Today at McGill Law, Prof. Sam Singer of Thompson Rivers University will present his work in progress, entitled "Evaluating Canadian Tax Remission Orders: A Debt Relief Vehicle for Taxpayers," as part of the annual Spiegel Sohmer Tax Policy Colloquium at McGill Law.
Here is the abstract:
Remission orders, although rare, serve important functions in the Canadian tax system. This paper draws from a comprehensive study of federal tax remission orders issued between 1998 and 2017. It presents general findings about remission orders in that time period, including the number of remission orders issued, their reported costs, and the number of remission order applications. The paper identifies the five most common categories of reasons cited for granting remission orders. It then applies tax policy analysis to assess the two most frequent reasons for granting remission orders: to provide debt relief for financial hardship and/or extenuating circumstances, and to provide remedies for government errors and delays. This study also highlights concerns about the federal tax remission system, and provides recommendations for improving its fairness, transparency, and accountability.For those not familiar with the practice of remission in tax, this is a regime under which the taxpayer can ask the tax authority to forgive their tax debts, manly due to hardship or extenuating circumstances. This was a new concept to me when I came to McGill in 2012 and learned about a rather generous remission order granted to Blackberry in what I assumed to be a last-ditch effort in the nature of industrial policy and national protectionism--but Prof. Singer's paper makes clear that the remission order is not only (or even primarily) for massive multinational companies. I am bothered by the idea that the tax authority has a more or less obscure power to forgive the tax debts of some taxpayers under unclear circumstances and using criteria that are not transparent or reviewable. This seems to me to be a tool which could create great distrust in the tax system, in terms of both procedural fairness for taxpayers who don't know about or get remission orders but also in terms of the opacity behind which some officials appear to have a tool to help selected individuals at their will. I look forward to the discussion of Prof. Singer's paper and the implications of this research for the big questions of tax governance.
The tax policy colloquium at McGill is supported by a grant made by the law firm Spiegel Sohmer, Inc., for the purpose of fostering an academic community in which learning and scholarship may flourish. The land on which we gather is the traditional territory of the Kanien’keha:ka (Mohawk), a place which has long served as a site of meeting and exchange amongst nations.
This fall the Colloquium will explore a range of contemporary tax topics across three disciplines--law, economics, and philosophy. The complete colloquium schedule is below and more information is available here. As always, the colloquium is free and open to all.
The Colloquium is convened by Allison Christians, H. Heward Stikeman Chair in Taxation Law.
Tagged as: colloquium McGill tax policy
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?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."
Some Hon. Senators: No.
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
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.
Tagged as: BEPS Canada MLI scholarship
I'm very happy to announce the 2018 McGill Tax Policy Colloquium, which will take an interdisciplinary approach to tax policy analysis. The colloquium is made possible by a grant from Spiegel Sohmer. The land on which we gather is the traditional territory of the Kanien’keha:ka (Mohawk), a place which has long served as a site of meeting and exchange amongst nations. The distinguished speakers who will contribute to this year’s colloquium include:
- Oct 22: Sam Singer, Assistant Professor, Faculty of Law, Thompson Rivers University. Prof. Singer's research focuses on tax dispute resolution, the policy rationales underlying tax measures, and the regulation of charities and charitable giving.
- Nov 12: Lindsay Tedds, Scientific Director of Fiscal and Economic Policy and Associate Professor, Department of Economics, University of Calgary. Dr. Tedds’ research focuses on tax policy and she has done extensive work with the Government of Canada in the areas of public economics and policy implementation.
- Nov 19: Laurens van Apeldoorn, Assistant Professor of Philosophy, Leiden University. Prof. Van Apeldoorn’s research examines the nature and prospects of the sovereign state, with a special focus on the normative aspects of international taxation rules in relation to the global justice.
- Nov 26: Frances Woolley, Full Professor, Department of Economics, Carleton University and President, Canadian Economics Association. Prof. Wooley’s expertise and research focus on economics of the family, gender and intra-house inequality, taxation and benefits for and of families, and feminist economics.
- Dec 3: Ruth Mason, Full Professor, School of Law, University of Virginia. Prof. Mason’s research focuses on international, comparative, and state taxation. Her work on tax non-discrimination laws’ effect on cross-border commerce has been cited extensively, including by the U.S. Supreme Court.
Tagged as: colloquium McGill scholarship tax policy
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
States have complex and often conflicted attitudes toward migration and citizenship. These attitudes are not always directly expressed by lawmakers, but they may be reflected quite explicitly in tax regimes: for the world’s most prosperous individuals and their families, multiple states extend a warm welcome. Sometimes prospective migrants are offered fast track to physical residence which can lead to citizenship if the migrant desires it. Others are offered a mere commercial transaction, with citizenship granted to applicants with the right credentials and a willingness to pay. Migrants might seek to obtain residency or citizenship for personal, family, economic, or tax reasons, or some combination of them. For the granting country, the tax significance of obtaining new residents or citizens will vary depending on domestic policy goals. However, the consequences of residence and citizenship by investment programs could be severe for the international tax regime: the jurisdiction to tax and the allocation of taxing rights among countries are commonly based on residence and citizenship factors. This article accordingly surveys contemporary residence and citizenship by investment programs on offer around the world and analyzes their potential impact on international tax policy.
* update: I've found a couple of additional programs (e.g. France has a lower cost program, making it less of an outlier)--thank you twitterverse) and I've corrected a few currency conversion errors. This is still a work in progress as previously noted, and I expect to be revising again in the coming weeks.
I've been working on residence and citizenship by investment programs, and thanks to some stellar research assistance by Jake Heyka, have developed a set of data comprising what I believe is a fairly thorough look at the residence and citizenship by investment programs currently on offer around the world. I made the above infographic to show the lowest cost program per country for all countries that offer either residence or citizenship by investment.
The lowest cost residence by investment programs are offered by Panama and Paraguay, each coming in at about USD$5,000, while the most expensive is
One of the things I wondered about in looking over the programs is the inequality factor at play--that is, how much can richer/larger countries demand in terms of higher prices and more stringent requirements (such as actual residence) for entry, and how much must poorer/smaller countries be satisfied with smaller investments and fewer commitments by the applicant? The answer seems to be that there appears definitely a "rich get richer" quality to the distinctions among programs, but there are lots of details in the programs that require further thought.
The paper itself is still in progress but here is an explanation of what I am looking at:
International law and political theory scholars have long wrestled with the normative implications of commodifying citizenship and access to immigration with pay-to-play visa programs, but the analysis does not typically consider the role the tax system plays or could play in these schemes, nor how such schemes might impact the tax regime in terms of gross revenue or distributional effect. Yet governments increasingly view their tax systems as a means of potentially increasing the value of residence and citizenship in their countries, whether intrinsically or in relation to the treatment of those who gain such status by other means. Given the cost involved in reducing revenue from those arguably most able to pay, whether the programs actually produce the predicted outcomes is one obvious question to be asked. Even if the programs in fact achieve their goals, a second question surely arises regarding the normative justification for using the tax system to lure the wealthy away from other countries in this manner. Does the normative case differ when applied to humans as opposed to companies? Does it differ when the luring state is richer or poorer relative to the countries of origin of prospective immigrants? To sketch out a framework for analyzing these questions requires a sense of the various competing programs on offer. This essay takes the first step by comparing national programs that use their taxing power in some manner in order to attract immigration, and highlights some of the factors that raise normative questions about the appropriate design and uses of a tax system.Comments welcome.
Tagged as: migration research tax policy
Taxpayers who hide assets abroad to evade taxes present a serious enforcement challenge for the United States. In response, the U.S. has developed a family of initiatives that punish and rehabilitate non-compliant taxpayers, raise revenues, and require widespread reporting of offshore financial information. Yet, while these initiatives help catch willful tax cheats, they have also adversely affected immigrants, Americans living abroad, and “accidental Americans.”
This Article critiques the United States’ offshore tax enforcement initiatives, arguing that the U.S. has prioritized two problematic policy commitments in designing enforcement at the expense of competing considerations: First, the U.S. has attempted to equalize enforcement against taxpayers with solely domestic holdings and those with harder-to-detect offshore holdings by imposing harsher reporting requirements and penalties on the latter. But in doing so, it has failed to appropriately distinguish among differently situated taxpayers with offshore holdings. Second, the U.S. has focused on revenue and enforcement, ignoring the significant compliance costs and social harms that its initiatives create.
The confluence of these two policy commitments risks creating high costs for the wrong taxpayers. While offshore tax enforcement may have been designed to catch high¬-net-worth tax cheats, it may instead impose disproportionate burdens on those immigrants and expatriates who have less ability to complain, comply, or “substitute out” of the law’s grasp. This Article argues that the U.S. should redesign its enforcement approach to minimize these risks and suggests reforms to this end.The paper provides a thorough review of the panoply of offshore enforcement programs and mechanisms and documents the harms of their dragnet approach, especially on the most vulnerable and least likely targets. A significant contribution to the literature.
I've posted on SSRN a new work in progress and two recently published works on the topic of taxation and human rights:
Human Rights at the Borders of Tax Sovereignty
Tax scholarship typically presumes the state’s power to tax and therefore rarely concerns itself with analyzing which relationships between a government and a potential taxpayer normatively justify taxation, and which do not. This paper presents the case for undertaking such an analysis as a matter of the state’s obligation to observe and protect fundamental human rights. It begins by examining existing frameworks for understanding how a taxpayer population is and ought to be defined. It then analyzes potential harms created by an improperly expansive taxpayer category, and those created by excluding from consideration those beyond the polity even if directly impacted by the tax regime. It concludes that a modified membership principle is a more acceptable framework for normative analysis of the jurisdiction to tax, even while acknowledging the overwhelming weight of existing perceptions about the bounds of the polity and the state-citizen relationship as significant barriers to acceptance.Taxpayer Rights in Canada
Canada is one of many countries where taxpayer rights are becoming an increasingly common topic of discourse among policymakers, practitioners, and the public. Especially in light of recent developments regarding the global expansion of taxpayer information exchange, the role of taxpayer privacy and confidentiality rights have emerged as significant legal issues. This chapter surveys the contemporary theoretical, legal, and political landscape of taxpayer rights in Canada. Part I outlines the theoretical and legal sources from which taxpayers may be said to have rights. Part II examines Canada’s Taxpayer Bill of Rights and considers some of the historical, legal, and political issues that give rise to their core principles. Part III focuses in on the taxpayer’s right to privacy and confidentiality in the context of evolving global trends surrounding the use and exchange of taxpayer information. The Chapter concludes with some observations about where taxpayer rights may be headed in Canada.Taxpayer Rights in the United States
Despite abundant sources of legal and quasi-legal protection against abuses of individual rights and freedoms, there are areas of contention regarding respect for taxpayer rights in the United States. This chapter lays out the framework of taxpayer rights and considers their meaning by considering a contemporary case, namely, the recent expansion of citizenship-based taxation through globally enforced financial asset reporting and information exchange. Part I outlines the theoretical and legal sources from which taxpayers may be said to have rights. Part II examines the US Taxpayer Bill of Rights and considers some of the historical, legal, and political issues that give rise to their core principles. Part III focuses in on the taxpayer’s right to be informed in the context of citizenship-based taxation in a globalized world. The Chapter concludes with some observations about where taxpayer rights may be headed in the United States.
Tagged as: fairness justice scholarship sovereignty tax policy
Arthur Cockfield has posted a paper of interest, entitled How Countries Should Share Tax Information. Here is the abstract:
There are increasing policy concerns that aggressive international tax avoidance and offshore tax evasion significantly reduce government revenues. In particular, for some low income countries the amount of capital flight (where elites move and hide monies offshore in tax havens) exceeds foreign aid. Governments struggle to enforce their tax laws to constrain these actions, but are inhibited by a lack of information concerning international capital flows. The main international policy response to these developments has been to promote global financial transparency through heightened cross-border exchanges of tax information. The paper discusses elements of optimal cross-border tax information exchange laws and policies by focusing on three key challenges: information quality, taxpayer privacy, and enforcement. Relatedly, the paper discusses how the exchange of automatic ‘big tax data’ combined with data analytics can help address the challenges.Cockfield seeks to find a solution that balances the need of the state for extensive information in order to protect the integrity of the income tax system against the need of the individual for protection from abuse by the state. That is no easy balance to strike. From the paper:
All of [the recent information gathering and exchange] efforts seek to provide governments with more and better tax information, and reduce costs through agreement on underlying EOI rules and principles. The reforms, however, largely do not address how financial secrecy laws subvert global financial transparency initiatives. Nor do they address legal technical complexity that raises transaction costs, and makes it even harder for low and middle income countries to implement and enforce EOI. While the EOI reforms are positive steps, given an environment of high transaction costs it may be difficult to make progress in addressing key policy challenges....
Data availability, usefulness and verifiability are three components of high quality information that can help governments pursue their cross-border investigations and audits. In particular, transferred information should be relatable to domestic tax identification measures, and checked against third party reporting, and withholding tax disclosures. Once this is done, governments can conduct analysis to determine audit risk by focusing on issues such as taxpayer segmentation, dealings between the taxpayer and offshore service providers, and cross-indexing tax and financial information against non-tax data (e.g., insurance policy disclosures).
Against this desire for high quality tax information stands (shrugs?) taxpayer privacy concerns. The apprehensions arise from the varied levels of domestic legal protection afforded to privacy rights, along with the risk of abuse or misuse of transferred information. Accordingly, broader multilateral agreement on privacy protections is likely a prerequisite to effective EOI. This hoped-for cooperation is hindered by the fact that many countries refuse to abolish their financial secrecy laws, which stands as one of the main barriers to optimal reform.My view is that maintaining the integrity of the income tax system appears to require building the panopticon, and much more besides. The steady decline of support for coherent corporate income taxation makes greater and greater individual surveillance necessary, while also making personal income taxation harder. I am not sure where the point lies at which the costs and risks attendant to building the necessary compliance and enforcement infrastructure exceed the benefits of maintaining personal taxes based on income.
Tagged as: information institutions rule of law scholarship
Further to my last post on the newly released Tax Gap study by the Canada Revenue Agency, the following comes from guest blogger Iain Campbell (ARC, UK):
Tagged as: Canada tax gap tax policy
The Government of Canada has released its first study of the "tax gap," which the Government defines as "the difference between the tax that would be paid if all obligations were fully met in all instances, and the tax actually paid and collected." The Canada Revenue Agency (CRA) has not completed a study of the income tax, but has released this paper on the concept and methodology. It has presented a report for GST/HST (Canada's VAT), estimating the tax gap to average about 5.6% per year over the period 2000-2014. For 2014, this produced an estimated tax gap of about $4.9 billion:
This study has been undertaken after many calls from academics and nongovernment organizations, including Canadians for Tax Fairness, which according to the CRA will be involved in consultations regarding the ongoing study. Canadians for Tax Fairness estimate that Canada loses $7.8 billion in income tax revenues to "tax haven" use, a number they constructed using Statistics Canada's foreign direct investment data.
The Government acknowledges that there is no reliable method for measuring the tax gap, and that the exercise is one in speculation based on imperfect information:
There are a number of challenges facing tax administrations undertaking tax gap estimation. The key challenge is access to the comprehensive and good-quality data necessary to produce estimates. A significant proportion of the tax gap involves unreported or under-reported income and assets and economic activity that are deliberately hidden from the government. As a result, many countries that publish tax gap estimates highlight their uncertainty.Expect more to come from this exercise as the tax gap study is a key component of the Government's pledge to spend $444 million over five years "to enhance [CRA] efforts to crack down on tax evasion and combat tax avoidance."