. Ted Cruz's expressed thoughtlessness about his own dual citizenship, coupled with his breezy intention to simply get rid of the unwanted extra citizenship, beautifully illustrates the major problem with citizenship-based taxation and why no other country on the planet would try to enforce such a system.

The US is right now imposing enormous penalties and unleashing general chaos on people living in other countries with US citizenship, both by newly enforcing long-ignored rules and by layering on top of these rules a new and more draconian layer of enforcement. The chaos comes in the form of fear-inducing, devilishly complicated and duplicative paperwork, and penalties, most of all penalties, and it is being piled on to millions of people around the world, many of whom, like Cruz, are very possibly only beginning to understanding that citizenship status is mostly conferred upon rather than chosen by individuals.

Ted Cruz should consider himself very lucky, because the citizenship he claims he didn't realize he had doesn't carry any punishment for his failure to recognize it. Moreover renouncing, if he really intends to follow through on that promise, will be relatively simple, cheap, and painless other than the cost to his US political career, if any.

Not so if he had lived his life in Canada with his current apparent dual status. US citizens abroad now understand that discovering ties to the US means discovering a world of obligations and consequences flowing from citizenship that you were expected to know and obey. Ignorance of the law being no excuse, the punishments range from the merely ridiculous--many times any tax that would have ever been due--to the infuriating: life savings wiped out and many future tax savings sponsored by your home government, such as in education or health savings plans, treated as offshore trusts and therefore confiscated by the US. Moreover there is no ready escape hatch for the newly discovered and unwanted US citizenship: five years of full tax reporting compliance must be documented, appointments must be made with officials, fees must be remitted, interviews must be conducted, and in some cases exit taxes must be paid. If some in Congress get their way, renunciation could even mean life-time banishment from the US someday soon.

In the grand scheme of things Ted Cruz's citizenship is a non-story. But for what it illustrates about citizenship-based taxation, it could be the story of the century.

How a tax haven is born

Can $1.1 billion buy you a country?  Some investors want to try it, by buying Belle Island, currently a Detroit park, and turning it into a tax haven.  Here's the plan:

Looks like Manhattan. The idea:

The 982-acre island would then be developed into a U.S. commonwealth or city-state of 35,000 people with its own laws, customs and currency.

Come on now. There is a whole city there, it's called Detroit, it's full of buildings and infrastructure that are underused, just waiting for investment.  You don't want to invest in that, though, because that would entail accountability to others and-gasp--paying taxes (well, maybe--after incentives and subsidies, maybe not). It's so much easier to make profits if you don't have to pay taxes or observe other regulatory standards such as those protecting worker's rights, the environment, etc. What you want is a regulatory haven that is conveniently located to your clients, that isn't tainted with the tax haven moniker, and that won't be caught up in any global anti-tax evasion net.  Offshore, but in your own backyard, and not treated like the rest of offshore (otherwise what is the point).  A US commonwealth or city-state just about does the trick...ingenious!

Have any doubts that this is about building a tax haven?  Just read to the end of the article:

Here's the scenario for the Commonwealth of Belle Isle that Lockwood and others want to see: Private investors buy the island from a near-bankrupt Detroit for $1 billion. It then would secede from Michigan to become a semi-independent commonwealth like Puerto Rico and the Northern Mariana Islands. 

Under the plan, it would become an economic and social laboratory where government is limited in scope and taxation is far different than the current U.S. system. 

There is no personal or corporate income tax. Much of the tax base would be provided by a different property tax — one based on the value of the land and not the value of the property. 

It would take $300,000 to become a "Belle Islander," though 20 percent of citizenships would be open for striving immigrants, starving artists and up-and-coming entrepreneurs who don't meet the financial requirement. 

I called the Honduras charter city little more than a glorified gated community; this is clearly the same. An economic and social laboratory?  Hardly--add it to a long list of contenders.  The story says "City officials are likely to reject the plan." Too bad, because it would be fun to watch the US open its own tax haven even as it tries to shut down all the others.

What's FBAR got to do, got to do with it

Everything, I am guessing. Tina will give up her US citizenship now that she has attained Swiss citizenship.  Reason given: to "clarify her situation." John Nolte says "She's 73 years-old, her longtime partner lives overseas, and as far as I know she's not in any way making a political statement." He seems a bit puzzled about her decision to give up her status, and he welcomes her back anytime.

Well said. So why is she giving up her citizenship?  Short of making a political statement, I can think of only one good reason: America's newfound vigor for enforcing citizenship-based taxation, and all of the surveillance and form-filling that entails.  Just consider that giving up citizenship is not a simple matter of mailing in your passport. It can be a complex and time- and resource-consuming process which involves enhanced scrutiny and fees for those with high net worth, who are viewed as attempting to flee the tax jurisdiction.

The US has always had citizenship based taxation on the books, but it wasn't truly enforced until FBAR came under IRS authority and FATCA emerged as its enforcement mechanism in 2010.  Now those who have not been compliant will be "rooted out" (former IRS Commissioner Shulman's description of FATCA) with ongoing monitoring, and hefty fines for failure to file. Those who have been compliant will go on to face a regime that is increasingly byzantine, with new forms and requirement seemingly being piled on all the time, in a situation that is becoming very lucrative for tax return preparers and the compliance industry in general--just google FATCA compliance officer job posting and you will get the idea.  Of course, the regime is meant to catch Americans hiding their cash offshore: a laudable goal especially in light of so many high profile cases, many prominently featuring Switzerland.

So the question is whether Tina Turner is an "American" and if she, with her Swiss bank accounts, is "hiding offshore." This raises a series of unanswered questions about the relationship between the individual and the state, none of which, I think, are easily answered. These include, to which country does Tina belong, if she has dual citizenship?  Is this a first come, first served world, so she belongs to the US in perpetuity, based on her birth in Tennessee, no matter where she lives out her life?  Can she choose to belong to another country, or only if she is willing to pay the cost of her continued US status in the form of ongoing compliance with US tax law?  Is Tina going to be allowed to leave the US jurisdiction only on the condition that she renounces any right to come back?  What financial restrictions should a state place on people--especially wealthy ones--who want to move to other jurisdictions?

As long as Tina holds on to her citizenship, even if she is a dual citizen living in another country, the answer to the first question is that she is now and will ever be American. And as long as she has any accounts anywhere in the world outside of the US, the answer to the second is "guilty unless proven innocent on an annual basis." None of the other questions are answerable in law: all are a matter of opinion and, more than anything else, geo-political power.

I am sure that Tina's expatriation will be viewed by many as a response to the high US tax rate, or a betrayal of her US roots, or both. But it is likely neither.  As a Swiss citizen resident in Switzerland, Tina's worldwide income is subject to income tax (federal, cantonal, and municipal), wealth taxes, VAT, etc., and we can only speculate about how much tax she may be asked to pay in the US after credits, exemptions etc. as a US citizen living abroad.  It could very well be zero or close to zero.  So it is seems more likely this is about the hassle of filing a thicket of tax forms, year after year, despite owing little or no tax to the US, and stiff penalties for even "non-willful" infractions, including mistakes.  And it could be about having to do all of that because Americans living abroad are viewed as likely criminals because they have offshore bank accounts.  

If Tina has been tax compliant all these years, she may just be exhausted with the effort; if not, she may see many reasons to cut ties by going the drastic step of irrevocable renouncement.

I would very much like to know if there is some other reason to give up her US citizenship. "Clarifying" one's situation seems just abstract enough to cover the hassle of dealing with US tax compliance.

Motomura on Birthright Citizenship & Legalization

Here is an interesting paper on citizenship as legal status, by Hiroshi Motomura: Making Legal: The Dream Act, Birthright Citizenship, and Broad-Scale Legalization.  Abstract:

Some of the most controversial topics in immigration and citizenship law involve granting lawful immigration status—or citizenship itself—to persons who might otherwise be in the United States unlawfully. In this Article, I examine arguments for and against three ways to confer lawful status: (1) the DREAM Act, which would grant status to many unauthorized migrants who were brought to the United States as children; (2) the Fourteenth Amendment to the Constitution, under which almost all children born on U.S. soil are U.S. citizens; and (3) broad-scale proposals to grant lawful immigration status to a substantial percentage of the current unauthorized population. I first explain how arguments both for and against the DREAM Act reflect some mix of fairness and pragmatism. Though birthright citizenship seems different from the DREAM Act, the arguments are similar. I next show that although children figure much more prominently in the DREAM Act and birthright citizenship, similar patterns of argument apply to broad–scale legalization, and the arguments in favor are just as strong. Finally, I explain that the "rule of law" is a highly malleable concept that provides no persuasive case against any of these ways to confer lawful immigration or citizenship status. Rule of law arguments in favor of conferring status are stronger than rule of law arguments against doing so.

Manx tax strategy

Interesting: Isle of Man announces it will keep its 0/10 corporate tax rate and pretty much the rest of its tax system as is, but wil cooperate with the US on FATCA and the EU on its codes of conduct, and might join the mutual administrative assistance in tax matters agreement, and even "consider working with other countries and multilateral organisations on the development of co-operation systems similar to FATCA." I think that last one is in regards to the UK, but it could be broader in scope.

At the same time, the Isle of Man will

"maintain competitive  personal income tax rates  as one of the features making the Island an attractive place to live and work; and

maintain a competitive business tax system in the Isle of Man to support economic development;"

among other aspirations. I think they are in a tough spot, with the US and the UK focused on chasing individual tax cheats and corporate tax avoiders (respectively, perhaps) through their banks. By way of background, the tax strategy says:

The Isle of Man‟s taxation policies have played an important part in our economic success. 

...The key principles of fiscal sovereignty, economic stability and adherence to international standards which underpinned the original taxation strategy remain just as relevant today. 

I'm not sure what anyone means by fiscal sovereignty anymore. Then again, I never really did think it was a real thing.

New Issue: International Studies Review

ILR posted the latest issue of International Studies Review, which has several articles of interest:

• Richard J. Harknett & Hasan B. Yalcin, The Struggle for Autonomy: A Realist Structural Theory of International Relations
• Frank Grundig, Jon Hovi, Arild Underdal & Stine Aakre, Self-Enforcing Peace and Environmental Agreements: Toward Scholarly Cross-Fertilization?
• Monika Bauhr & Naghmeh Nasiritousi, How Do International Organizations Promote Quality of Government? Contestation, Integration, and the Limits of IO Power
• Peter Wilson, The English School Meets the Chicago School: The Case for a Grounded Theory of International Institutions
• Johan Hellman, The Occurrence of Mediation: A Critical Evaluation of the Current Debate

Scholarship on Global Citizenship

International Law Reports posts the latest issue of Global Society, a special issue on the topic of Cosmopolitanism and Global Citizenship--of interest especially to anyone thinking about citizenship-based taxation (perhaps especially in a post-FATCA world--you can see what's occupying my thoughts these days).  Contents at the link.  Good vacation reading, especially if you're travelling across a border to visit family.

Precedents for selling sovereignty

This is an interesting take on the Honduran charter cities (which I view as just a super-charged gated community or free zone), finding historical precedents in the longstanding and uncontroversial tradition of sales by states of parts of their territorial jurisdiction:

The first point is that international legal precedent affords us an abundance of examples in which states freely exchange sovereignty over territories for money. Most Americans will have heard of the Louisiana and the Alaska Purchases, of course, but there are also less well-known cases: Woodrow Wilson’s purchase of sovereignty over the Danish West Indies in 1917, for instance. Europeans may recall cases closer to home. Here one thinks of Prussia’s purchases of sovereignty over Lauenburg and Jade Bay. Last, but not least, there is Asia, where, among other cases, Britain recently concluded its ninety-nine-year lease for sovereignty over the New Territories and Kowloon extension in Hong Kong.

...The Honduran debate grows still more interesting when one considers its theoretical relevance to today’s highly indebted states. Should people, or rather their elected representatives, be able to treat parts of their state’s territory as assets in transactions?... Statesmen have often answered in the affirmative during the twentieth century; indeed, on occasion they have alienated their own territory as a path towards fiscal salvation ... without the direct majority consent of the people affected by the transfer. Nonetheless, all the transactions have been held to be perfectly valid in international law.

The author gives some more contemporary examples: one scholar has suggested that Greece could reduce its debt by selling jurisdiction over some of its islands; US "Special Operations Command" (I have no idea what that is) recently opined that jurisdiction was “a commodity driven by market-like forces” that will go to the “state, organization, corporation, tribe, gang, etc. that can best meet individual security, economic, and demographic interests.” He forgot to add, at the lowest cost, naturally. He concludes that there is plenty of precedent for states to buy jurisdiction and sovereign rights from the recognized “owners.” He concludes:

Whatever the orientation of Honduras and its court system in the twenty-first century, these precedents attest to the existence of a marketplace open to all. 

Thinking about statehood as a commodity with owners that can auction it off--disturbing, especially because what then are the humans. In particular, what then are the humans in the designated for-sale zone. Spoils of war capitalism?

IGA flurry shows US is locking down on FATCA

A recent flurry of signed IGAs and press releases on ongoing negotiations suggests the US is acting tremendously quickly and even brazenly on FATCA. Almost as if they are trying to get this all nailed down before anyone outside the US government has time to study it and think it through. This is absurd, considering the enormity of what FATCA is trying to do--an enormity that is acknowledged in the IGAs themselves merely as "issues"--issues involving taxpayers' inability to comply with US law because it would involve breaking the law in their own country. The hubris is breathtaking. But it is virtually invisible as a policy matter because it is all wrapped up in the idea that we are cracking down on the world's tax cheats, and who could be against that?

The speed and intensity on FATCA is troubling though, when we consider the lock-in nature of the agreements in terms of future flexibility on the part of the US. To see what I mean by this, let's take a look at the IGA Mexico signed on November 19.  I blacklined it against the US Model 1A (reciprocal) IGA: it reads as virtually identical. Interesting, as the agreement with Mexico has apparently been two years in the making and the model IGA came out this past July. I find it amazing that the model was apparently so easy to write and these IGAs so easy to conclude--Denmark signed one just four days earlier. Contrast that to the US model double tax agreement, which was written some three decades after its first double tax conventions appeared (and which only gets updated every six years or so) and the average five year span it typically takes to get a new tax convention negotiated and signed. In terms of Treasury resources, it looks like a lot more time is spent on FATCA these days than on new tax treaty protocols, multilateral information sharing standards, or perhaps anything else.

The first thing the parity between the model and the actual agreement with Mexico suggests is that the terms of agreement on FATCA are absolutely non-negotiable.  This is a put up or shut up, my way or the highway moment: sign our template or face sanctions in the form of draconian and even unprecedented (such as in the treatment of gross sales proceeds) gross basis withholding. That's hard enough on its own but it is also bad news for other countries that might see themselves in a position to drive a hard bargain with the US.  It is bad news not only because it looks like the US will not deviate from its chosen path right now, but also because, perversely, the US has included a "most favored nation" clause in the FATCA agreements--something almost unheard of in double tax agreements, because it makes a better deal for one a better deal for all.  The language is in article 7 of the model, and it reads virtually identically in the US-Mexico agreement, the UK agreement, and the Denmark agreement (signed Nov 15 2012).

Consistency in the Application of FATCA to Partner Jurisdictions 

1. [FATCA Partner] shall be granted the benefit of any more favorable terms under Article 4 or Annex I of this Agreement relating to the application of FATCA to [FATCA Partner]  Financial Institutions afforded to another Partner Jurisdiction ....   

2. The United States shall notify [FATCA Partner] of any such more favorable terms and shall apply such more favorable terms automatically under this Agreement as if they were specified in this Agreement and effective as of the date of the entry into force of the agreement incorporating the more favorable terms.  

The implication is that the US is tying its own hands against the possibility of making any different deal for any other country.  Now why on earth would they do that? 

Purely, I think, to drive home the unilateral message. Information sharing is no longer going to be multilateral, engaged in through international dialogue and consensus. Information is a commodity, the US can apparently afford to extract it on a unilateral basis and without regard to "issues" like other countries' domestic laws, and there will be no spoils for any other country that can't or won't submit to the US standard, even if they themselves are victims of the US' own bank secrecy & notorious apathy when it comes to things like anonymous incorporation. 

None of this is to say that bank secrecy is good, that information should not be shared among countries. This is not an apology for tax havenry.  I do think information has to be shared if we are to keep taxpayers honest the world over. But it is to say that a unilateral battering ram is not the right answer. The problem of global misconduct by wealthy taxpayers is not solved by the US strong arming to get information that serves itself alone.

If you'd like to see the blackline I ran, you can download it here. Careful readers will note that in the agreement with Mexico, some periods are followed by two spaces (old school) while others are followed by one (new school), and these are different from the US Model.  So someone somewhere is paying attention to these important details as the US rips through a century long tradition of multilateral information sharing to build its own private empire of information gathering. That's good to know. 

The ultimate gated community is just a free zone with a new name

MR cautions not to "equate charter cities with extraterritoriality": a charter city works either "because a dominant hegemon — perhaps at a distance — supports the external system of law" or because "the external system of law serves up some new and especially tasty rents to domestic interest groups."  Either way, the charter city is not sovereign, rather some established sovereign is exerting control.  So a charter city is really just a free zone: another experiment in relaxing regulation that Honduras has already tried (along with many many countries, yes, including the U.S.), this one just has a name that taps into some emotional sentiment having to do with freedom and choice and entrepreneurialism.  If Honduras just called this another free zone project, perhaps few would take notice or wonder about it.

As this is just a new name for an old idea, it should not be surprising how quickly we see the familiar accountability/transparency issues pile up.  MR points to the Guardian, which reports:

Plans to create a neo-liberal start-up city in Honduras with its own laws, tax rules and police force suffered a setback on Friday when the economic guru who inspired the project said he has been unable to act as its guarantor and watchdog. 

...days after the deal was announced, Romer said he had not been given the powers and information necessary to fulfil his role as chairman of the transparency commission, which is meant to ensure governance of the new development zones.

Romer said he and four other international figures were appointed by presidential decree to the commission, which has wide-ranging powers to appoint and fire governors, nominate judges and hire auditors in the proposed new zones. But the five will issue a statement distancing themselves from this week's announcement and calling into question the legality of their appointment, which they say has not been published in the official gazette as required by Honduran law, ostensibly because of a challenge in the constitutional court.

Free zones have been around for a long time, they have been studied extensively, and they don't have a great track record, most especially when they lack major up front governance policy planning.  Calling the project a charter city won't avoid these difficult problems.

As an aside, I notice that the Guardian puts a price tag on the deal: a business consortium called NKG is paying $14 million for its city.  Who is NKG?  Not the Northern Kite Group or the Neumann Kaffee Group, I suspect.

 

 

The Ultimate Gated Community

Disappointing that AP saw no need to report on what it costs to buy your own private city.  It couldn't be nothing ... could it?  I would like to see the memorandum.  Does it read like a contract?  Like a treaty?

Taming FATCA

For US persons living abroad, living their lives means having foreign bank accounts.  Regimes like FATCA and FBAR are particularly harsh for these persons, many or perhaps most of whom are either dual citizens themselves or are in families with dual and multiple citizenships.  While it seems clear to me that the US can impose its sovereign jurisdiction with regimes like FATCA and FBAR, it's less clear to me that it should do so, especially with a one-size-fits-all approach that appears to treat everyone with a foreign bank account as a potential tax criminal.  The question is whether and how these regimes can be tamed so that they fulfill the core mission--catching tax cheats--without becoming a Team America: World Tax Police, bypassing bilateral and multilateral cooperation among governments in order to impose draconian US rules on individuals and financial institutions across the globe.  


In my latest Tax Notes International column, "Could a Same-Country Exception Help Focus FATCA and FBAR?" [pdf], I discuss some of the political and practical issues of relaxing the reporting rules for Americans living abroad with respect to accounts they hold in their country of residence.  This is not a comprehensive technical proposal but rather a broad look at the pragmatic and political reasons why the US really ought to back off on exercising its tax sovereignty when it comes to its citizens living abroad. I argue that FATCA and FBAR are either a rather nasty piece of arm-twisting, a bit of bad faith in
the U.S. diplomatic relations department, or, worse, they are signaling a loss of faith in the pursuit of cooperation through diplomacy.  I suggest that carving out an exception for US persons who are using bank accounts to live their lives as residents and often dual citizens abroad could provide a means of backing away from either of these destructive positions.

US pressure on EU tax

Will the EU airline emissions tax prevail, or will it fall under pressure from the US?   Opinio juris points us to this story:

(Reuters) – Senate lawmakers and the Obama administration on Wednesday stiffened their opposition to a European law that targets emissions from commercial jetliners and applied new pressure on Brussels and the United Nations to resolve global concerns. 

...The issue is especially important to the United States, whose airlines have a mature and lucrative transatlantic business. American Airlines, United Airlines and Delta Air Lines are looking to grow international travel.

The tax is described as a fee for permits to fly to and from EU airports.  That's not a tax at all really.  It's a toll charge.  Don't want to pay the toll?  Don't fly to or from Europe.  Why are toll charges for roads, or consumption taxes for that matter, perfectly uncontroversial but toll charges for flying a cardinal sin?  The answer is plainly that the airline industry wants to continue externalizing the costs of pollution on the public and the EU tax makes that harder for them to do, so the answer is to seek help from US government to stop that happening.  I call it a clear breach of the government's fiduciary to duty to the polity at large to help industry accomplish this goal (I've been reading Evan Fox-Decent).

Ku says: "The ECJ has held that the EU tax does not violate international treaties or customary law.  This seems plausible to me, but I wonder if the political pushback the EU is getting will ultimately force it to back off.  I'm betting yes."

I would like to think the EU can resist the pressure, but I fear that Ku is making the correct bet.  US industry lobbyists are very well funded and organized and have proved time and time again their ability to get US lawmakers to exert pressure on other countries to change their laws to suit US business interests.  In the case of India's controversial post-Vodafone tax reform, the lobbyists might not have been successful in preventing passage of the law, but they might have prevailed anyway if the law has little effect in practice as this story suggests.  The game theorists out there can comment on the strategy behind pushing forward with a formal law under the assumption that enforcement will be nil.  Sounds like Dodd-Frank, and it seems like an all-too common strategy for politicians, especially in tax, maybe in other regulatory areas involving lots of complexity and trickery.

One additional aspect of the Reuters story is that Transportation Secretary Ray LaHood is calling the EU an outlier, acting alone and unilaterally, and that the US needs to see "real signs of flexibility from the EU."  No mention of why they should be entitled to hold such expectations, why the EU should not be allowed to govern itself.  But a threat if "real signs of flexibility" are not seen:  "The administration has threatened unspecified action if a compromise is not reached, but LaHood said no decision had been made on possible steps.  He said discussions within the administration, however, are centered on the possibility of the United States filing a formal complaint to the United Nations."

After trying to stop the UN from doing something it doesn't like, the US might like the UN to help it stop the EU from doing something else it doesn't like.  I thought the US wanted out of the UN: it's a threat to freedom, it's neither wise nor neutral, etc.  There's a song for this kind of relationship.

Law's reach across sovereign territory

A story on the long arm of the law, and it's not even about FATCA:

"Because today’s threats do not recognise national boundaries, our responses must also transcend borders,” Ms Napolitano told her hosts in a speech overly dominated by assurances the US would respect the privacy of Australian citizens.

New Book on Sovereignty

Constructing Sovereignty between Politics and Law, by Tanja Aalberts:

This book explores the interplay between sovereignty, politics and law through different conceptualizations of sovereignty. Despite developments such as European integration, globalization, and state failure, sovereignty proves to be a resilient institution in contemporary international politics.
This book investigates both the continuity and change of sovereignty through an examination of the different ways it is understood; sovereignty as an institution, as identity; as a (language) game; and as subjectivity. In this illuminating book, Aalberts examines sovereign statehood as a political-legal concept, an institutional product of modern international society, and seeks an interdisciplinary approach that combines international relations and international law. This book traces the consequences of this origin for the conceptualization of sovereign statehood in modern academic discourse, drawing on key jurisprudence and international treaties, and provides a new framework to consider the international significance of sovereignty.   

As an innovative approach to a critical institution, Constructing Sovereignty between Politics and Law will be of interest to students and scholars of international relations, international relations theory and international law.

Also to students and scholars of international tax law, I think.

FATCA, again

Peter Spiro points us to last week's NY Times story on FATCA and asks: "How many tax stories get this kind of play? NYT must have some reader traction on this.  Remember: the US is the only country other than Eritrea that taxes its external citizens."  Maybe things are not so crystal clear on Eritrea.  Peter thinks FATCA "[m]ight even violate international law, insofar as states can't arbitrarily obstruct expatriation."  From the NYT:

"new U.S. regulations — and much tougher enforcement — are catching some Americans in legal nets designed to snare terrorists, money-launderers or wealthy tax-evaders. Many Americans overseas — not just the rich — have had to pay thousands of dollars in fees for tax accountants or Internal Revenue Service fines.

...A growing number of Americans living abroad are renouncing once-valued U.S. passports. Some 1,780 people gave up U.S. nationality last year, eight times the 2008 level and the largest number in more than a decade."

Correlation ⇏ Causation, but it's a provocative statistic.   It's also bad when your taxpayer advocate says things like this:

"Nina E. Olson criticized the agency for not explaining the laws better to international payers; for issuing regulations so complex that compliance can be arduous and costly; and for issuing “potentially devastating penalties for even inadvertent noncompliance.”

Saverin: somebody that we used to know

A lot of people have sent me the story on Eduardo Saverin, who renounced his U.S. citizenship ahead of the Facebook IPO, ostensibly for purposes of reducing his tax burden, though the effect is not so clear.   Saverin is a real cosmopolitan--born in Brazil, now apparently a resident of Singapore.  Severing his ties to the U.S. is serious.  Maybe he was worried about FATCA.  In any event, I didn't know who Saverin was before and I don't really know all the ins and outs of why he's breaking up with the U.S., but I guess there's a good song for it anyway.

Rights beyond the state

Alex Mills, Normative Individualism and Jurisdiction in Public and Private International Law: Toward a 'Cosmopolitan Sovereignty'?

This paper examines one aspect of the role of the individual in international law, through analysis of the increasing recognition of individual rights in the context of jurisdiction in both public and private international law. Jurisdiction has traditionally been considered in international law as a right or power of states. The challenge to this traditional approach has arisen both at the international level and also within states, through the rise in theory and practice of doctrines of 'denial of justice', 'access to justice' and 'party autonomy', which reflect the increasing treatment of jurisdiction as a matter of individual right rather than state power. These developments arguably signify a transformation in the status of individuals at both international and national levels, from the passive objects of jurisdictional regulation to active rights-holders. 

The analysis in this paper therefore highlights a challenge which cuts across the dual aspects of sovereignty – as international law increasingly recognises the power of legal persons beyond the state, this also provides a challenge to the claims for exclusive legal authority within states. This can also be described as the recognition of the individual, alongside the state, as a 'sovereign' actor, or as the recognition of 'normative individualism' in international and domestic law. The increased recognition of the individual in international law is a key feature of the arguments of cosmopolitan legal theorists – the challenge of normative individualism may therefore further be described as the question of whether, or to what extent, there is an emerging idea of 'cosmopolitan sovereignty' which attempts to accommodate the normative value of both state and individual actors.

India's tax avoidance law is making progress

"Despite international pressure to change controversial tax amendments, the lower house of India's Parliament passed the draft 2012 Finance Bill without budging on the Finance Ministry's position on retroactively taxing Vodafone-like transactions involving Indian assets."  Tax Analysts [gated].  Further:

"The tension created by the Vodafone situation has distressed foreign investors as uncertainty mounts concerning the Indian business landscape. The proposed GAAR has sparked fears that tax officials will have too much power to scrutinize any transaction for signs of tax evasion and will be able to sidestep tax treaties with other nations. 

In a gesture that appeared to assuage investor anxiety somewhat, Mukherjee announced on May 7 that the government had amended some of the Finance Bill's proposals, including delaying the GAAR's implementation date for one year and offering taxpayers the opportunity to approach India's Advance Ruling Authority to determine whether a planned transaction would be permissible."

Vodafone has already served a notice of dispute against India through the India-Netherlands Bilateral Investment Treaty.  The notice itself is not publicly available, but the company has said of it:

"The dispute arises from the retrospective tax legislation proposed by the Indian government which, if enacted, would have serious consequences for a wide range of Indian and international businesses, as well as direct and negative consequences for Vodafone. The proposed legislation would also countermand the verdict of the Indian Supreme Court in January 2012, which ruled that Vodafone had no liability to account for withholding tax on its acquisition of indirect interests in Hutchison Essar Limited in 2007.
…
Vodafone believes that the retrospective tax proposals amount to a denial of justice and a breach of the Indian government’s obligations under the BIT to accord fair and equitable treatment to investors."

 I find it odd that Vodafone could draw India into a dispute resolution with the Netherlands in respect of a law that is not yet passed, but apparently once invoked, the BIT automatically provides for dispute resolution.  If the BIT can ultimately prevent the legislature from enacting the new law, that will be big news.

Business to Geithner: more pressure on India

Tax Analysts recently published a letter from the USCIB [gated] and other business groups to Tim Geithner, urging him to step up the pressure on India because apparently their message isn't getting through so far:

We write to thank you for raising concerns in your recent meeting with Finance Minister Mukherjee regarding the proposed Indian tax legislation and to request further engagement in this matter. Unfortunately, pronouncements by Indian officials since that meeting have not allayed the concerns of U.S. and other foreign investors. To effectively address these issues, the proposed legislation needs to be amended. 

The letter lists three changes the business community wants India to make:

1. The proposed legislation will not be applied with retroactive effect, even for the suggested 6-year period.
2. The proposed legislation will not be applied to reverse favorable results already obtained by a taxpayer in a final decision of any Indian court, or in any case assessed and finalized prior to April 1, 2012.
3. The proposed legislation will not be applied in a manner inconsistent with India's obligations under its tax treaties.

(2) is obviously aimed at protecting Vodafone specifically.  It then follows with this:

...If the Indian Government is not prepared to offer legislative amendments providing assurances on these three points at this time, then it should be urged, at a minimum, to adopt a deliberative review and consultation process with all stakeholders prior to enactment...

Fascinating.  "All stakeholders"?