|Warning: Do not use for tax evasion|
A discussion about tax documentaries unfolded on twitter over the past few days, dubbed #taxflix, HT @alvinmosioma.
I threaded a list that I had been keeping for some time, and the twitter discussion resulted in some key additions so I decided to upload the contents of my spreadsheet to this public google sheet where anyone can view or add to the list, but for those who simply want the current list (arranged by year), it is below.
The ones available on youtube are also available via this playlist.
- The New Spirit, 1942, http://www.youtube.com/watch?v=00u6qUelp6c
- Spirit of ‘43, 1943, http://www.youtube.com/watch?v=rQsOOfU59SM
- The Sloane Affair, 1972,https://www.youtube.com/watch?v=hamUiNR3Cl0
- The Polite Conspiracy, 1984,https://www.bfi.org.uk/films-tv-people/4ce2b759c3b7d
- A Taxing Woman, 1987, https://www.youtube.com/watch?v=YE8n9ybN5Yk
- Death and Taxes, 1993, https://www.youtube.com/watch?v=EHStX0iyyMk
- An Act of Conscience, 1997,http://www.turningtide.com/aoc.htm
- Life and Debt, 2001, http://www.lifeanddebt.org
- Tax Revolts, 2001, URL unknown
- NOW with Bill Moyers: A Question of Fairness, 2003, URL unknown
- Sealand: The Mystery Solved, 2003, Part 1: https://www.youtube.com/watch?v=OhrzXYmxFdw and Part 2: https://www.youtube.com/watch?v=cktpmy-iiJQ
- Tax Me if You Can (US version), 2004, http://vimeo.com/15101824
- Global Capital Market: Risks and Rewards, 2007, http://proxy.library.mcgill.ca/login?url=http://digital.films.com/PortalPlaylists.aspx?aid=13209&xtid=34993&loid=37126
- Inside the IRS, 2007, URL unknown
- I.O.U.S.A, 2008, http://video.google.com/videoplay?docid=270867650600562607#
- Tax Me if You Can (Australia Version), 2008, http://www.abc.net.au/4corners/content/2008/20081006_tax/interviews.htm
- Taxing the Poor, 2008, http://www.pbs.org/now/shows/415/video.html
- The End of Poverty, 2008,https://www.dailymotion.com/video/x22eynh
- Rising Tide, 2008, URL unknown
- Tax Me If You Can (UK version), 2009, http://www.youtube.com/watch?v=sWmlUfknTZk&feature=youtube_gdata_player
- Ten Trillion and Counting, 2009, https://www.pbs.org/video/frontline-ten-trillion-and-counting/
- We’re Not Broke, 2009, http://www.hulu.com/watch/442931
- Your Tax Dollars at Work, 2009, https://wetheeconomy.com/films/your-tax-dollars-at-work/
- Deficits: Taxing the Rich, 2010, https://www.cbsnews.com/video/deficits-taxing-the-rich/
- Dispatches: How the Rich beat the Tax man, 2010, http://www.channel4.com/programmes/dispatches/episode-guide/series-72/episode-1
- I.O.U.S.A. Solutions, 2010, http://www.pgpf.org/Media/Video/2010/09/iousa-solutions.aspx
- Inside the IRS, 2010, http://www.youtube.com/watch?v=1Jzee0GKA3w (part 1)
- 60 minutes: The New Tax Havens, 2011, https://www.youtube.com/watch?v=MxgezC4KhXQ
- An Inconvenient Tax, 2011,http://vimeo.com/channels/aninconvenienttax
- Dazed & Confused | The Money Issue, 2011, https://vimeo.com/groups/4307/videos/21478777
- Heist: Who Stole the American Dream?, 2011, https://www.youtube.com/watch?v=nWh-G3MFkSA
- The American Tax Cheat, 2011,http://www.cnbc.com/id/42192642
- UK Uncut, 2011, http://vimeo.com/19432218
- Transfer pricing and tax havens, 2011, https://www.khanacademy.org/economics-finance-domain/core-finance/taxes-topic/corporate-taxation/v/transfer-pricing-and-tax-havens
- While We Watch, 2012, http://www.whilewewatch.com/
- Dispatches: Secrets of the Taxman, 2012, http://www.channel4.com/programmes/dispatches/episode-guide/series-116/episode-1
- We’re Not Broke, 2012, http://www.filmsforaction.org/watch/were_not_broke_2012_free_on_hulu/
- Good Copper, Bad Copper, 2012, https://www.youtube.com/watch?v=uamzirLswjk
- Cash investigation S1E3: Les petits secrets des grandes entreprises, 2012, https://www.youtube.com/watch?v=zQqmQ3p42t4
- Frontline: The Untouchables, 2013, http://www.pbs.org/wgbh/pages/frontline/untouchables/
- How to Build a Country from Scratch, 2013, http://www.nytimes.com/video/2013/02/04/opinion/100000002043729/how-to-build-a-country-from-scratch.html
- Inside Story : Tax avoidance: Legality vs morality, 2013, http://www.youtube.com/watch?v=5SpCyxwahEk
- Cash investigation S2E1: Le scandale de l'evasion fiscale: revelations sur les milliards qui nous manquent, 2013, https://www.youtube.com/watch?v=i5ZZO-HgZhE
- Tax Free Tour, 2013, https://www.youtube.com/watch?time_continue=1&v=d4o13isDdfY
- Falciani's Tax Bomb: The Man Behind the Swiss Leaks, 2015, https://www.imdb.com/title/tt4480186/
- Offshore Banking / Tax Havens : Didn’t you know, you knew ?, 2016, https://vimeo.com/237409247
- Offshore: Elmer und das Bankgeheimnis, 2016, https://www.imdb.com/title/tt5520032/
- Cash investigation S4E7: Paradis fiscaux: le casse du siecle, 2016, https://www.youtube.com/watch?v=CsKH9tcvirw
- Paradis fiscale & Panama Papers, scandale d'évasion fiscale, 2016, https://www.youtube.com/watch?v=gg2sLRcByYA
- The Price We Pay, 2017, https://www.youtube.com/watch?v=tyGsFmmzGsA
- Global Witness | Paradise Papers: Time to investigate Glencore, 2017, https://www.youtube.com/watch?v=CfhEJugfCr0
- The Spider's Web: Britain's Second Empire, 2017, https://www.imdb.com/title/tt6483026/
- Cash investigation S6E3 Paradise Papers: au coeur d'in scandal mondial, 2017, https://www.dailymotion.com/video/x68vxeh
- Development Foregone, 2017,https://www.youtube.com/watch?v=OWS5nKGJkJk&feature=youtu.be
- Der Insider: #CumExFiles, 2018, https://www.youtube.com/watch?v=J1XA320LiUk
- Reberth, 2018, https://www.imdb.com/title/tt8750660/
life in the panopticon will not be tolerable for lots of reasons. My tolerance for leakage in taxpayer compliance to forestall the complete surveillance of all human activity by government may be higher or lower than others; I am not sure. But the following guest post by Gaute Solheim of the Norwegian Tax Administration gives a nice summary of the tax administrator's more optimistic view. Cross posted from the Surly Subgroup.
Do You Really Need More Information?
Tagged as: analytics compliance data evasion governance tax policy theory
Tagged as: compliance guest post information institutions tax gap
Over at Surly Subgroup, Leandra Lederman has posted Death, Taxes, and a Beach Read, a review of a series of novels by Diane Kelly, a former CPA and tax attorney turned romance novelist who "had the pleasure of working with a partner later convicted of tax shelter fraud [and] served a stint as an Assistant Attorney General for the State of Texas under an AG who pled guilty to criminal charges related to the tobacco company lawsuits." Leandra told me about these books last week when I was in Bloomington, and I have never heard of them before, so it is fun to see her write them up. From her post:
It never occurred to me to blog about [the series] until I read the first page of “Death, Taxes, and Cheap Sunglasses” while on a plane, and saw a link with tax issues I frequently write about. The opening paragraph reads:
“I slid my gun into my purse, grabbed my briefcase, and headed out to my car. Yep, tax season was in full swing once again, honest people scrambling to round up their receipts, hoping for a refund or at least to break even. As a taxpayer myself, I felt for them. But as far as tax cheats were concerned, I had no sympathy. The most recent annual report indicated that American individuals and corporations had underpaid their taxes by $450 billion. Not exactly chump change. That’s where I came in.”
I had just presented my latest tax compliance article, “Does Enforcement Crowd Out Voluntary Tax Compliance?” and here were tax gap figures showing up in a novel! ...Leandra notes that of course the novel simplifies, referring to “underpaid”taxes: official tax gap measurements by the IRS (see e.g. 2006; 2012) include late payment and filing/reporting failures. Leandra continues:
The heroine of this "romantic mystery series" is CPA Tara Holloway, who's described as "kicking ass, taking social security numbers, and keeping the world safe for honest taxpayers." She's a Special Agent with the IRS's Criminal Investigation Division....
Diane Kelly takes a few liberties with what Tara can get away with. The acknowledgments in “Death, Taxes, and Peach Sangria” include the following statement: “To the IRS special agents, thank you for sharing your fascinating world with me and for all you do on behalf of honest taxpayers. Please forgive Tara for being such a naughty agent and breaking the rules.”Leandra recommends readers start with the first novel in the series, Death, Taxes, and a French Manicure. But if Tara's mission is to close the tax gap, is it ok to buy the book on Amazon?
Tagged as: tax gap
Further to my last post on the newly released Tax Gap study by the Canada Revenue Agency, the following comes from guest blogger Iain Campbell (ARC, UK):
Tagged as: Canada tax gap tax policy
I am occasionally asked for a list of the things I've written or presented about FATCA and citizenship-based taxation, and decided I may as well post it here. I have a newer article on the adoption of the IGA in Canada, will post that soon and add to this list.
- Uncle Sam Wants...Who? A Global Perspective on Citizenship Taxation (explaining the expansive US tax jurisdiction and its consequences on citizens abroad)
- Understanding the Accidental American—Tina’s Story (describing the “gotcha” of CBT and FATCA)
- Paperwork and Punishment: It’s Time to Fix FBAR (explaining FBAR, its mission creep, and its effects on USPersons living abroad)
- Taxpayer Rights, On and Off-shore (exploring tax complexity and compliance for nonresident US Persons)
- Regulating Tax Preparers: A Global Problem for the IRS (exploring the problem of regulating the tax compliance industry outside the US territory)
- Could a Same Country Exception Help Fix FATCA and FBAR? (calling for exemption of local accounts held by nonresident US Persons from FATCA reporting; third item in a compilation; scroll to p. 7 of the document).
- Two expert reports in connection with the Hillis v. Attorney General of Canada litigation.
- Submission to Finance Department on Implementation of FATCA in Canada (discussing legal issues with proposed adoption of IGA)
- What You Give And What You Get: Reciprocity under a Model 1 IGA (explaining asymmetrical account disclosure and sharing requirements)
- Tax Cooperation: Past, Present and Future (explaining why FATCA is a tax treaty override & the IGAs do not “cure” it)
- The Dubious Legal Nature of IGAs and Why it Matters (arguing that the IGAs violate the US constitution regarding the treaty power, and thereby implicate public international law as to the treaties they ostensibly interpret)
- Interpretation or Override: Introducing the Hybrid Tax Agreement (further analysis on the public international law problems created by the IGAs)
- Putting the Reign Back in Sovereign: Advice to the Second Obama Administration (analyzing FATCA’s unilateral nature and its implications for international tax policy)
- Interview with Tax Analysts (November 2015)
- Podcast with the McGill Law Journal (February 2014)
- Testimony to Finance Committee (March 2014)
- Interview with CBC News (January 2014)
- Interview with CBC Radio "All in a Day" (July 2014)
- Explaining the basic structure and issues surrounding FATCA (2012-prior to the IGA era)
Tagged as: citizenship FATCA scholarship tax policy
Many U.S.- and foreign-based MNCs that have implemented carefully researched tax strategies to reduce their income taxes are coming under increased scrutiny. Most MNC tax strategies involve businesses they conduct worldwide, but which are managed from the U.S. These strategies have several factors in common:
(i) Companies established in tax havens or otherwise structured to attract little if any tax;
(ii) Intercompany agreements placing commercial risk and intangibles in such companies, thereby shifting profits to such companies;
(iii) Conduct of centralized activities and functions in the U.S. (in addition to group senior management), which are integral to and which critically benefit all MNC group members conducting that line of business (examples of such activities include product development, product sourcing, management of contract manufacturing process, management and control of internet platforms, etc.); and
(iv) No significant changes made to their business operations when tax strategies were implemented, meaning potentially that these structures lack economic substance.
This article suggests that in their haste to create these profit-shifting structures, the MNCs and their advisors may have overlooked two important weapons in the IRS’s arsenal to attack profit-shifting strategies.
First, because of the centralized activities and functions within the U.S. that are integral to the business conducted by various group members (including both U.S. and foreign group members), an MNC may inadvertently create through its actions and intercompany contracts a partnership that is recognized solely for U.S. tax purposes. Once such a partnership exists for tax purposes, the various group members become its partners and the partnership conducts the applicable worldwide line of business.
Secondly, because the partnership conducts a portion of its activities through U.S. offices and other facilities, the foreign group member partners are treated by statute as being engaged in a trade or business in the U.S. This makes them subject to U.S. taxation on their share of effectively connected income (ECI) earned by the partnership. U.S. taxation will be imposed at effective rates of 54.5% or higher. (The effective rate could be 38.25% or higher if a tax treaty applies.)
In the absence of a partnership, whether a foreign group member is engaged in a U.S. trade or business is a factual determination that may be difficult for the IRS to establish. However, to their collective detriment, MNCs whose factual situations support the existence of a partnership that conducts such a U.S. trade or business have made it a slam-dunk for the IRS to conclude that the foreign group member partner is so engaged. The U.S. tax rules are clear – if a foreign corporation is a partner in a partnership engaged in a U.S. trade or business, then that partner will be so engaged. All MNCs with this general fact pattern and their auditors should re-examine existing profit shifting structures to determine if they could withstand an IRS charge asserting both the existence of a partnership and taxable ECI.An interesting perspective and worth a read.
Tagged as: scholarship Tax law US
Leopoldo Parada has recently posted on SSRN an article published last summer in the World Tax Journal, entitled Intergovernmental Agreements and the Implementation of FATCA in Europe, of interest. Here is the abstract:
FATCA is a US domestic tax policy that requires Foreign Financial Institutions around the world to provide the IRS information regarding their US clients. Recognizing this extraterritorial characteristic and the troubles associated with it, the US Treasury Department developed the Intergovernmental Agreements (IGAs), which have served the double purpose of coordinating FATCA at an international level and influencing the new international standards on automatic exchange of information. Nevertheless, the IGAs are instruments that still need to be improved, at least in order to guarantee their successful implementation in Europe. The first part of this article explores the legal nature and the characteristic of the IGAs, concluding that they possess an asymmetriclegal nature that can lead to conflicts of interpretation. Likewise, it concludes that their contribution toward international transparency is incompatible with the existence of other instruments in Europe that seek the opposite goal of protecting bank secrecy, although it recognizes the importance of the most recent achievements at the European level in order to ensure a coherent and consistent system of automatic exchange of information. The second part of this article analyses three grey areas in the IGAs implementation process in Europe (i.e., “quoted Eurobonds” in the United Kingdom; group requests under the Switzerland-United States IGA, and the “coordination timing” provision of the IGA Model 1A), concluding that there is still work to be done in order for the IGAs to grant an acceptable level of reciprocity in practice.I was not aware of this article when I wrote on a column last fall on this very same topic, in which I called the IGAs "Hybrid Tax Agreements" and pointed out the mess created by their unprecedented legal form as treaties to the rest of the world but administrative guidance in the United States. Parada's article goes further in the analysis and lays out a number of enduring difficulties. It seems to me that governments are simply ignoring these difficult issues as inconvenient barriers to desired outcomes and courts will face the same temptation. But I don't think these issues go away with time and gradual acceptance of FATCA as an institution. Instead, I think the issue will cause systemic problems going forward, both in terms of raising endless conflicts of law, and in terms of the precedent set for international tax relations by the failure of states to challenge US exceptionalism even as it tramples on law and legal process throughout the world.
Tagged as: FATCA IGAs international law scholarship
The IRS faces constant funding pressure from Congress, despite becoming a victim of constant mission creep thanks to Congressional mandates (ACA and FATCA in particular). Over the years many have pled with Congress to stop underfunding the agency. The latest comes from seven former commissioners, who note that not least among the reasons to fund the IRS is the need to spend money on cyber security as the IRS fends off one million hacking attempts each week.
That's a lot of hacking because of course the payload is enormous. FATCA has surely expanded the payload significantly by developing an enormous database of personal information attached to bank account numbers and detailed account activity on a global scale. Even a small breach of security with respect to that vault will be disastrous for the taxpayers involved.
The commissioners also suggest that the IRS workload is going to increase due to BEPS. BEPS is expected to result in more treaty-based conflicts among jurisdictions, so I expect more competent authority hours will be needed. But it's likely also the case that country-by-country reporting requirements will add another enormous treasure trove of information to the database, further increasing the payload.
At minimum, Congress has simply got to fund security for this massively expanding taxpayer information database.
November 9, 2015The Honorable Thad CochranChairmanCommittee on AppropriationsUnited States Senate113 Dirksen Senate Office BuildingWashington, D.C. 20510The Honorable Harold RogersChairmanU.S. House Committee on AppropriationsU.S. House of Representatives2406 Rayburn House Office BuildingWashington D.C. 20515The Honorable Barbara A. MikulskiVice ChairwomanCommittee on AppropriationsUnited States Senate503 Hart Senate Office BuildingWashington, D.C. 20510The Honorable Nita M. LoweyRanking MemberU.S. House Committee on AppropriationsU.S. House of Representatives2365 Rayburn House Office BuildingWashington, D.C. 20515
Subject: IRS Appropriations for Fiscal Year 2016
Dear Chairman Cochran, Vice Chairwoman Mikulski, Chairman Rogers and Ranking Member Lowey:
We are all former Commissioners of the Internal Revenue Service. Over the last fifty years we served during the administrations of Presidents John F. Kennedy, Lyndon B. Johnson, Ronald Reagan, George H.W. Bush, William J. Clinton, and George W. Bush.We are writing to express our great concern about the proposed reductions by the House and Senate in appropriations for the Internal Revenue Service for the current fiscal year that will end on September 30, 2016. We understand that the Appropriations Committees in the House and Senate have proposed to reduce the FY 2015 IRS appropriation of $10.9 billion by $838 million and $470 million, respectively, for the current fiscal year. If Congress were to reduce the IRS appropriation for the current year, it would represent yet another reduction in the IRS appropriation. The appropriations reductions for the IRS over the last five years total $1.2 billion, more than a 17% cut from the IRS appropriation for 2010. None of us ever experienced, nor are we aware of, any IRS appropriations reductions of this magnitude over such a prolonged period of time. The impact on the IRS of these reductions is that the IRS has lost approximately 15,000 full-time employees through attrition over the last five years, with more losses likely in the current fiscal year unless Congress reverses the funding trend. These staffing reductions come at a time when the IRS workforce is aging, with nearly 52% of IRS employees now over the age of 50 and 24% already eligible to retire. Three years from now, 38% of IRS employees will be eligible to retire. This loss of IRS knowledge and experience is alarming, particularly in light of the fact that, out of a present workforce of about 85,000 employees, the IRS has only about 3,400 employees under the age of 30 and only 384 employees under the age of 25 due to hiring freezes for budgetary reasons at the IRS since 2010 and periodically from 2005 to 2010. Over the last fifty years, none of us has ever witnessed anything like what has happened to the IRS appropriations over the last five years and the impact these appropriations reductions are having on our tax system.These reductions in IRS appropriations are difficult to understand in light of the fact that, at the same time these reductions have occurred, the Congress repeatedly has passed major tax legislation to substantially increase the IRS workload. Most recently the Congress passed the Foreign Account Tax Compliance Act and the Patient Protection and Affordable Care Act, two major new programs, each of which significantly expands the IRS' tax administration burdens. The IRS personnel reductions come at a time when the IRS is stretched to the breaking point to cope with tax enforcement challenges attributable to global and domestic changes that are impacting our tax system. Increasingly, the United States is facing tax challenges as the result of efforts that are taking place in the international tax arena to deal with the tax non-compliance that is accompanying the continued globalization of business and investment activities. The most recent tax changes to address international tax non-compliance are proposed in the Organization for Economic Cooperation and Development's (OECD) Base Erosion and Profit Shifting Report. Regardless of one's view of these proposed changes, it is clear that the IRS will be substantially impacted by changes and challenges of other countries who adopt them.Additionally, increasing incidents of identity theft and refund fraud are being perpetrated against our tax system by large, sophisticated organized crime syndicates around the world. These criminals seek to file false returns and claim fraudulent refunds using personal taxpayer data obtained from sources outside the IRS. At the same time, many unlicensed, unregulated return preparers are preparing and filing fraudulent tax refund returns. Every time there is an information technology hacking event in the public or private sectors in which Social Security numbers are stolen, the likelihood exists for additional identity theft and refund fraud. The growing refund fraud challenge to our tax system is especially alarming to us because of the need, which is fundamental to our tax system, for the IRS to be able to assure taxpayers who are paying their fair share of taxes that other taxpayers are doing the same thing. To emphasize the seriousness of refund fraud, the Government Accountability Office earlier this year placed identity theft and refund fraud on its list of "high risk areas" in the federal government, a sure sign to each of us that the IRS should have more, not fewer, enforcement resources to deal with this threat to the integrity of our tax system,To place the impact on our tax system of the Congressional IRS appropriations reductions over the last five years in its proper context, Congress almost annually over the last 25 years has passed legislation that has imposed additional burdens on IRS tax collection and administration under our revenue laws. During this time, the Congress also repeatedly added more and more socio-economic incentives to the tax code and called upon the IRS to administer these new socio-economic programs, including healthcare, retirement, social welfare, education, energy, housing, and economic stimulus programs, none of which is related to the principal job of the IRS to collect revenue. At the same time, Congress passed even more legislation to pay for these tax spending programs. The result is that almost 30 years after the 1986 Tax Reform Act, our tax laws are a mess. Our tax laws have become so difficult for taxpayers to understand that 80% of all individual taxpayers now use paid consultants or software to prepare their income tax returns. Because of insufficient IRS resources in FY 2015, an average of more than 60 percent of the taxpayers who called the IRS for assistance in preparing their returns during the last filing season were unable to reach an IRS assistor, even after many taxpayers had remained on the telephone for more than 30 minutes before they were automatically cut off because of the volume of calls, which the reduced numbers of IRS assistors were unable to handle. Equally serious are the cybersecurity threats illustrated by the problem that occurred earlier this year involving unauthorized attempts to access taxpayer information using the IRS' Get Transcript online application. Separately, the IRS continues to experience about one million attempts each week to hack into its main information technology systems. Although the IRS has so far successfully thwarted these attacks and its main systems remain secure, all of this astonishes us and emphasizes to each of us that the IRS taxpayer assistance and IRS information technology resources are severely underfunded, especially when compared to the increasing cybersecurity budgets of private sector companies.It is clear to each of us that the IRS appropriations reductions over the last five years materially and adversely affect the ability of the IRS to assist taxpayers who are trying to comply with their tax obligations, as well as the ability of the IRS to detect and deter taxpayers who have not complied with their tax obligations. Recently, we understand that the IRS estimated a direct annual revenue loss to the Federal government in tax enforcement at $6 billion last year and $8 billion this year, due to such appropriations reductions. Historically, for every dollar invested in IRS tax enforcement, the United States received $4 or more in return, and we understand that continues to be true today.The Congressional Budget Office in its June 2015 Long-Term Budget Outlook projected future fiscal challenges to the United States because of the large and increasing size of our national debt and rising future operating deficits attributable to an aging U.S. population and rising healthcare costs. It, therefore, is imperative that our tax system in the future operate at an optimal level in order to maximize the revenues the IRS collects. For that to happen, the IRS must be able to assist taxpayers who are trying to comply with their tax obligations, and at the same time be able to enforce the tax laws against those taxpayers who have not complied with their tax obligations. In short, because of our country's fiscal and other challenges, our tax system must work and work well to collect the taxes that are owed.Some have argued that the IRS can solve these problems by simply becoming more efficient. This argument ignores the reality that the IRS is already, by far, the most efficient tax collection agency among large countries in the world. The OECD recently released its bi-annual analysis of tax administration across the developed world and reported, based on 2013 statistics which don't reflect the most recent IRS budget cuts, that the amount the IRS spends to collect a dollar in taxes is approximately half the average amount spent by all OECD countries. Germany, France, England, Canada and Australia all spend as much as two to three times the amount the IRS does to collect a dollar of revenue.In light of the foregoing, we fail to understand how it makes any logical sense to continue to reduce, rather than increase, the IRS budget for FY 2016 in order to optimize the IRS' ability to provide taxpayer service and to enforce the tax laws to increase revenue collections. To put it succinctly, we do not understand why anyone with present and projected debts and annual losses as large as those of the United States would refuse to pay for telephone assistance to people trying to fulfill their tax obligations, would turn their back on $8 billion annually in additional revenue, or would fail to make an investment that offers a return equal to at least four times the amount invested. For these reasons, we respectfully call upon each of you to support and work to accomplish the passage of an IRS appropriations request for FY 2016 that is substantially in excess of the appropriation for the IRS in FY 2015.Mortimer M. Caplin (1961-64)Sheldon S. Cohen (1965-69)Lawrence B. Gibbs (1986-89)Fred T. Goldberg, Jr. (1989-92)Shirley D. Peterson (1992-93)Margaret M. Richardson (1993-97)Charles O. Rossotti (1997-2002)
Tagged as: FATCA governance information institutions IRS US
Over the summer, Jeffery Kadet published an article of interest, Attacking Profit Shifting: The Approach Everyone Forgets, in which he argues that the IRS has the ability, as yet not exercised, to attack profit shifting by US-based MNCs using nothing more than the domestic "effectively connected income" rules. Here is the abstract:
In recent years the financial press has turned increasing attention to MNCs that shift income to low taxed jurisdictions overseas in order to avoid US taxation. What’s generally missing from these discussions is any serious focus on possible IRS attacks on these companies, most of which are CFCs. There’s little apparent concern by anyone that the IRS will try to disallow the profit-shifting structures that have moved so much taxable income out of the US and other countries and into low-taxed foreign jurisdictions.
This is changing. Early this year Caterpillar Inc. in an SEC filing disclosed that the IRS had issued a Revenue Agent’s Report to currently tax certain income earned by one of its Swiss entities. Presumably this is income earned as a result of a certain restructuring conducted in the late 1990s and referred to as the Swiss Tax Strategy when examined in 2014 in hearings held by the Senate Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations (PSI).
The IRS basis for its RAR, as disclosed by Caterpillar, is application of the ‘substance-over-form’ or ‘assignment-of-income’ judicial doctrines. This, however, is not the only approach that the IRS might have chosen to impose taxation on the shifted profits.
Various Congressional hearing documents, the work of investigative journalists, and other sources (all publicly available) provide evidence that the businesses within some profit-shifting structures continue to be managed and substantially conducted from the U.S. and not from any business locations outside the U.S. Where this is the case, the IRS may have a strong case for imposing direct taxation on the effectively connected income (ECI) of these low-taxed foreign subsidiaries.
Just the threat of imposing direct taxation may cause many MNCs to consider scaling back their profit shifting and for them and their outside auditors to start worrying about exposure on prior years. If the IRS were to sustain such direct taxation, it would mean:
• The regular up-to-35% corporate tax,
• The ‘branch profits tax’ applied at a flat 30% rate (unless lower by treaty),
• A loss of deductions and credits for any tax year if the foreign corporation has not filed Form 1120-F for that year, and
• An open statute of limitations on IRS assessment of tax for any tax year if the foreign corporation has never filed a US tax return on Form 1120-F for that year.
The combined effect of the above is a 54.5% or higher effective tax rate (lower if tax treaty coverage reduces the 30% branch profits tax rate).
Considering these terribly high effective tax rate percentages, where the IRS chooses to examine for possible ECI and develops a credible case, they can use the high effective tax rate as strong leverage to secure agreement for reversal of profit shifting structures. Such agreements would presumably see MNCs agreeing to current taxation within U.S. group members of the shifted profits that had originally been booked in low-taxed foreign subsidiaries.
To demonstrate how significant ECI likely exists within many MNCs that have conducted profit-shifting planning, this article includes a number of realistic examples inspired by the above-mentioned publicly available information on MNC profit-shifting structures.
Recognizing that it can sometimes be a challenge to apply the very old existing regulations to current business models, the article strongly encourages Treasury to prioritize the issuance of modernized income sourcing and ECI regulations that reflect the business models and structures now commonly used and that are often found in profit-shifting structures.