Friday, June 22, 2018
Reuven S. Avi-Yonah (Michigan) & Gianluca Mazzoni (S.J.D. 2018, Michigan), Due Diligence in International Tax Law:
The concept of due diligence has been primarily developed in the state context (e.g., investor protection, environmental law), where it has been stated that “[t]he obligation to take preventative measures is one of due diligence, not an absolute guarantee against the occurrence of harm.” In international finance law, the concept is applied to private actors, especially financial institutions. The concept was first developed in the prevention of money laundering (covered elsewhere in this book) but then applied to prevention of tax evasion. In that context, since it would put an unreasonable burden on financial institutions to completely prevent tax evasion, all that is required is due diligence.
This chapter describes how the due diligence standard was developed in international tax law before 2008, and then how the standard was greatly modified after the financial crisis, the enactment of the Foreign Account Tax Compliance Act of 2010 (FATCA), and the subsequent development of the Common Reporting Standards (CRS).