The International Response To The U.S. Tax Haven

Noam Noked (Chinese University of Hong Kong; Google Scholar) & Zachary Marcone (Chinese University of Hong Kong), The International Response to the U.S. Tax Haven, 48 Yale J. Int'l L. 177 (2023) (reviewed by David Elkins (Netanya) here):

The Pandora Papers and recent empirical studies have revealed large movements of capital from traditional tax havens to the United States in the past several years. This Article examines the legal factors that have led to the rise of the United States as one of the world’s preeminent tax havens and considers why previous efforts have failed to change this emerging reality. Drawing upon the U.S. enforcement model vis-à-vis financial institutions in other countries, this Article proposes that several governments adopt a coordinated response of engaging directly with U.S. financial institutions without requiring any action from the U.S. government. This model response could be applied beyond tax to resolve cooperation problems in other international settings.

Conclusion
The United States’ emergence as one of the world’s preeminent tax havens is a cause for international concern. The path to this reality, as examined in this Article, has been facilitated by the United States’ refusal to reciprocate financial account reporting, coupled with the no or low taxation of foreigners holding U.S. structures. Ironically, the U.S. financial industry’s conduct, as revealed in the Pandora Papers, mirrors that of the Swiss bank industry more than a decade ago. With more information revealed on the global problem emanating from the United States’ role as a tax haven, it is a matter of time until countries seek an effective response to protect their tax bases.

This Article has made three contributions. First, it examined the legal factors that have led to the rise of the United States to its current position as a tax haven. Second, it proposed comprehensive and workable policy response that does not require any action by the U.S. Congress or Treasury. This solution, if implemented, could extend the international transparency standard to the U.S. financial industry and prevent abuse by foreign tax evaders. Third, it argued that the model response developed here could extend well beyond tax to resolve cooperation problems in other international settings.