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Posts Tagged ‘International Taxation’

There are many boring topics in tax policy, such as the debate between expensing and depreciation for business investment.

International tax rules also put most people to sleep, but they’re nonetheless important.

Indeed, the United States government is currently squabbling with several European governments about the appropriate tax policy for U.S.-based tech companies.

A report from the New York Times last July describes the controversy.

France is seeking a 3 percent tax on the revenues that companies earn from providing digital services to French users. It would apply to digital businesses with annual global revenue of more than 750 million euros, or about $845 million, and sales of €25 million in France. That would cover more than two dozen companies, many of them American, including Facebook, Google and Amazon. …Mr. Lighthizer said the United States was “very concerned that the digital services tax which is expected to pass the French Senate tomorrow unfairly targets American companies.” …France’s digital tax adds to the list of actions that European authorities have taken against the tech industry… And more regulation looms. Amazon and Facebook are facing antitrust inquiries from the European Commission. …Britain provided further details about its own proposal to tax tech companies. Starting in 2020, it plans to impose a 2 percent tax on revenue from companies that provide a social media platform, search engine or online marketplace to British users.

For the latest developments, here are excerpts from an article in yesterday’s New York Times.

A growing movement by foreign governments to tax American tech giants that supply internet search, online shopping and social media to their citizens has quickly emerged as the largest global economic battle of 2020. …At the core of the debate are fundamental questions about where economic activity in the digital age is generated, where it should be taxed and who should collect that revenue. …The discussions, which are expected to last months, could end with an agreement on a global minimum tax that all multinational companies must pay on their profits, regardless of where the profits are booked. The negotiations could also set a worldwide standard for how much tax companies must remit to certain countries based on their digital activity. …Mr. Mnuchin expressed frustration on Thursday in Davos that a digital sales tax had become such a focus of discussion at the World Economic Forum. …American tech firms are eager for a deal that would prevent multiple countries from imposing a wide variety of taxes on their activities.

Daniel Bunn of the Tax Foundation has an informative summary of the current debate.

In March of 2018, the European Commission advanced a proposal to tax the revenues of large digital companies at a rate of 3 percent. …The tax would apply to revenues from digital advertising, online marketplaces, and sales of user data and was expected to generate €5 billion ($5.5 billion) in revenues for EU member countries. The tax is inherently distortive and violates standard principles of tax policy. Effectively, the digital services tax is an excise tax on digital services. Additionally, the thresholds make it function effectively like a tariff since most of the businesses subject to the tax are based outside of the EU. …the European Commission was unable to find the necessary unanimous support for the proposal to be adopted. The proposal was laid aside… the French decided to design their own policy. The tax was adopted in the summer of 2019 but is retroactive to January 1, 2019. Similar to the EU proposal, the tax has a rate of 3 percent and applies to online marketplaces and online advertising services. …The United Kingdom proposed a digital services tax at 2 percent as part of its budget in the fall of 2018. The tax has already been legislated and will go into force in April of 2020. …The tax will fall on revenues of search engines, social media platforms, and online marketplaces. …The OECD has been working for most of the last decade to negotiate changes that will limit tax planning opportunities that businesses use to minimize their tax burdens. …The reforms have two general objectives (Pillars 1 and 2): 1) to require businesses to pay more taxes where they have sales, and 2) to further limit the incentives for businesses to locate profits in low-tax jurisdictions. …This week in Davos, the U.S. and France…agreed to continue work on both Pillar 1 and Pillar 2… The burden of proof is on the OECD to show that the price the U.S. and other countries may have to pay in lost revenue or higher taxes on their companies (paid to other countries) will be worth the challenge of adopting and implementing the new rules.

At the risk of over-simplifying, European politicians want the tech companies to pay tax on their revenues rather than their profits (such a digital excise tax would be sort of akin to the gross receipts taxes imposed by some American states).

And they want to use a global formula (if a country has X percent of the world’s Internet users, they would impose the tax on X percent of a company’s worldwide revenue).

Though all you really need to understand is that European politicians view American tech companies as a potential source of loot (the thresholds are designed so European companies would largely be exempt).

For background, let’s review a 2017 article from Agence France-Presse.

…are US tech giants the new robber barons of the 21st century, banking billions in profit while short-changing the public by paying only a pittance in tax? …French President Emmanuel Macron…has slammed the likes of Google, Facebook and Apple as the “freeloaders of the modern world”. …According to EU law, to operate across Europe, multinationals have almost total liberty to choose a home country of their choosing. Not surprisingly, they choose small, low tax nations such as Ireland, the Netherlands or Luxembourg. …Facebook tracks likes, comments and page views and sells the data to companies who then target consumers. But unlike the economy of old, Facebook sells its data to French companies not from France but from a great, nation-less elsewhere… It is in states like Ireland, whose official tax rate of 12.5 percent is the lowest in Europe, that the giants have parked their EU headquarters and book profits from revenues made across the bloc. …France has proposed an unusual idea that has so far divided Europe: tax the US tech giants on sales generated in each European country, rather than on the profits that are cycled through low-tax countries. …the commission wants to dust off an old project…the Common Consolidated Corporate Tax Base or CCCTB — an ambitious bid to consolidate a company’s tax base across the EU. …tax would be distributed in all the countries where the company operates, and not according to the level of booked profit in each of these states, but according to the level of activity.

This below chart from the article must cause nightmares for Europe’s politicians.

As you can see, both Google and Facebook sell the bulk of their services from their Irish subsidiaries.

When I look at this data, it tells me that other European nations should lower their corporate tax rates so they can compete with Ireland.

When European politicians look at this data, it tells them that they should come up with new ways of extracting money from the companies.

P.S. The American tech companies are so worried about digital excise taxes that they’re open to the idea of a global agreement to revamp how their profits are taxed. I suspect that strategy will backfire in the long run (see, for instance, how the OECD has used the BEPS project as an excuse to impose higher tax burdens on multinational companies).

P.P.S. As a general rule, governments should be free to impose very bad tax policy on economic activity inside their borders (just as places such as Monaco and the Cayman Islands should be free to impose very good tax policy on what happens inside their borders). That being said, it’s also true that nations like France are designing their digital taxes American companies are the sole targets. An indirect form of protectionism.

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I’m part of the small minority that thinks the big news from the United Kingdom is that “Brexit” will finally happen, thanks to Boris Johnson’s landslide victory last month.

Most everyone else seems more focused on the latest development with the royal family. The Duke and Duchess of Sussex, better known as Harry and Meghan, have decided to partially extricate themselves from the cloistered world of the monarchy – in part so they can take advantage of “the freedom to make a professional income.”

More power to them, I guess, if they can monetize their celebrity status.

The U.K.-based Economist expects that they’ll rake in lots of money.

In stepping down as “senior royals” while pronouncing that they “value the freedom to make a professional income” the Duke and Duchess threaten to unleash the spirit of capitalism on the very core of the monarchy. …The Sussexes are determined to turn themselves into a global brand. Their first move after they announced that they were stepping down from many of their royal duties was to unveil the name of their brand, Sussex Royal… Various branding experts have pronounced that Harry and Meghan have “a ready-made brand” that could earn them as much as £500m in their first year. InfluencerMarketingHub, a website, points out that, with 10m Instagram followers, they could expect $34,000 for a sponsored post. …They will need more than Prince Harry’s inheritance, which is estimated at £20m-30m, to keep up with the global super-rich.

I don’t have a rooting interest in their financial success. Indeed, I suspect they’ll wind up being annoying hypocrites like Harry’s dim-bulb father, lecturing us peasants about our carbon footprints while they fly around the world in private jets.

That being said, I am interested in the intricacies of international taxation.

And that will be a big issue for the couple according to Town and Country.

Now that Meghan and Harry intend to retreat from their royal roles, attain “financial independence,” and live part-time in North America, Meghan and Archie’s tax and citizenship plans are a little up in the air. …Meghan is still a US citizen, and therefore required to pay US taxes on her worldwide income. Prince Harry could technically elect to be treated as a US tax payer and file jointly with Meghan, but “he would never do that,” explains Dianne Mehany, a lawyer specializing in international tax planning. …When Meghan and Harry announced their engagement back in 2017, Harry’s communications team confirmed to the BBC that Meghan “intends to become a UK citizen and will go through the process of that.” …Once gaining UK citizenship, Meghan could elect to relinquish her US citizenship, and save herself the trouble and expense of filing US tax returns. “The only problem there is, she would have to pay the exit tax,” Mehany notes…regardless of what type of employment or contract work Meghan pursues, it will be taxable in the US. …”The real tricky thing,” Mehany notes, “is to make sure they don’t spend too much time in the United States, so that Harry becomes a resident of the United States, at which point his entire worldwide wealth would become subject to US taxation, which I know they want to avoid.”

For all intents and purposes, Meghan and Harry will face the same challenges as a multinational company.

  • Multinational companies have to figure out where to be “domiciled” just as Meghan and Harry have to figure out the best place to reside.
  • Multinational companies have to figure out where to conduct business, just as Meghan and Harry have to figure out where they will work.
  • Multinational companies have to figure out how to protect their income from taxes, just as Meghan and Harry will try to protect their income.

For what it’s worth, the Royal couple already is being smart.

As reported by the U.K.-based Telegraph, they’re minimizing their exposure to the rapacious California tax system.

The Duchess of Sussex has moved her business to a US state used by the super-rich to protect their interests from scrutiny. The Duchess’s company Frim Fram Inc was moved out of California in December and incorporated in Delaware, which tax experts suggest could be done to avoid being hit with tax liabilities in California. …the move was made on New Year’s Eve…”You would want to do it on New Year’s Eve simply because if you go one minute into the next year you would owe some taxes to California for the year of 2020,” said Alan Stachura, from financial services firm Wolters Kluwer. …Mr Stachura, who helps companies incorporate in Delaware, added that the state offers “a tax benefit for items like trademarks and royalties”. …Experts say there are several benefits in moving a corporation to Delaware, including the state’s flexible business laws and its low personal income tax rates. …A source said that as the Duchess is no longer resident in California it was appropriate for the registration to be moved.

I can’t resist commenting on the last line of the excerpt. The fact that Meghan is no longer a resident of California is irrelevant.

After all, she’s not becoming a resident of Delaware.

Instead, she and her husband are being rational by seeking to minimize the amount of their money that will be diverted to politicians (the same is true of everyone with any sense in the United Kingdom, whether they are on the right or on the left).

It’s a shame Meghan and Harry feel too insecure to acknowledge that reality.

P.S. The Town and Country article noted that Prince Harry “would never” allow himself to become a tax resident of the United States because he wants “to avoid” America’s worldwide tax system. That’s completely understandable. He probably learned about the nightmare of FATCA after marrying Meghan and wants to make sure he’s never ensnared by America’s awful internal revenue code.

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Ever since the bureaucrats at the Organization for Economic Cooperation and Development launched their attack on so-called harmful tax competition back in the 1990s, I’ve warned that the goal has been to create a global tax cartel.

Sort of an “OPEC for politicians.”

Supporters of the initiative said I was exaggerating, and that the OECD, acting on behalf of the high-tax nations that dominate its membership, simply wanted to reduce tax evasion. Indeed, some advocates even said that the effort could lead to lower tax rates.

That was a nonsensical claim. I actually read the various reports issued by the Paris-based bureaucracy. It was abundantly clear that the effort was based on a pro-tax harmonization theory known as “capital export neutrality.”

And, as I documented in my first study on the topic back in 2000, the OECD basically admitted the goal of the project was to enable higher taxes and bigger government.

  • Low-tax policies “unfairly erode the tax bases of other countries and distort the location of capital and services.”
  • Tax competition is “re-shaping the desired level and mix of taxes and public spending.”
  • Tax competition “may hamper the application of progressive tax rates and the achievement of redistributive goals.”

The OECD’s agenda was so radical that it even threatened low-tax jurisdiction with financial protectionism if they didn’t agree to help welfare states enforce their punitive tax laws.

At first, there was an effort to push back against the OECD’s tax imperialism – thanks in large part to the creation of the pro-competition Center for Freedom and Prosperity, which helped low-tax jurisdictions fight back (I almost got thrown in a Mexican jail as part of the fight!).

But then Obama got to the White House and sided with Europe’s big welfare states. Lacking the ability to resist the world’s most powerful nations, low-tax jurisdictions around the world were forced to weaken their human rights laws on privacy so it would be easier for high-tax countries to track and tax flight capital.

Once that happened, was the OECD satisfied?

Hardly. Any victory for statism merely serves as a springboard for the next campaign to weaken tax competition and prop up big government.

Indeed, the bureaucrats are now trying to impose minimum corporate tax rates. Let’s look at some excerpts from a report in the U.K.-based Financial Times.

…large multinationals could soon face a global minimum level of corporate taxation under new proposals from the OECD… The Paris-based organization called…for the introduction of a safety net to enable home countries to ensure their multinationals cannot escape taxation, even if other countries have offered them extremely low tax rates. …The proposals would…reduce incentives for countries to lower their tax rates… The OECD said: “A minimum tax rate on all income reduces the incentive for…tax competition among jurisdictions.”

Sadly, the Trump Administration is not fighting this pernicious effort.

Indeed, Trump’s Treasury Department is largely siding with the OECD, ostensibly because a one-size-fits-all approach is less bad than the tax increases that would be imposed by individual governments (but also because the U.S. has a bad worldwide tax system and our tax collectors also want to reach across borders to grab more money).

In any event, we can safely (and sadly) assume that this effort will lead to a net increase in the tax burden on businesses.

And that means bad news for workers, consumers, and shareholders.

Moreover, if this effort succeeds, then the OECD will move the goalposts once again and push for further forms of tax harmonization.

I’ll conclude by recycling a couple of videos produced by the Center for Freedom and Prosperity. Here’s my analysis of the OECD.

By the way, the OECD bureaucrats, who relentlessly push for higher taxes on you and me, get tax-free salaries!

And here’s my explanation of why tax competition should be celebrated rather than persecuted.

I also recommend this short speech that I delivered earlier this year in Europe, as well as this 2017 TV interview.

Last but not least, here are two visuals that help to explain why the OECD’s project is economically misguided.

First, here’s the sensible way to think about the wonky issue of “capital export neutrality.”

Yes, it would be nice if people could make economic decisions without having to worry about taxes. And sometimes people make inefficient decisions that only make sense because they don’t want governments to grab too much of their money.

But the potential inefficiencies associated with tax planning are trivial compared to the economic damage caused by higher tax rates, more double taxation, and a bigger burden of government spending.

Now let’s consider marginal tax rates. Good policy says they should be low. The OECD says they should be high.

Needless to say, people will be less prosperous if the OECD succeeds.

That’s why I fight on this issue, notwithstanding personal attacks.

P.S. Senator Rand Paul is one of the few lawmakers in Washington fighting on the right side of this issue.

P.P.S. If you want even more information, about 10 years ago, I narrated a three-part video series on tax havens, and even a video debunking some of Obama’s demagoguery on the topic.

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When I write about the benefits of trade, I periodically point out that America has a trade deficit because it has a foreign investment surplus.

And since investment is a key driver of economic growth and rising wages, that’s a good outcome.

It basically means that foreigners who earn dollars by exporting to America are helping to finance America’s future prosperity by then plowing that money back into our financial markets (see this video for more details).

That’s the good news.

The bad news is that politicians are making cross-border investment more difficult.

They are using tax and regulatory policies to hinder the flow of money, just like they use protectionist policies to hinder the flow of goods and services.

A new report from the Center for Freedom and Prosperity, authored by Bruce Zagaris, explains this unfortunate development. He starts by explaining some of the bad policies imposed by Washington.

The ever-growing complexity and reach of the U.S. tax system impinges on the ability of U.S. taxpayers to live abroad, work abroad, open bank accounts abroad, or conduct business abroad. …These developments create a challenging environment, with taxpayers being subject to onerous – and sometimes conflicting – requirements. The complex array of obligations put taxpayers in legal jeopardy as governments threaten to impose sanctions on investors and businesses… The U.S. has even proactively prosecuted individuals and companies for cross-border tax activities that do not violate American laws. …The paperwork and reporting requirements for cross-border economic activity are extensive. …The icing on the cake of intrusiveness and costly compliance is the Foreign Account Tax Compliance Act.

FATCA is horrid legislation, perhaps the single worst part of the internal revenue code.

And bad policy from the U.S. has given other nations an excuse to adopt similar bad rules – aided and abetted by statist international bureaucracies such as the European Commission and Organization for Economic Cooperation and Development.

The difficulties caused by extraterritorial taxation are exacerbated by similar moves by other nations, often implemented as a response to aggressive policies by the United States. … the OECD has developed compliance and enforcement initiatives. …extraterritorial tax rules also are impinging on corporations. …The EU has taken a series of aggressive steps to impose tax on cross-border transactions. …Overly aggressive tax compliance and enforcement initiatives erode globalization, impede the ability of normal commerce and the movement of people, capital, and goods, and threaten privacy.

I especially like Bruce’s conclusion. All of the rules that stifle and hinder cross-border investment only exist because politicians have adopted bad tax laws.

Most of the policies reviewed above are only necessary because governments not only tax income, but also impose extra layers of tax on income that is saved an invested, exacerbated by decisions to impose such tax laws on income earned outside national borders. In a neutral, territorial tax system that taxes economic activity only one time, such as the Hall-Rabushka flat tax, almost all international tax conflicts disappear.

Amen. If we had a flat tax, there would be no case to be made for these bad policies.

Writing for the Washington Times, Richard Rahn of the Institute for Global Economic Growth cites this new study as he warns that an ever-expanding web of global tax rules is throwing sand in the gears of the global economy.

Global economic growth, particularly foreign investment, is slowing. One reason is likely the growing complexity of engaging in cross-border financial transactions. Major companies, banks and other financial institutions have been required to pay, in some cases, multi-billion-dollar fines to various governments for some alleged tax or other violation. The question is: Why is this occurring when virtually all of these institutions have compliance officers, tax lawyers, accountants, auditors, etc.? Much of the problem seems to stem from the ever-changing regulations and laws among countries, which are increasingly impossible to understand and comply with, even by the most sophisticated businesses. …The Center for Freedom and Prosperity Foundation has just published an important paper by the highly regarded international tax lawyer Bruce Zagaris, titled “Why the U.S. and the Worldwide Tax Systems Have Run Amok.” …Overly complex and even incomprehensible rules govern many international wealth and business transfers, as well as very onerous reporting requirements for people that have foreign interests. …In his paper, Mr. Zagaris details the problems caused by FATCA and a number of other international tax-related rules and regulations. Many of the rules and regulations would never meet basic cost-benefit analysis. They create much pain for little or no gain.

I would modify that last sentence.

The only “gain” from all these tax rules is a comparatively small amount of additional tax revenue for politicians (Obama originally promised $100 billion annually from FATCA and the actual law is projected to collect than $1 billion per year).

Yet there is great pain imposed on the private sector.

Moreover, laws to hinder cross-border capital flows are especially disadvantageous for the United States, as illustrated by this chart from Bruce’s report.

Sadly, damage to the productive sector of the economy is not something that politicians lose sleep over.

After all, they wouldn’t be imposing risky extraterritorial policies if they actually cared about what’s best for the nation.

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Since I consider myself the world’s biggest advocate for tax competition and tax havens (even when it’s risky), I’m always on the lookout for new material to share.

So I was delighted to see a new monograph from the London-based Institute of Economic Affairs on the benefits of “offshore” financial centers. Authored by Diego Zuluaga, it explains why low-tax jurisdictions are good news for those of us laboring in less-enlightened places.

Offshore finance serves several purposes, the most salient of which is the efficient allocation of capital. Some of this activity is tax-related, aimed at raising after-tax investment returns. If it were not for offshore jurisdictions, much foreign investment would be vulnerable to double or triple taxation. Because, under such punitive rates of tax, some of this investment would not take place, the existence of offshore centres has real positive effects on economic activity alongside the (plausibly) negative impact on the tax revenue of individual countries. These welfare gains have been amply documented… Beyond their impact on aggregate investment, research shows that the existence of an OFC is associated with better economic outcomes in neighbouring countries. Contrary to the popular narrative, these jurisdictions are well-governed and peaceful. Who, after all, would wish to use intermediaries in places where investors were regularly expropriated or harassed? …It is difficult to imagine the process of globalisation that has taken place over the last fifty years, bringing hundreds of millions of people out of poverty, happening without the robust financial and legal framework which offshore jurisdictions provide for investment. It would be counterproductive, for both the developing and the rich world, to undermine their essential functions. …Clamping down on offshore centres…would make societies less productive and prosperous, and this effect would compound over time.

He provides some fiscal history, including the fact that government used to be very small in the industrialized world (indeed, that’s one of the big reasons why today’s rich nations got that way).

And he notes that low-tax jurisdictions became more important to global commerce as governments adopted dirigiste policies.

Before World War I, governments played only a small role in economic activity, rarely taking up shares of national income in excess of 15 per cent during peacetime. After the Great War, they took upon themselves ever larger fiscal and administrative functions, notably trade restrictions and capital controls. …In a context of punitive marginal tax rates, constrained capital movements…, OFCs were vital to the revival of cross-border trade and investment after World War II. Without stable intermediary jurisdictions with robust rule of law and low taxation, much international investment would have been too costly, whether because of the associated tax burden or the risks of expropriation and inflation.

Zuluaga notes that tax competition ties the hands of politicians.

Theory and evidence suggest that countries may have any two of free capital mobility, an independent tax policy and no tax competition (Figure 2). But they cannot have all three.

And here is the aforementioned Figure 2 from the report.

I wrote about a version of the tax trilemma two years ago and noted that there’s only a problem if a country has high taxes.

So I made the following correction.

Returning to the article, Zuluaga points out that low-tax jurisdictions have a much better track record in the fight against bad behavior than high-tax nations.

OFCs are neither the original source nor the ultimate destination of illegal financial flows. So long as there remain corrupt politicians, drug users and people willing to engage in terrorist acts, history suggests that some illegal financial activity will take place to make it possible. Furthermore, as we saw above, OFCs are as a rule far more compliant and transparent in their prevention of unlawful activities than onshore jurisdictions, including the United States and the United Kingdom.

Zuluaga concludes with a warning about how the attack on tax havens is really an attack on globalization. And the global economy will suffer if the statists prevail.

…an ominous alliance of revenue-greedy politicians, ideological campaigners and rent-seekers has emerged in recent years. Gradually, but relentlessly, they aim to dismantle the liberal financial order of which free capital movement is a fundamental component. …the alliance’s real goal: to eliminate tax competition and constrain the movement of capital in order to bring it under their control. The consequences of this effort would be long-standing and go far beyond a few tiny offshore financial centres.

Excellent points. I strongly recommend reading the entire publication.

Though I’m not sure Zuluaga and I agree on everything. His article notes, seemingly with approval, that offshore jurisdictions largely have agreed to help enforce the bad tax laws of onshore nations. Yet that’s a recipe for the application of more double taxation on income that is saved and invested, which he acknowledges is a bad thing.

In other words, I think financial privacy is a good thing since predatory governments are less likely to misbehave if they know taxpayers have safe (and confidential) places to put their money. Now that privacy has been weakened, however, anti-tax competition folks at the OECD are openly chortling that there can be higher taxes on capital.

The bottom line is that tax competition without privacy is not very effective. I wonder if Zuluaga understands and agrees.

Another IEA author, Richard Teather, got that key point.

In a 2005 monograph, he explained the vital role of financial privacy.

Although the country of residence may theoretically impose taxes on foreign income, it can only do so practically if its tax authorities have knowledge of that income. It is therefore common for tax havens to have strong privacy laws that protect investors’ personal information from enquirers (including foreign tax authorities). The best-known of these was Switzerland, which introduced banking secrecy to protect Jewish customers from Nazi confiscation, and there remains a genuine strong feeling in many of these countries that privacy is about more than just tax avoidance.

But I’m digressing. Since we’ve looked at one U.K.-based defense of low-tax jurisdictions, let’s also look at some excerpts from a column by Matthew Lynn in the London-based Spectator.

He makes a very interesting point about how so-called tax havens are basically the financial equivalent of free zones for goods.

…in a globalised economy, offshore finance plays an important role, enabling money to move across borders relatively easily. Rather oddly, a lot of the media seem to have decided that while it is fine for people and goods to move around the world, having a bank account or an investment in a different country makes you virtually a criminal. …The world already has an extensive network of free ports, tax-free zones where goods in transit can be processed or temporarily stored without having to pay local tariffs. There are an estimated 3,500 of them across 135 countries, facilitating the movement of goods around the world. They have helped trade grow hugely over the past couple of decades. Offshore centres…are now mainly financial ‘free ports’ — places where cash can easily be parked and transferred as it moves around the world.

He also makes a very important observation about how the theft of data leading to the Panama Papers and Paradise Papers revealed very little illegal behavior.

…one of the interesting things about the leaks is not how much wrongdoing they expose, but how little. Take last year’s Panama Papers scandal, for example. …For all the drama, it was pretty small beer. The reason? All the data revealed might have been interesting, and made for some lurid headlines, but very few people turned out to be breaking any laws. In only a handful of cases were taxes being evaded or money-laundered.

Which is a point I’ve made as well.

And here’s his conclusion.

…it turns out that offshore centres are used by just about everyone. Most pension funds use them, including those looking after the savings of the politicians queuing up to condemn them. They are part of the infrastructure of globalisation, as much as the container ships, airports and fibre optic cables. It is ironic that many of the same people who proudly describe themselves as citizens of the world think that applies to everything except money.

Amen. Once again, this is really a fight about globalization. Or, to be more accurate, a fight between good globalism and bad globalism.

To wrap up, here’s the video I narrated for the Center for Freedom and Prosperity on the economic benefits of tax havens.

P.S. I’ve previously cited other tax haven-related research and analysis from the United Kingdom, most notably from Allister Heath, Dan Hannan, Philip Booth, Godfrey Bloom, and Mark Field.

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Back in 2013, I wrote about a gay guy adopting his long-time lover in order to escape the evil and pernicious death tax. I speculated that this would cause confusion and angst in some circles.

  • Traditional leftists would want to applaud the adoption because of their support for gay rights, but they would be conflicted because of their support for the death tax.
  • Traditional conservatives, by contrast, would dislike the way adoption laws were being used, but presumably like the fact that the reach of the death tax was being curtailed.

Now we have a somewhat similar example of the death tax leading people to take an unusual step.

Here are some excerpts from a report in the Belfast Telegraph.

Two best friends in the Republic of Ireland who have decided to get married to avoid paying inheritance tax… Michael O’Sullivan, a father of three, is set to marry his friend Matt Murphy in January. …Friends for almost 30 years they have made the decision so that Michael will inherit Matt’s home in Stoneybatter, Dublin when he dies. …Neither man is gay and say they are like brothers.

Not only will this save them money, it will be beneficial for other taxpayers as well.

Both men say they are currently on a small pension and say their idea is “saving the State money”. Michael said: “We found out from a friend of mine that she is paying €1,760 a week to stay in a nursing home, okay I could put Matt in a nursing home and then people would be paying their tax to look after him in the nursing home. “I don’t have much money and Matt can’t pay me to look after him but we tried to find out how much it would cost for a 24-hour care, you’re talking about a couple of thousand a week. “We are saving the State money.”

By the way, this story also may be an indirect example of excessive regulation.

It seems the guys could have received a subsidy from the government so that Michael could take care of Matt, but that would have triggered so much hassle and red tape that it wasn’t worth it.

“We didn’t go for the Carer’s Allowance because Matt would have to be examined, the house would have to be looked at.

Amen. Nobody welcomes a bunch of nosy bureaucrats poking through their life.

Now let’s zoom out and consider some broader policy implications.

I like and defend Ireland’s policy of aggressively using low corporate taxes to attract jobs and investment, but that doesn’t mean other policies in the country are favorable for taxpayers.

Indeed, there’s plenty of evidence that other taxes in that country are too high and it’s quite clear that the burden of government spending also is excessive.

The story doesn’t give details about the extent of the death tax, but it obviously must be punitive if two straight guys are marrying each other to dodge the levy.

In any event, it belongs in my collection of odd moments in international taxation.

It doesn’t really belong in this collection, but I think the oddest tax story I’ve ever read is that a bureaucrat from the tax-loving European Commission criticized France for excessive taxation.

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I realize that we’re in the midst of an important tax battle in Washington and that I should probably be writing about likely amendments to the Senate tax bill.

But long-time readers know that I’m bizarrely preoccupied by international tax issues (I would argue for very good reasons since global tax competition is a way to discipline greedy politicians and because I want the power of governments to be constrained by national borders).

So I can’t resist commenting on a Washington Post story about the tax implications of the upcoming wedding of Prince Harry and Meghan Markle.

It may seem like a modern fairy tale, but the upcoming wedding of Britain’s Prince Harry to American actress Meghan Markle will come with some mundane hurdles. Perhaps most inconveniently for the British royals, this transatlantic partnership could end up involving the United States’ Internal Revenue Service.

Most readers probably wonder how and why the IRS will be involved. After all, Ms. Markle no longer will be living in the United States or earning income in the United States after she marries the Prince.

But here’s the bad news (for the millions of Americans who live overseas, not just Ms. Markle): The United States imposes “worldwide taxation,” which means the IRS claims the right to tax all income earned by citizens, even if those citizens live overseas and earn all their income outside of America.

…there already has been widespread speculation that the union of Prince Harry and Markle eventually could result in some British royal children wielding American passports. But there’s a big obstacle in the way: American tax laws. …The United States’ citizenship-based taxation system is unusual: Only Eritrea has a similar system. It’s a relic of the Civil War and the Revenue Act of 1862, which called for the taxing of U.S. citizens abroad.

Here’s what this means for the royal family.

Markle’s American citizenship could open up the secretive finances of the royal family to outside scrutiny. If she remains a U.S. citizen, Markle will have to file her taxes to the IRS every year. And if she has more than $300,000 in assets at any point during the tax year — a likely scenario, given her successful acting career and her future husband — she will be expected to annually file a document called Form 8938 that will reveal the detail of these assets, which could include foreign trusts. …Although Markle’s tax information would not become public once sent to the United States, it would leave the royal family open not only to IRS review but also the risk that the information could leak, said Dianne Mehany, a tax lawyer at Caplin & Drysdale.

So what’s the solution if the royal family wants to avoid the greedy and intrusive IRS?

Ms. Markle will need to copy thousands of other overseas Americans and renounce her citizenship.

…the royal family employs some of the country’s best tax consultants. …”My guess is that she’ll be pressured by the Royal family to renounce [her U.S. citizenship], even if she’d rather not,” Spiro added. In many ways, that solution may be the simplest. And if Markle does give up her citizenship, she won’t be alone. Treasury Department data show that 5,411 people chose to expatriate in 2016 — a 26 percent year-over-year increase and potentially a historic high — and experts expect that number to keep rising because of the increasing tax burdens placed on U.S. citizens living abroad.

And it’s embarrassing to acknowledge that the United States has a very barbaric practice (used by evil regimes such as Nazi Germany and Soviet Russia) of extorting funds from Americas who are forced to give up citizenship.

She…would be subject to a potentially considerable exit tax.

This is adding injury to injury.

But Ms. Markle can be comforted by the fact that she’s not an outlier. Because of America’s bad worldwide tax regime (and especially because of FATCA, which makes enforcement of that bad system especially painful), an ever-growing number of overseas Americans have been forced to give up their citizenship.

Maybe as a wedding present to Prince Harry, American politicians can junk America’s terrible worldwide tax regime. That doesn’t require dramatic change, but why not fix a bunch of problems at once? I’ll simply point out that the flat tax is based on the common-sense approach of territorial taxation (governments only tax economic activity inside national borders).

P.S. This issue also impacts America’s Olympic athletes.

P.P.S. And Santa Claus as well!

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