TAX, SOCIETY & CULTURE

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Canada implements the MLI on BEPS; Will Parliament Take a Nap?

Published Sep 20, 2018 - Follow author Allison: - Permalink

With the return of Canada's Parliament to business this week, debate theoretically should take place on Bill C-82, An Act to implement a multilateral convention to implement tax treaty related measures to prevent base erosion and profit shifting, a.k.a. the "Multilateral Instrument in Respect of Tax Conventions Act" (the official short title). But we can call it the BEPS bill since its job is to implement a set of consensus positions the OECD developed to eliminate "Base Erosion and Profit Shifting" by multinational taxpayers.

This BEPS Bill implements the OECD's MLI to Prevent BEPS, which is a multilateral treaty that amends existing bilateral tax treaties. The rationale is that countries were engaging in or at least facilitating BEPS, and they were often doing so through tax treaties, so a blanket change to a few thousand of these treaties was needed to prevent ongoing tax avoidance.

Given that the BEPS bill adopts one treaty to rule them all, Parliament might be expected to undertake careful scrutiny of its terms, but these expectations are not likely to be met. A study I completed with help from a very adept graduate student in 2016, entitled “While Parliament Sleeps: Tax Treaty Practice in Canada,” (published in the Journal of Parliamentary and Political Law / Revue de droit parlementaire et politique 10 (1) : 15-38, March / mars 2016 and available in draft form here), found that over a fifteen year period, Parliament has adopted legislation implementing 32 international tax agreements without a single standing vote occurring in the House of Commons at any point in the legislative process.

These 32 agreements collectively form over 750 pages of binding law in Canada, none of which was considered for more than two sittings at any stage of consideration in either the Senate or House of Commons.

In Canada, tax-treaty implementing legislation is generally introduced in the Senate, studied very little there, and then sent to the House of Commons where it receives even less attention. Although tax scholars focus, rightfully, on scrutinizing the substance of tax treaties, we should not be lulled into ignoring the process by which Parliament discharges its role in legislating tax treaty implementation. To that end, some of the debate in Parliament is downright disappointing.

For example, consider the most recent exercise (written after my study), when the Senate was seized with Bill S-4, whose official summary reads:

 This enactment implements a convention between the Government of Canada and the Government of the State of Israel for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and an arrangement between the Canadian Trade Office in Taipei and the Taipei Economic and Cultural Office in Canada for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income. It also amends the Canada–Hong Kong Tax Agreement Act, 2013 to add to it, for greater certainty, an interpretation provision.
In a speech of only a few minutes on the bill, the Legislative Deputy of the Government Representative in the Senate stated:
 It is urgent that we move forward with the study of this bill because if we want the agreements on double taxation to go into effect in 2017, the bill must receive Royal Assent by the end of 2016. Therefore, I invite all honourable Senators who wish to speak to this bill to do so as quickly as possible so that the bill may be referred to a committee as soon as possible.
In total, the entire House Finance Committee's study took less than 15 minutes. The third reading debate in the Senate lasted less than 10 minutes and, after calling the bill a "no-brainer," a "marvellous bill," and "a continuity-of-government bill" that "does wonderful things for Canadian industry and consumers alike," the Senators continued with this exchange:
Senator Day: Should I tell anybody what this bill is about?
Some Hon. Senators: No.
Then followed a dubiously notable comment by Senator Plett that "I'd like to add my voice and simply say that this, again, is clear evidence that occasionally a good biscuit can be found in a garbage can."

The idea that Parliament should rush to meet the government’s preferred timetable in what the Senate characterizes as a "garbage can" of a bill (or of a government--I am not sure which) is highly problematic. If it takes longer to scrutinize a bill, so be it. The government – for its part – didn’t leave Parliament much time in this case, having only introduced S-4 in the Senate on November 1st, 2016.  By the time the Legislative Deputy of the Government Representative in the Senate got to make her speech on November 24th, the clock was ticking quickly toward the MPs' and Senators' winter break.

I single out this debate not only for the unprincipled concession to expedited timing, but particularly for the exchange that followed. A Senator asked the Legislative Deputy of the Government Representative in the Senate “In your opinion, does the bill before us pertain to our participation in the WTO?” The response: “I do not know much about this bill. However, I do know that it is important, that it is urgent that we move it along, and that it has significant consequences.”

Putting aside the carefree decision to speak to a bill one “does not know much about” and the apparent confusion about how the bill relates to the WTO (did the Senator mistake a tax treaty for a trade agreement?), it would be hard to characterize the limited early Senate Chamber debate as well-informed or thoughtful in any way. On the House side, the bill was fast-tracked – a motion passed by unanimous consent stipulated that “when the House begins debate on the third reading motion of the Bill, a Member from each recognized party, as well as a Member from the Bloc Québécois, may speak for not more than five minutes, with no question and comment period, after which the Bill shall be deemed read a third time and passed."

As such, in its last debate, the bill received less than 20 minutes of attention in the House with no questions –that is, each party spoke but there was no dialogue in substance. The bill received Royal Assent on December 15th, 2016.

This brings me back to the BEPS Bill, which actually bucks the trend by being introduced in the House of Commons instead of the Senate. This is important because even though Senate debates on tax treaty implementing legislation are limited (as evidenced above), the Senate is still the body that generally studies these matters and has nominally built up expertise. Because the general trend in Parliament is that the Chamber that receives a tax bill second is the one that studies it less, one is left to hope without confidence that the House will undertake its due diligence.

There is cause for concern with C-82. Unlike the other tax treaty implementing bills I studied, this was preceded by a ways and means motion that provided the text of the bill in advance. In other words, the Minister of Finance tabled a notice on May 28th that contained essentially what would become C-82. But, rather than debate the Notice, the House on June 19th deemed that motion agreed to and further deemed the BEPS bill formally introduced.

Without venturing too far into the procedural weeds, it is perhaps sufficient to observe that there could have been a debate on that ways and means motion. Instead, the decision in June deemed this motion adopted ‘on division’ – that is, dissent is indicated for the record but we don’t know who disagreed or on what basis because there was no actual debate on the record.

This leads me to wonder whether we’ll see an actual debate occur on the merits of C-82 if even its introduction was fast-tracked through deeming. I doubt it. After all, MPs (and Senators alike) often find tax matters confusing and technical. Maybe in this case especially, the whole things seems like a foregone conclusion since we are talking about an OECD initiative in which Canada has been involved over many years. Moreover, Canada's undertakings in the MLI are modest to say the least. Even so, that doesn’t mean these bills don’t deserve careful study since it is agreed that certain tax arrangements erode Canada’s tax base (cf: the recently decided Alta Energy case). It is much harder (and more costly) to re-negotiate and re-legislate (if need be) a treaty than to get things right the first time (for a discussion, see See Charlie Feldman, “Parliamentary Practice and Treaties” (2015) 9 J. Parliamentary & Pol. L. 585). Adopt in haste, repent at leisure ought to be a mantra for tax treaties.

Unfortunately, Canada's Parliament has limited involvement in the treaty process and only so much influence over treaty-implementing legislation. An additional concern is that there is only so much time left in the legislative calendar with an election a year away. The government has important pieces of legislation moving – including implementing the TPP, adopting the first-ever national legislation on accessibility, and an election law overhaul that the government has already tried to fast-track. Moreover, of the 366 commitments the Trudeau government has made, the government’s own analysis indicates that just 96 have thus far been met. Many others also require legislation, for example, the specific commitments to “introduce proactive pay equity legislation for federally-regulated workers"; to modify Canada’s oath of citizenship to reflect Canadian and Indigenous history; to introduce an Indigenous Languages Act; and to reform the Canada Labour Code to help precarious workers.

Moreover, Parliament already has many bills to consider which have yet to complete the legislative process. Parliament's Legislation-at-a-glance page shows just how much each House has before it already, including criminal justice and family law reforms, firearms regulation, and military justice changes remaining in the House, and many big legislative matters before the Senate including bills on sustainable development, access to information, and fisheries reform. While the BEPS bill could be a step ahead of bills yet to come, it is easy to imagine easier-to-debate matters (such as labour reforms) getting much more debate in the House and, if and when it does get to the Senate, that body will be even more pressed for time given all the other items from the House being added to its plate.

With all these bills anticipated, and little experience in tax treaties, will the House give the BEPS bill its due? Unlikely. It is more likely that as far as Canada is concerned, C-82 will be a Bill Evading Parliamentary Scrutiny.

Tagged as: BEPS Canada MLI scholarship

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Does a country's willingness to exchange tax info alter the character of its trade in services?

Published Oct 21, 2017 - Follow author Allison: - Permalink

Delimatsis and Hoekman have posted National Tax Regulation, International Standards and the GATS: Argentina—Financial Services, of interest especially in light of ongoing discourse about what kinds of tax competition are approved versus harmful in OECD terms. Here is the abstract:

Can a WTO Member discriminate against foreign suppliers of services located in jurisdictions that refuse to share information with a government to permit it to determine if its nationals engage in tax evasion? Does it matter if the Member uses standards developed by an international body as the criterion for deciding whether to impose measures? In Argentina—Financial Services the WTO Appellate Body held that services from jurisdictions that share financial tax information may be different from services provided by jurisdictions that do not cooperate in supplying such information. It overruled a Panel finding that measures to increase taxes on financial transactions with non-cooperative jurisdictions were discriminatory. We argue that the AB reached the right conclusion but that an important opportunity was missed to clarify what WTO Members are permitted to do to enforce their domestic regulatory regimes, and how international standards could have a bearing on this question. By giving consideration to arguments that the likeness of services and service suppliers may be a function of prevailing domestic regulatory regimes, the AB increased the scope for confusion and future litigation.

Tagged as: scholarship tax policy WTO

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How to rob from the poor and give to the rich: Border Tax Equity Act of 2016

Published Nov 07, 2016 - Follow author Allison: - Permalink

In September, Donald Trump started calling for the US to tax imports from Mexico and China etc, on various theories having to do with his vision of what fair trade policy involving the United States would require. Democratic lawmaker Bill Pascrell appears to have seized the moment to re-introduce a bill that has failed multiple times in the U.S. Congress over the years, namely, the so-called Border Tax Equity Act. The idea of this act is simple: tax US consumers on imports and give the money to US companies that export things. If you find it amazing that anyone anywhere could support a tax and redistribute scheme like this, blame it on the pitch: Pascrell (and others) laud this as an answer to what they have characterized as a discriminatory practice, namely the exemption of exported products from value added taxes (VAT) by the 160+ countries that have federal consumption taxes. The argument is that "[t]he disparate treatment of border taxes is arbitrary, inequitable, causes economic distortions based only on the type of tax system used by a country, and is a primary obstacle to more balanced trade relations between the United States and its major trading partners."

This argument is specious and I don't expect the bill to pass but this issue is one that just does not seem like it will go away, I think because it is too easy to pitch the VAT border tax adjustment as "unfair." I had an exchange with trade expert Simon Lester almost ten years ago on this very subject, and re-reading my response today, it seems to cover the bases so I thought I would re-post it. You can see his original post here including a discussion in the comments between myself, Simon, and Sungjoon Cho on the matter. Sungjoon helpfully linked to a GATT working party report from 1970 but his original link is dead, however you can find that report here. Here is what I said (highlights added):

The great fallacy here is that the foreign exporter to the U.S. is somehow subject to no tax while the U.S. exporter is subject to two taxes. This is simply not the case. Other countries, especially our biggest trading partners (e.g. Canada) have both a federal corporate income tax and a federal consumption tax, while the U.S. has only a federal corporate tax. You cannot honestly assess the impact of the VAT in the context of only one country’s corporate income tax, and supporting this legislation this way is dishonest. The Textileworld site you reference conveniently ignores foreign corporate taxes in its analysis—I will leave you to decide for yourself why they might do that.

...I will give a drastically oversimplified example. Assume a U.S. person manufactures a product in the U.S. which it will sell in Canada. The company’s profit on the sale is subject to federal income tax in the U.S., plus VAT in Canada (there called a general sales tax). Let us assume a Canadian company makes a similar product. With the same profit margin as the U.S. company on that product, the big issue here is the different rates of federal corporate taxes each company pays to its home country, because both pay an equal amount of VAT tax in that market. What the export credit in the U.S. would do is lower the U.S . company’s federal income tax burden relative to the Canadian one.

Now flip the scenario, the U.S. manufactures and sells a product in the U.S., where there is no VAT, and the Canadian company manufactures a product in Canada to sell in the U.S. Now each company again will pay its income tax to its home country but what happens to the VAT? Well there is no U.S. federal sales tax, and Canada’s VAT only applies to sales in that market, so the VAT is not imposed on the Canadian product coming in to the U.S.—it is exempt from their VAT. Again, in the U.S. market, there is no price distortion other than the difference in corporate income tax burdens—neither product is subject to VAT. If the U.S. imposes a border tax, I think you might now see that as distortionary (to the extent you believe that a tariff is distortionary in any event). Now you might say yeah, but many states have state sales taxes, wouldn't that equalize the incoming product, exempted from sales (VAT) tax in its foreign country? The answer is, of course, yes. But you don’t see very many people complaining if New York does not impose its sales tax on a product being shipped out of New York for sale in Canada—that is a (much-ignored) direct corollary to the VAT exemption.

I could go on but this argument has been made many times before. I appreciate that tax is complex and there are many alternative taxes and scenarios in which they apply differently, so that it is easy to be swayed by something that “seem unfair.” The bottom line is that people will continue to compare VAT to income taxes when it suits their purposes (i.e., supports protectionist policies like the border tax), and not when it doesn’t (i.e, when they want to pressure a government to lower its corporate tax rate to align with other nations’ corporate tax rate). But don’t be fooled by someone who tries to get you to look at one piece of a complex puzzle and guess what the image is.
Further...
[I]f you seek a level playing field, border taxes and rebates do not achieve that, and in fact, I doubt anyone could ever be confident about how to go about getting it via tax breaks for some and tax penalties for others (I have some ideas about where I would start, but I'll restrain myself). A border tax/rebate does not operate like an inverse VAT or offset an extra cost imposed by a VAT. A border tax is a tariff and a rebate is a subsidy, plain and simple, and I would expect many of our trading partners to oppose it if enacted.

Incidentally, abolishing all income taxes might solve the problem of the income tax competition, but then you have a much different problem. By some estimates, if the U.S. were to abolish the income tax entirely in favor of a sales tax, the rate could be as high as 50%. More likely scenario: we keep the income tax just like it is and ADD a 10-20% federal VAT. This would get rid of the erroneous "VAT as distortion" complaint but I personally would rather keep the debate and take a pass on the VAT.
Today, I am less convinced that the income tax is worth saving and more open to a federal VAT, but that's a discussion for another day. To the above I would only add that in 2009 the US Congressional Research Service undertook a study called International Competitiveness: An Economic Analysis of VAT Border Tax Adjustments, well worth reading--the authors were Maxim Shvedov (now tax policy expert at AARP) and Donald Marples, whose more recent work on inversions with Jane Gravelle is also of interest. Their conclusion:
Economists have long recognized that border tax adjustments have no effect on a nation's competitiveness. Border tax adjustments have been shown to mitigate the double taxation of cross-border transactions and to provide a level playing field for domestic and foreign goods and services. Hence, in the absence of changes to the underlying macroeconomic variables affecting capital flows (for example, interest rates), any changes in the product prices of traded goods and services brought about by border tax adjustments would be immediately offset by exchange-rate adjustments. This is not to say, however, that a nation's tax structure cannot influence patterns of trade or the composition of trade.
In summary: No, taxing at the border for the reasons given does not introduce "equity." It introduces WTO-prohibited tariffs and export subsidies. One could imagine that if the tariffs so raised were used to fund public goods, the possibility for an equitable outcome could be increased. But taking the money out of the pockets of US consumers and putting it in the pocket of US exporters in no way fulfills the stated policy goal.

Tagged as: fairness politics tax policy VAT

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Rosenzweig: An Antigua Gambling Model for the International Tax Regime

Published Jun 22, 2014 - Follow author Allison: - Permalink

Adam Rosenzweig recently posted An Antigua Gambling Model for the International Tax Regime. Here is the abstract:

The international tax world is facing a defining moment. While there is little agreement on anything within the field, there appears to be a growing consensus that the modern international tax regime — the so-called flawed miracle emerging from World War II — is irrevocably broken. As the countries of the world confront the challenges facing the international tax regime in the next century, new models for an institutional framework for international tax become increasingly crucial to its success. While significant progress has been made in developing underlying norms to serve as the basis for a modern international tax regime, less focus has been paid to building the institutions and structures necessary to implement these norms. To this end, this Essay proposes looking to the recent experience of the WTO in the Antigua Gambling case as a model for a new institutional framework for the new international tax regime. The Essay then proposes three potential ways to do so: (1) the creditable gross-withholding tax method, (2) the extraterritorial excise tax method, and (3) the WTO cross-retaliation method. 
By serving as an example of how to balance the needs of larger, wealthier countries and smaller, poorer ones, the Antigua Gambling model could help overcome one of the largest obstacles confronting the development of a modern international tax regime. Perhaps an Antigua Gambling model could serve as the basis for a new institutional framework for international tax.
Ambitious, and on my to-read list.

Tagged as: international law scholarship Tax law tax policy WTO

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Should you (virtually) go to Antigua to gamble or download?

Published Feb 04, 2013 - Follow author Allison: - Permalink

What an odd story from Above the Law last week:

Antigua & Barbuda can now legally offer downloads of copyrighted U.S. works, and there's not a damn thing the U.S. can do about it. The decision marks the latest chapter in the long-running trade dispute between the U.S. and the tiny Caribbean nation over Antigua's internet gambling industry. The U.S. banned Antigua's internet casinos, Antigua took the U.S. to court through the WTO, and Antigua won — and has continued to win — consistently throughout the appeal process.
ATL describes WTO dispute resolution thusly:
"Because you pulled Sally's hair, she gets a free shot to kick your friend from school in the nuts. Justice!!!"
But what Antigua really wants is a deal:
"The economy of Antigua and Barbuda has been devastated by the United States government's long campaign to prevent American consumers from gambling online with offshore gaming operators," Harold Lovell, Antigua's finance minister, said in a statement. "We once again ask our fellow sovereign nation and WTO member, the United States of America, to act in accordance with the WTO's decisions in this matter, before we move forward with the implementation of the sanctions authorized this day by the WTO."
I have two multi-part questions and two asides.

  1. just as a factual matter, can people currently download US-copyrighted works from Antigua with impunity? That is, would that not be a breach of copyright on the part of the downloader, even if it is not for the download-facilitator? Obviously i have no understanding of copyright law.
  2. can a nation state, as a matter of power/capacity, prevent its people (however it defines them) from gambling offshore via the internet?  And if it can, why shouldn't it?  This is a loaded question.



Tagged as: culture globalization governance institutions international law

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WTO Trade disputes "from the inside"

Published Jan 25, 2013 - Follow author Allison: - Permalink

This will be an interesting talk:
Appellate Body Member Tom Graham will be giving a talk at Hofstra on Feb. 6 entitled "It Sure Looks Different From the Inside: Deciding International Trade Disputes at the WTO". The title sounds promising, and from what I understand he will talk a bit about the use of the Vienna Convention by the AB in its decision-making.  He is not likely to be as forthcoming as, say, Justice Scalia, but he may say some interesting things nonetheless.
I don't see anything about live feed, too bad. I would have like to hear what he had to say--WTO decision-making is of interest to those of us keeping an eye on arbitration in tax treaties.  

Tagged as: conference rule of law WTO

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WTO overwhelmed with disputes

Published Dec 17, 2012 - Follow author Allison: - Permalink

Simon Lester notes a deluge of cases: "they keep coming, and it may be starting to strain the WTO's resources." He cites this report from Reuters:
The WTO's 157 members have launched 26 trade disputes so far in 2012, the most since 2003 and three times more than the eight new complaints filed in 2011. 
According to an internal WTO document seen by Reuters, the WTO decided to reallocate staff to the disputes team to deal with the increasing number and complexity of legal cases....
As well as moving staff, the trade body also advertised for a senior dispute settlement lawyer, at a starting salary of around 161,900 Swiss francs ($175,300), and is seeking short term candidates to help deal with the caseload.
Interesting development, especially against the backdrop of increased scrutiny and questions about the legal nature of these decisions.

Tagged as: arbitration institutions rule of law WTO

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Why Are States Broke? Lobbying Hollows out the Tax Core

Published Dec 06, 2012 - Follow author Allison: - Permalink

Over at Naked Capitalism, a lengthy discussion about that $80 billion in state-level corporate welfare from David Segal:
Our states and localities are cannibalizing one another as they concoct targeted tax breaks which they use to lure corporations from their neighbors. Meanwhile, a bevy of middlemen wet their beaks by helping corporations pit sucker states off of one another and brokering deals to sell the tax credits that comprise much of the ensuing largess. 
...It's the most basic of game theory dilemmas, and in a less corrupt political dynamic, one that could be solved by the intervention of sensible federal government actors, or perhaps even through the initiation of an interstate compact that had states agree to stop poaching from one another. 
Segal offers up Boeing as an example of the more successful manipulators ("Washington State residents bested a couple dozen other states, offering to pay the hometown company $3 billion not to forsake them" but South Carolina eventually won when it "offered Boeing around $1 billion to open a Dreamliner plant there.") Segal says only the WTO has "threatened to provide any sort of meaningful check" on these subsidies.

He also singles out one of my favorite targets, the infamous and ludicrous state film tax incentive war:
Perhaps the most transparently absurd manifestation of war-between-the-states phenomenon is the case of the film tax credit ... [which] spurred the most precipitous race to the bottom I've witnessed in my time in politics. It came to a head in 2009, when Wisconsin had just spent $100,000 dollars to support Johnny Depp's personal grooming expenses and Connecticut was fixing to subsidize episodes of Jerry Springer's talk show — lots of broken chairs to pay for.  ... California's recent budget includes a half-billion in tax credits of its own ... to keep Hollywood from off-shoring to Manhattan, Indianapolis, and Santa Fe, which are offering bribes of their own. ... At least 42 states now provide incentives, with some exceeding 40% of production costs.
That battle is lost, I think, and state-to-state is only compounded internationally. Hello Quebec, I'm looking at you, boasting about your "most advantageous cash rebates available in North America"--with your 25 % cash-back on all expenses, your 20 % bonus on all CGI and Green screen shots and no minimum spend, no caps; you don't even have to release the film in Quebec. Paradise.

Segal's got the analysis right:
all that we're doing is paying people to move jobs to-and-fro, creating no new social value, and reducing net public benefit.
WHen you do that among the several states it seems merely silly; when you do it among countries, however, that's a bit of a different matter now isn't it.

He also explains the mechanisms of the film tax credit and concludes that
tax credits of this form are always a raw deal for the public, unless a substantial percentage of the credits go unclaimed: A full 25% or so of the subsidy is misfiring, going to middlemen and corporations with significant tax burdens. If you want to fund something efficiently, just fork over cash. (This, of course, could never be made to happen, since then the public would understand that all we're really doing is forking over cash to millionaires.)
Well said. More at the link.

Tagged as: film tax incentives lobbying Quebec tax policy u.s.

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Links this week

Published Dec 02, 2012 - Follow author Allison: - Permalink

A selection of links posted on twitter this week that were not discussed here, possibly of interest:

On the Fiscal Cliff:

  • Naked capitalism says don't believe the hype, better to go over the fiscal cliff than take the grand bargain being offered 
  • FT seeks tax holiday to bring home corps' $1.5T offshore, because what we need is more tax breaks for apple, google, etc. (Sigh)
  • Krugman: proposed tax hikes would raise 14 times as much as would be saved by raising Medicare age, yet only the latter is deemed "serious" 
Of Reefer and Revenues, and other Canadian tax news
  • B.C marijuana tax could total billions if pot was legalized (CBC)
  • Canada’s budget watchdog takes government to court for refusing to release austerity details (Fin Post)
  • Outrageous: Quebec officials entitled to severance pay with just two years of service, even if they were convicted of crime during office.  
Recent scholarship:
And from around the world:
  • In communist Cuba, the tax man cometh (Reuters)
  • London calling! Dec 8th action in London revealed! Activists will descend on Starbucks flagship stores and transform them into social service centers
  • Border Carbon Adjustments and WTO law (Simon Lester)
  • Zambia Says Tax Avoidance Led by Miners Costs $2 Billion a Year (Bloomberg




Tagged as: links

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Are WTO dispute settlements "Law"?

Published Dec 01, 2012 - Follow author Allison: - Permalink

From Simon Lester, yet another reminder for those studying tax treaty arbitration that the issues are many and difficult. When basic questions of enforceability can't be answered in an area of the law where things are fairly well developed and are subject to ongoing extensive public vetting and debate, it serves as a warning of what lies ahead for international tax dispute resolution. From the post:
There is some famous scholarly debate on whether WTO dispute settlement rulings are binding.  Here's a media take on it, from the CBC news (in the context of the Ontario feed-in-tariff case):  The World Trade Organization appears to have upheld a [discrimination] complaint against the Province of Ontario's green energy program. ...reports Monday suggest the affected parties have been notified of the [WTO]'s decision to side with the complainants...The WTO ruling is non-binding, meaning Ontario could simply ignore it and not face any monetary punishment. But such a move would likely be met with the implementation of tariffs against any Ontario-made goods in Japan and the EU.
Simon thinks the word "binding" does not tell us much if retaliatory tariffs could be imposed in the event Ontario ignored the ruling. Instead, he says "the key question is how effective the enforcement mechanism is."

I'd agree-it's equivalent to the maxim that "tax administration is tax policy." In international tax there is no doubt that the question is not the substance of standards, rules, or even norms, but rather what countries actually do, and that happens daily through hundreds and maybe thousands of completely opaque diplomatic interactions (competent authority agreements). Adding arbitration to this mix adds yet another layer of administration and enforcement mechanisms and all the attendant problems that go along with them.




Tagged as: arbitration international law rule of law tax policy transparency

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