India revives tax on Vodafone

The headline reads "Government revives Rs 14,000 crore tax demand on Vodafone; company may go for arbitration." Crore = $10 million, so that's 140 billion rupees, which converts to about USD $2.6 billion, up a bit from the original $2.5 billion sought by India's tax authority last year, to account for "delayed payment".

The report says "The company could initiate arbitration before international tribunals under the India-Netherlands Bilateral Investment Protection Agreement"--but this was already done early last year, in anticipation of the reassertion of the tax.  In connection with its filing, Vodafone stated:

"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."

I wondered at the time about the oddity that Vodafone could draw India into a dispute resolution with the Netherlands in respect of a law that is not yet passed, but noted that apparently once invoked, the BIT automatically provides for dispute resolution.

The latest is merely an assertion by the Indian tax authority, so it remains to be seen whether Vodafone will seek another victory from the Indian courts (challenging the reassessment) or from the BIT (challenging the retroactive law as a breach of fair & equitable treatment to foreign investors).

Current status of US tax treaties, with FATCA IGA update

Latest US tax treaty update is available here, with a new section covering the developments on FATCA IGAs. I'm still not convinced they should be included in such a list, since from the US perspective these appear to be nothing more than competent authority agreements, presumably entered into under the CA's authority "to clarify or interpret" existing treaty & TIEA provisions.  Certainly, it seems that no internal legislative procedure will be undertaken to get these in force in the US--they await only the internal ratification by FATCA partners.

I have seen absolutely nothing offered by the IRS or Treasury that explains the character of these agreements, so I am deducing that they are being considered CA agreements from what I've seen so far.  But I'll admit the evidence is conflicting and confusing: for example, the IGA with the UK was apparently signed by a non-Treasury embassy official, and not the CA, so how could it be a CA agreement?

Fortunately, at some point the mystery will be solvable: I'll be able to confirm the legal status of the IGAs as soon as the first one enters into force, by checking to see if it lands in the pages of the US treaties and international agreements series. If it does not (as I suspect), then the IGAs really belong only in a list of competent authority agreements, where they will be treated not as treaties or international agreements per se but merely as interpretations of existing treaties. That will be interesting because it really stretches the boundaries of how I think we've understood up until now the competent authority's ability to stray beyond the text of the treaty. Of course, even if they do not end up in the TIAS I can certainly understand why Connery et al included them in their regular tax treaty update, because they sure look like treaties, don't they.

If I am wrong, though, and the IGAs do land in the treaties and international agreements series, then things get even more interesting.  We will be witnessing an unprecedented first in the history of US treaty making: the introduction of sole executive agreements on tax, not pre-authorized by congress, not expressly authorized by any existing treaty, and serving to override existing statutory tax law without any congressional oversight at all. Intriguing to say the least.

Of course, none of this has any bearing on the legal force of the IGAs from an international perspective. In the eyes of the world, these are just like any other international agreement. But in terms of those who think about the treaty making power in the US, I would think this would be a very interesting and controversial development.

New Paper: What is Freedom For?

Leslie Green asks What is Freedom for? Answer:

Two conceptions of the value of political freedom are popular. According to one, freedom serves autonomy, creating one's own path through life. According to the other, freedom serves authenticity, keeping faith with an identity one did not choose. This paper bridges the gap between these views in several ways. It shows that autonomy embraces some of the unchosen aspects of life that authenticity stresses, and that authenticity is consistent with scope for choice within an unchosen identity. It is also shows that both views share a stake in a neglected value, self-knowledge. Partisans of authenticity cannot keep faith with their identity if they do not know what it truly is. Partisans of autonomy cannot choose a path in life without knowing what the options are for them, and these options can be affected instrumentally and constitutively by their identity, which they therefore have a stake in knowing. Of course, there can be more than one sound argument in favor of freedom. But contrary to what many suppose, autonomy and authenticity are complementary, not competing, in making that case. The differences between them are matters of nuance and degree.

Interesting. We see the term freedom used fairly frequently in tax policy debate--certainly, freedom is a concept that animates the anti-tax crowd. Murphy & Nagel did the best work, I think, in showing the unstated assumptions and flawed thinking that goes in to seeing taxation as an affront to freedom; this paper seems to complement that work.

Ecuador's new tax on bank profits

Ecuador has a new law with the title "Income Redistribution for Social Expenditure," which will impose new taxes on financial institutions. I often remark on the deceptive titles of US tax legislation (the HIRE Act, the JOBS Act, etc)--which always make the legislation seem obviously to promote social good even while they too often include provisions that do the opposite--see, e.g, Charles Kingson's The Great American Jobs Act Caper. Of course, using the term "redistribution", "social", and maybe even "expenditure" would kill the legislation in its infancy in the US. So I was interested to see new taxes on bank profits cast in this rhetorical language.

What is "money"?

It's a question I ask every intro tax class, and so I am always on the lookout for stories like this one, about a small city in Greece developing an alternative currency. The headline has it wrong--this is not bartering, rather it is substituting one exchange medium (Euro) for another (tem); either currency could fail, both are subject to inflation, etc. Also I don't get the impression that these are desperate people bargaining over staples, even though the headline calls them "impoverished"--but I could be wrong. Whether intended or not, the use of alternative currency is likely a tax dodge since no one is presumably collecting VAT in Euros on a sale in tem. So it is surprising that the mayor is encouraging this.

International Law and Language Policy

Here is an interesting new book, by Jacqueline Mowbray: Linguistic Justice: International Law and Language Policy (Oxford 2012).  From the abstract:

Globalization and migration are producing societies of increasing linguistic diversity. At the same time, English is achieving unprecedented global dominance, smaller languages are becoming 'extinct' at an alarming rate, and ethnic tensions in countries from Belgium to Tibet continue to centre on questions of language. Against this background, the issue of how to ensure justice between speakers of different languages becomes a pressing social concern. Matters of 'linguistic justice' are therefore drawing increasing scholarly attention across a range of disciplines. 

How does international law contribute to linguistic justice? This book explores that question by conducting a comprehensive, interdisciplinary examination of international law on language ... the book explores the conceptual framework which underpins international law on language, unearthing underlying assumptions and ideas about what constitutes a 'just' language policy from a legal perspective. ..

This explores an interesting aspect of international society and culture.  More at the link.  

Eight Corporate Subsidies in the Fiscal Cliff Bill

Matt Stoller at NC points out the ubiquitous presence of corporate lobbying when it comes to tax policy:

Throughout the months of November and December, a steady stream of corporate CEOs flowed in and out of the White House to discuss the impending fiscal cliff. Many of them, such as Lloyd Blankfein of Goldman Sachs, would then publicly come out and talk about how modest increases of tax rates on the wealthy were reasonable in order to deal with the deficit problem. What wasn't mentioned is what these leaders wanted, which is what's known as "tax extenders", or roughly $205B of tax breaks for corporations.  ... few political operatives have bothered to pay attention to this part of the bill. But it is critical to understanding what is going on.

...Most tax credits drop straight to the bottom line – it's why companies like Enron considered its tax compliance section a "profit center". A few hundred billion dollars of tax expenditures is a major carrot to offer. Surely, a modest hike in income taxes for people who make more than $400k in income and stupid enough not to take that money in capital gain would be worth trading off for the few hundred billion dollars in corporate pork. This is what the fiscal cliff is about – who gets the money. And by leaving out the corporate sector, nearly anyone who talks about this debate is leaving out a key negotiating partner.

Stoller points out "eight corporate subsidies in the fiscal cliff bill that you haven't heard of":

• NASCAR - welfare for racetrack builders, about $43M per year

• Railroads - welfare for track maintenance, 165M/yr.   Stoller says "It's unclear why private businesses should be compensated for their costs of doing business." 

• Film producers - we're used to that brand of welfare here, aren't we.  Stoller calls this provision "a relatively straightforward subsidy to Hollywood studios."

• mining companies – mine safety welfare.  Stoller:  "Taxpayers shouldn't have to bribe mining companies to not kill their workers."  

• Goldman Sachs –  welfare for HQ building, via tax exempt financing in the New York Liberty Zone, which amounted to "little more than a subsidy for fancy Manhattan apartments and office towers for Goldman Sachs and Bank of America Corp." The whole free zone thing is ludicrous in general but it seems particularly preposterous in Manhattan.

• Offshore financing – a subpart F giveaway, Stoller says it "basically allows American corporations such as banks and manufactures to engage in certain lending practices and not pay taxes on income earned from it." No wonder then it gets support from the likes of GE, my favorite tax dodger.  I like how Stoller points out that this particular form of welfare has its own trade association, ad reminds us yet again that lobbying pays: "Steve Elmendorf, super-lobbyist, has been paid $80,000 in 2012 alone to lobby on the "Active Financing Working Group.""

• Foreign subsidiaries -another subpart F rule, this time essentially ignoring payments between related CFCs, which Stoller explains "allows US multinationals to not pay taxes on income earned by companies they own abroad." 

• R&D & capital expenditures – both are well subsidised in the US, Stoller calls them "well-known corporate boondoggles." There are of course arguments for both, but it does seem rather silly to pretend that businesses must capitalize things and then keep giving them accelerated dereciation schedules that basically allow them to expense everything.

Stoller links to a number of his sources including a JCT repot that scored these expenditures.  There are no doubt many more expenditures in the bill.  Most, and perhaps all, could have been safely disposed of without bringing on the austerity bomb that we are meant to fear had we gone over the cliff. But that is tax politics in a system driven and dominated by lobbying.