Global Tax Fairness

GLOBAL TAX FAIRNESS Global Tax Fairness Edited by THOMAS POGGE AND KRISHEN MEHTA 1 3 Great Clarendon Street, Oxford, OX2 6DP, United Kingdom Oxford University Press is a department of the University of Oxford. It furthers the University’s objective of excellence in research, scholarship, and education by publishing worldwide. Oxford is a registered trade mark of Oxford University Press in the UK and in certain other countries © the various contributors 2016 The moral rights of the authors have been asserted First Edition published in 2016 Impression: 1 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, without the prior permission in writing of Oxford University Press, or as expressly permitted by law, by licence or under terms agreed with the appropriate reprographics rights organization. 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Table of Contents List of Figures vii List of Tables ix List of Contributors xi Introduction: The Moral Significance of Tax-Motivated Illicit Financial Outflows 1 Thomas Pogge and Krishen Mehta 1. Building Institutions for a Globalized World: Automatic Information Exchange 14 Itai Grinberg 2. Let’s Tax Anonymous Wealth! A Modest Proposal to Reduce Inequality, Attack Organized Crime, Aid Developing Countries, and Raise Badly Needed Revenue from the World’s Wealthiest Tax Dodgers, Kleptocrats, and Felons 31 James S. Henry 3. Country-By-Country Reporting 96 Richard Murphy 4. Hanging Together: A Multilateral Approach to Taxing Multinationals 113 Reuven S. Avi-Yonah 5. Stateless Income and its Remedies 129 Edward D. Kleinbard 6. The Arm’s Length Standard: Making It Work in a 21st-Century World of Multinationals and Nation States 153 Lorraine Eden 7. The Taxation of Multinational Enterprises 173 Lee Corrick 8. More Than Just Another Tax: The Thrilling Battle over the Financial Transaction Tax: Background, Progress, and Challenges 204 Peter Wahl 9. Towards Unitary Taxation: Combined Reporting and Formulary Apportionment 221 Sol Picciotto vi Table of Contents 10. An International Convention on Financial Transparency 238 Harald Tollan 11. Lakes, Oceans, and Taxes: Why the World Needs a World Tax Authority 251 Vito Tanzi 12. Tax Competitiveness—a Dangerous Obsession 265 Nicholas Shaxson and John Christensen 13. A Fair Deal in Extractives: The Company Profit-related Contract 298 Johnny West 14. Self-Help and Altruism: Protecting Developing Countries’ Tax Revenues 316 Michael C. Durst 15. Ten Ways Developing Countries Can Take Control of their Own Tax Destinies 339 Krishen Mehta and Erika Dayle Siu Index 357 List of Figures 2.1 Roots of the 2008 global banking crisis 42 2.2 Top corporate income tax rates by country, 1981–2012 44 2.3 US corporate profits as a percentage of GDP vs US corporate taxes as a percentage of reported corporate profits 1946–2013 45 2.4 Total US tax receipts/GDP (%) period medians, 1950–2012 46 2.5 “The Debt Hoax,” The New Republic, April 14, 1986 47 2.6 Total fines, settlements, and other legal costs, global financial services industry 1998–2014 ($bn) 65 2.7 Regulatory penalties vs legal settlements, global financial services industry, 1998–2014 ($bn) 66 2.8 Total assessments for corporate crimes by offense and bank, 1998–2014 ($bn) 67 2.9 In the present, we will ... 68 2.10 Top 22 global banks: penalties vs cash flow 71 2.11 Global haven industry: cash flow vs penalties, 1998–2014 (22 global haven banks, current $bn) 72 2.12 Cash flow ($bn) vs penalties ($bn), major banks 1998–2014 73 2.13 Cash flow ($bn) vs penalties ($bn), major banks 1998–2014 74 2.14 Profit rate vs penalty rate, 22 global banks, 1998–2014 75 2.15 Profit rates vs penalty rates, 1998–2014 76 2.16 Top 8 Latin American source countries 82 2.17 Global flight wealth—key source countries, including China (2010, $bn) 83 2.18 Unrecorded net capital outflows from Latin America, 1970–2010 84 2.19 New unrecorded capital outflows and imputed offshore earnings as a percentage of GNI, 1976–2009 (real value of cumulative net outflows by period, 2000 $bn) 86 12.1 Median statutory corporate tax rates, by country income group, 1980–2010 269 12.2 US corporate profits before tax to GDP, 1980–2013 270 12.3 Sources of US federal tax revenue, 1945–2014 271 12.4 Average government revenue and score of the Global Competitiveness Index 2012–13 285 List of Tables 2.1 Top 50 global private banks, 2005–10 49 2.2 Top 22 global private banks: Incidence of corporate crime, 1998–2014 57 2.3 Penalties and settlement costs, global banks, 2014 (a) 59 2.4 Penalties and settlement costs, global banks, 2014 (b) 60 2.5 Penalties and settlement costs, global banks, 2014 (c) 61 2.6 Penalties and settlement costs, global banks, 2014 (d) 63 2.7 Global private banking industry: Does crime pay? 70 2.8 Offshore financial assets, high-net-worth individuals 80 2.9 Global distribution, net financial assets 2010 82 2.10 Unrecorded capital flows, offshore assets, and offshore earnings, 1970–2010 85 2.11 Real cumulative offshore earnings vs real cumulative capital outflows, by region 1970–2010 86 7.1 Timeline: September 2014 181 7.2 Timeline: September 2015 182 7.3 Timeline: December 2015 183 List of Contributors Reuven S. Avi-Yonah is the Irwin I. Cohn Professor of Law and Director of the International Tax LLM Program at the University of Michigan Law School. He teaches the basic course on taxation and courses on international taxation, corporate taxation, tax treaties, and transnational law. He has published numerous articles on domestic and international tax issues, and is the author of Global Perspectives on Income Tax Law (Oxford University Press, 2011) and International Tax as International Law: U.S. Tax Law and the International Tax Regime (Cambridge University Press, 2007). Professor Avi-Yonah graduated summa cum laude from the Hebrew University in 1983, received a PhD in history from Harvard University in 1986, and received aJDmagna cum laude from Harvard Law School in 1989. From 1989 to 1993 Professor Avi-Yonah practiced tax law in Boston and New York, specializing in the international tax aspects of mergers and acquisitions. He has served as consultant to the US Treasury and the OECD on tax competition issues, and has been a member of the executive committee of the New York State Bar Association Tax Section and of the Advisory Board of Tax Management, Inc. He is currently a member of the Steering Group of the OECD International Network for Tax Research and Chair of the AALS Tax Section, an Inter- national Research Fellow of the Oxford University Centre for Business Tax- ation, a Trustee of the American Tax Policy Institute, and a member of the American Law Institute. John Christensen has worked in offshore finance and between 1987 and 1998 served as economic adviser to the government of the British Channel Island of Jersey—a major tax haven satellite of the City of London. Since 2004 he has directed the global activities of the Tax Justice Network, a leading global network of experts with a research and advocacy focus on tax havens, tax avoidance, and tax wars between nations engaged in beggar-thy-neighbor tax policies. Lee Corrick is Senior Advisor to the OECD Tax and Development Pro- gramme working on transfer-pricing capacity-building in developing countries, particularly in Africa. He is also Technical Adviser on transfer pricing to the African Tax Administration Forum (ATAF) and an associate lecturer in international tax at the School of Advanced Study, University of London. Lee previously worked as the Senior Specialist for Transfer Pricing at the South African Revenue Service (SARS) and advised National Treasury on changes to the South African transfer-pricing and thin capitalization legislation. Lee was also South African delegate to OECD Working Party 6. Before working for xii List of Contributors SARS Lee was Assistant Director for Transfer Pricing at HM Revenue and Customs (HMRC) in the UK with responsibility for HMRC’s transfer pricing including its litigation work. He led HMRC’s work on its largest and most complex transfer-pricing disputes and led the HMRC litigation of the DSG Retail Ltd transfer-pricing dispute. He had responsibility for HMRC’s transfer- pricing Mutual Agreement Procedure cases and for the HMRC Advanced Pricing Agreement Programme. He also led the UK delegation at OECD Working Party 6 and was a member of the Working Party 6 Bureau. Michael C. Durst has been an attorney for more than thirty years; he has taught and written widely in the field of international taxation, with a special interest in problems of developing countries. BA 1975 Williams College; MS (Econ.) 1978 M.I.T.; JD 1981 U.C. Berkeley; LLM 1985 Harvard. Lorraine Eden is Professor of Management and Mays Research Fellow at Texas A&M University, College Station, Texas.

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