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Editor: Paul L. Caron, Dean
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Wednesday, January 2, 2013

Grinberg: The Battle Over Taxing Offshore Accounts

Itai Grinberg (Georgetown), The Battle Over Taxing Offshore Accounts, 60 UCLA L. Rev. 304 (2012):

The international tax system is in the midst of a contest between automatic information reporting and anonymous withholding models for ensuring that nations have the ability to tax offshore accounts. At stake is the extent of many countries’ capacity to tax investment income of individuals and profits of closely held businesses through an income tax in an increasingly financially integrated world.

Incongruent initiatives of the European Union, the Organisation for Economic Cooperation and Development (OECD), Switzerland, and the United States together represent an emerging international regime in which financial institutions act to facilitate countries’ ability to tax their residents’ offshore accounts. The growing consensus that financial institutions should act as cross-border tax intermediaries represents a remarkable shift in international norms that has yet to be recognized in the academic literature.

The debate, however, is about how financial institutions should serve as cross-border tax intermediaries, and for which countries. Different outcomes in this contest portend starkly different futures for the extent of cross-border tax administrative assistance available to most countries. The triumph of an automatic information reporting model over an anonymous withholding model is key to (1) allowing for the taxation of principal, (2) ensuring that most countries are included in the benefit of financial institutions serving as cross-border tax intermediaries, (3) encouraging taxpayer engagement with the polity, and (4) supporting sovereign policy flexibility, especially in emerging and developing economies. This Article closes with proposals to help reconcile the emerging automatic information exchange approaches to produce an effective multilateral system.

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Another article by a tax-technical mugwump about how a one-world tax system can work. Nothing about the moral, ethical, or legal implications of the United States sharing information about its citizens with other tax authorities, the thinking apparently being simply that because governments want more revenue we should give it to them. How would you feel if the US automatically provided your information to the Russian Tax Police after you visited that country?
On a related note, the Boston Consulting Group study cited in the article estimates (for 2010) that there is $700 billion in offshore assets originating from North America. Extrapolating from that amount at a 4% return on investment at a 35% tax rate, it would only produce about $9.8 billion in tax. Where are the other $2.1 trillion of assets to produce the $40 billion in income from offshore accounts that Sen. Levin's committee said was lost each year?

Posted by: TexEcon | Jan 3, 2013 8:32:07 AM