Sunday, April 13, 2014

From the NYT: Lessons for International Tax from Oregon's Role as Sales/Use Tax Haven

Today's NYT has an article entitled "Buyers Find Tax Break on Art: Let it Hang Awhile in Oregon." The artful dodge is accomplished via simple arbitrage between a source, an intermediary, and a residence jurisdiction, so the story gives a nice illustration of a phenomenon we see play out on the international stage every day, only we have generally been taught to associate tax avoidance arbitrage with the likes of GE, Google, Apple, etc. Here is the simple pattern:
  1. The collector lives in state A (the residence state)--in this example, California. 
  2. The collector buys an expensive work of art in state B (the source state), in this case, New York. As the source state, state B could extract a tax purely on the occurrence of the sale, but chooses not to, rather basing its sales tax on place of use. 
  3. State A generally imposes use taxes on items purchased from outside the state and brought into the state (this is to treat external sales the same as internal ones, which would be subject to sales taxes). But there is an exception: if an item is "used" in another state first, it is not subject to the use tax when it finally makes its way to state A.
  4. To avoid the use tax, the collector can't keep the item in state B because then state B's sales tax will apply.
  5. In comes state C, with no sales or use tax, in this case, Oregon. State C is a safe haven. Collector parks the asset in state C long enough to satisfy the residence state's exemption. 
  6. Hey presto, neither sales nor use tax. 
Nothing illegal has occurred, as the NYT is very quick to point out. But it is also clear that this is a story for a reason, and the reason suggested by the headline is this outcome produces unfairness. 

After all, these are rich people dodging around helpless tax states with the help of sophisticated tax planners. This seems worth examining further given the parallels to corporate social responsibility and international tax planning à la Caterpillar as we have seen recently in the news, and in light of the actions of some states to try to curb international tax planning ... and please do not let it escape notice that this list includes Oregon. 

Let's identify a few problems and a few solutions in the overall tax regime created by the conflicting rules in the three independent states as suggested above. The problems seem to be:
  1. residents of state A will likely object that it is not fair for state A to tax sales occurring in the state and not sales occurring outside the state (violates horizontal equity).
  2. some residents of state A will likely object that it is not smart to tax sales occurring in the state and not sales occurring outside the state (people will react accordingly and the sales tax base will disappear). 
  3. on the other hand, some residents of state A will argue it is smart to do this because it means more people will buy nice things and ultimately bring them into the state C, causing other spillover benefits in the long run. (If so we should question why state A has a use tax at all.)
  4. state A cannot control either state B or state C but unless strict capital or other regulatory controls are applied against state A's population, state A's rules necessarily interact with B and C.
  5. residents of state B might object that it is not fair for state B to tax sales only if the assets purchased stay in the state and not if they leave the state (violates horizontal equity)
  6. on the other hand residents of state B will likely view it as smart for state B to tax sales only if the assets purchased stay in the state and not if they leave the state, because then more sales will occur in state B and with those sales come jobs and other spillover benefits.
  7. state C just doesn't tax these things and so would seem to be neutral, acting without fault in the arbitrage.
  8. state C residents likely view this neutrality as smart because the state benefits by facilitating the arbitrage between states A and B, and it can be expected to defend this benefit.
  9. but what is smart for either states B or C or both creates an unqualifiedly unfair situation in state A.
So much for the problems. Are there solutions?  Again the illustration is enlightening.
  1. A, B, and C could get together and demand a federal regulation to stop the arbitrage amongst the states. They could, but they won't (cooperation fails).
  2. State A could threaten states B and C to stop facilitating the arbitrage or else (coercion). But what, exactly, does state A want? Does it want to force state B to tax on the basis of source? Does it want state C to tax as the conduit? Either of those would produce fairness in that the individuals would pay tax somewhere, but in neither case would it be state A collecting the tax. Also, depending on state C's political, economic, and social power relative to state A, the strategy could yield results, or not; certainly if harsh tactics are used, state A will be resented by its neighbors, and for what? No revenue, but a globally fairer system that neither B nor C wanted.
  3. State A could change its own law to repeal the first use rule, which would eliminate the benefit of the arbitrage. No more icing on the cake per the collector routing through Oregon. (when people say tax planning is icing on the cake as the person did in this article, I picture a tiny cake with a tower of icing. So much icing that by the time you eat it all, there isn't any room for cake. But I digress.)
Now does it not seem that state A has the most power to fix the situation if it chooses to change its own law to nullify the arbitrage? Is this not what Oregon and other states are doing vis à vis the foreign earnings of state-registered companies?

This is what I am talking about when I say that tax avoidance is as much a supply side as a demand side problem. We can blame states B and C all day long for facilitating tax avoidance. But State A often holds the power to solve the problem itself. If state A does not do that, then we should be looking at why state A does not do that rather than why state B or state C stand by and allow or encourage and benefit from the arbitrage. Are democratic decisions being made to ignore the fairness problem in order to achieve a solution some people in state A consider to be smart, and if they are doing so, who are those people who think this is smart and have the people in state A who do not think it is so smart been allowed access to lawmaking in the same manner and capacity of those who do think it is smart?

Note that in this case there is no discussion about the problem of information asymmetry--that is, we are not looking at state B or C hiding the fact of the sale from state A. That is a different problem which state A might not be able to solve on its own (actually I believe it could but that is another story). But in terms of legal tax avoidance, I think this story is a wonderful illustration of the argument I often make, for example here and here, about who we should be looking to when facilitating legal tax avoidance becomes the central defining characteristic of a tax regime created by the interaction of multiple jurisdictions.

Thanks, New York Times, for inadvertently covering international tax policy in a fun story with pictures and even a graphic.

Tuesday, April 1, 2014

Call for Papers: Tax Justice & Human Rights Symposium, McGill, June 2014

We invite paper proposals for a Tax Justice and Human Rights Research Collaboration Symposium, to be held at the McGill Faculty of Law, Montreal, Quebec, from Wednesday to Friday, 18-20 June 2014.


The symposium will explore the fundamental connections between taxation and human rights by providing a forum for collaboration among students/emerging scholars, academics, civil society organization representatives, tax justice advocacy groups, tax policy makers, and researchers from around the world. The symposium seeks especially to bring developing-world perspectives into the discourse and to foster scholarly work for dissemination both within and beyond the academic setting.
The plurality of experience, in terms of training, background, country of origin, and area of expertise, will ensure that discussions and activities at the conference will have real-world impact. Indeed, there is a need within the tax-policy world for more cross-pollination between academic researchers and on-the-ground decision-makers. The connections and networking that we envision will take place at this conference should allow for meaningful discussions for years to come.
Paper proposals must be between 300-500 words in length and should be accompanied by a short résumé.
Please submit your proposal to the conference convener Professor Allison Christians, at [allison dot christians at mcgill dot ca].
Deadline for submissions: 30 April 2014. Successful applicants will be notified in early May 2014.
An initial 3-5 page sketch of the paper must be submitted by the end of May for circulation among panelists and feedback from the conference committee, but completed papers are not required; rather, we seek a readiness to collaborate and develop new heuristics for thinking about taxation and human rights. 
Conference fees for presenters will be covered by the conference organizers; travel and accommodation bursaries may be available to scholars and tax justice advocates from the Global South in connection with support from the Tax Justice Network, Canadians for Tax Fairness, Halifax Initiative, and other partners.
Please visit the Symposium's page on the Stikeman Chair in Tax Law website for more information. 

Avoidance, Evasion, and Taxpayer Morality

In light of the current sacrificing of Caterpillar on the altar of political posturing by lawmakers who are ultimately responsible for designing a global system that ensures US multinationals a world of tax-favorable opportunities, my latest SSRN post, Avoidance, Evasion and Taxpayer Morality appears à propos. It explores the difficult terrain we traverse when, confronted with the parade of household names apparently paying little or no taxes anywhere, we start talking about ethics and morality instead of law. Abstract:
In popular discourse, tax evasion by wealthy individuals is conflated with tax avoidance by multinational corporations to tell a single story about tax dodging and its negative impact on society. But conflating avoidance and evasion muddies the tax policy waters in important ways by turning legal obligations into moral ones. This Essay, prepared in connection with the Washington University School of Law colloquium on “Conceptualizing a New Institutional Framework for International Taxation,” makes the case for caution in using morality as a stop-gap measure to avoid drawing a regulated line between tax evasion and tax avoidance, while still meting out punishment within the undefined space between these two poles. It acknowledges the political gains derived from the rhetoric of morality but argues that the alternate view — that taxpayer behavior must ultimately be managed by law rather than social sanction — has the best chance of driving tax policy toward greater coherence in the long run because it makes the best case for more transparency in both lawmaking and the consequences of legislative decisions.
As always I welcome comments.

Sunday, March 23, 2014

Proposed Legislation will Shine More Light on Lobbying, Self-Dealing in Congress

Last week, US Congressman Mike Quigley (D-IL) introduced the Transparency in Government Act of 2014, a bill "to amend the Ethics in Government Act of 1978, the Rules of the House of Representatives, the Lobbying Disclosure Act of 1995, and the Federal Funding Accountability and Transparency Act of 2006 to improve access to information in the legislative and executive branches of the Government, and for other purposes." I am always worried about those other purposes, because funny things tend to get slipped into law this way, but the bill is interesting.

Government Executive Oversight calls it "a grab-bag transparency bill" that would "use technology to boost public oversight of program spending, standardize agency reporting on use of the Freedom of Information Act, shed greater light on lobbying and add new requirements for judges to disclose financial investments," as ell as "toughen online disclosure requirements for lawmakers’ personal finances, office expenses, gift reports and foreign travel." All that sounds like it is worth doing.

I especially like the idea of putting completed FOIA requests online, but would like to see the law go even further: if it's FOIAble it ought to be automatically disclosed and available to the public, not have to wait for individuals to file applications. I realize that this presents administrative costs but FOIA is a constructed barrier that unnecessarily imposes costs on individuals to release information that is of public benefit. If a government is producing thousands of pages of ultimately public documents I don't see why the individual must be forced to compel publicity in the vast majority of cases; the opposite should be true.

The other main part of the bill is its attempt to make public officials more honest about their backroom dealings, including politicking and rule changing.

Finally it's about time for another attempt to stop Congress from inside trading after they "quietly" undid the 2012 Stop Trading on Congressional Knowledge (STOCK) Act which was meant to curb this behavior. Congress, it seems, was worried that transparency would expose members to identity theft. This is something that Congress worries about a lot when it comes to themselves but seems incapable of determining how to stop when it comes to those not in Congress.

It is nice to see at least one Congress person push for transparency and accountability in Congress, but given past experience there is unfortunately all too much room for doubt that any reforms will stick even if they pass. I always hope to be proven wrong in this skeptical view.






Scott Wilkie: Next Wednesday at McGill Law

I am very pleased to be hosting international tax guru Scott Wilkie at McGill Law next Wednesday, where he will deliver a talk on current topics in international taxation, more info here. The talk is scheduled to commence at 12:30 pm; members of the public are warmly welcomed.

Location: McGill Faculty of Law, 3644 Peel Street,
Old Chancellor Day Hall, Room 16.

Date and Time: Wednesday, 26 March, 12:30–14:00.

This event is free and open to the public.

Tuesday, March 18, 2014

Next Week at NYU: Tax and Corporate Social Responsibility Symposium

I'll be taking part in this symposium on corporate taxation next Tuesday at NYU. Here is the description:
Tuesday, March 25, 2014  |  9:00 AM - 12:00 PM
D'Agostino Hall, Lipton Hall 
This symposium will feature two panels, “Should Corporations Pay Tax?” and “Should Corporate Tax Returns Be Public?”   
Participants include Reuven Avi-Yonah (Michigan), Allison Christians (McGill), Peter Barnes (Duke), Michael Schler (Cravath), Joshua Blank (NYU), Helen Scott (NYU), David Kamin (NYU), and possibly others.   
The event will be co-hosted by the Graduate Tax Program and the NYU Journal of Law & Business.   
It will take place from 9:15 AM to 12:30 PM on March 25th in Lipton Hall, D’Agostino Hall at NYU Law School, located at 110 West Third Street.
Additional info here, including this description:
From the enactment of the corporate excise tax in 1909 to the present, the corporate tax in the United States has generated intense debate.  Topics at the center of this debate have ranged from the fundamental purpose of the tax to moral obligations of corporations to pay tax to tax transparency and accountability.  This half-day symposium will continue the discussion by addressing two questions:  Should corporations pay tax?  And should corporate tax returns be public?  Each panel will feature leading tax and corporate law scholars and distinguished practitioners.  Participation from the audience in the discussion will be encouraged.
My recent writing on these subject includes a short essay entitled "How Starbucks Lost its Social License — And Paid £20 Million to Get it Back" on Starbucks' tax-dodging related image problems in Europe, a book chapter entitled "Tax Activists and the Global Movement for Development Through Transparency," on the global corporate tax transparency movement, and an article article entitled "Drawing the Boundaries of Tax Justice" which analyzes the fundamental justice questions surrounding the taxation of corporations (as well as humans).


Is It Time for a Taxpayer Bill of Rights? Tax Analysts Conference: March 27

Tax Analysts is hosting a conference on March 27 in Washington DC that is of broad interest. The schedule includes National Taxpayer Advocate Nina E. Olson, as well as Christopher S. Rizek of Caplin & Drysdale and former Treasury Deputy and Acting Assistant Secretary for Tax Policy Alan J. Wilensky.

Chris Bergin of Tax Analysts & Forbes will be hosting and he has a number of articles on the problems of taxpayer rights and IRS accountability that should be read by everyone who cares about tax policy. Here are just a few:

It should be noted that, of course, the IRS already does have a declaration of taxpayer rights. However, it is declaratory and not legal in nature, so apparently has no legal effect (though as far as I know, this has not been tested through litigation). The taxpayer advocate has been calling a legislated version for a long time, as I discuss here

Conference details:  

Thursday, March 27, 2014
9 - 11 a.m.  
Continental breakfast at 8:30 a.m.
The event is free and seating is limited.

Ronald Reagan Building
Polaris Suite
1300 Pennsylvania Ave. NW
Washington, DC 20004

Cockfield on Taxpayer Privacy and FATCA

Professor Art Cockfield has two upcoming talks of note, on the topic of "The Privacy Implications of the Foreign Account Tax Compliance Act (FATCA)". The first talk will be held on Friday 21 March starting at 3:15pm at the University of Toronto (Faculty Club) as part of the CCLA 'Pathways 2 Privacy' conference. The second one will be held on Sunday, March 30 starting at 10 am at Glendon College, York University, as part of the 19th Annual International Studies Symposium. Professor Cockfield's remarks will be based on the Finance Department submission he and I co-authored, which you can find here.

Thursday, March 13, 2014

Tomorrow at McGill Law: Panel on Distributive and Labour Justice

Catherine Lu of McGill and Pablo Gilabert of Concordia will be presenting on the topic of global principles of distributive and labour justice tomorrow at 12:30 pm as part of McGill Law's Speaker Series on Economic Justice, sponsored by the Centre for Human Rights and Legal Pluralism. I will be moderating the discussion. This event is free and open to all, details:

Date: 14 March 2014
Time: 12:30-14:30
Location: Room 609 New Chancellor Day Hall
3644 rue Peel
Montreal Quebec Canada , H3A 1W9

I have started reading Catherine Lu's 2006 book, Just and Unjust Interventions in International Law: Public and Private. In it, she argues that the concept of state-to state intervention as a moral problem rests on an image of sovereignty as privacy, and therefore uses the same imagery of intrusion that we see in the domestic privacy context as a basic element. The domestic case against government intrusion into private affairs of individuals and social groups (family) involves balancing between curbing domestic abuse and government intruding too deeply into family lives.  Lu argues that the same principles animate the question of legitimacy in intervention, making similar normative claims to privacy accorded to families in the domestic realm. Lu thus argues that:
The concept of intervention .. assumes some distinction between private and public domains. In the Westphalian model of interstate relations, the posited sovereignty of states functions like privacy to give states a right to be free from interference by outside parties --especially other states, as well as non citizens, nongovernmental organizations, and even the international community -- in their own internal affairs."
The public/private argument is an interesting and I think controversial position that adds to a discourse about sovereignty that we see being challenged all the time in taxation, including (especially of late) in taxation. Consider the OECD's project on BEPS, the US imposition of FATCA on the rest of the world, the rise of global tax justice activism, the addition of taxation to the corporate social responsibility discourse, and the UN tax group's attempt to change the conversation on transfer pricing. There are many other examples in recent and not so recent history.

It will be interesting to discuss the pressures involved in the area of labour. I have viewed it as essentially necessary for states to trap labour in order to extract enough revenues to pay for the state (in the form of taxation or otherwise). It is clear that governments have come to rely on labour as their primary resource of such revenues over the past century, so cannot let labour move as capital does, footloose and free of obligation.

Video & Audio Resources on Political Theory, Inequality, Finance, and Governance

Russell Haggar, a Sociology and of Government and Politics teacher in the UK, has put together a a visually alarming but very useful "Compendium of Video and Audio Materials for Advanced Level Government and Politics and Sociology Students and for the General Reader," with sections on Political Theory, Welfare and Inequality, Labor Politics, the Financial Crisis, and others. Here is but a sample of what you will find:

  • Stephanie Flanders’ three part series for the BBC: Masters of Money: John Maynard Keynes: Friedrich Hayek: Karl Marx 
  • Laurie Taylor : Thinking Allowed on Capitalism with Ha-Joon Chang and David Harvey
  • Who Owns the World? by Noam Chomsky
  • Why Equality Is better for everyone [Video on The Spirit Level from The Equalities Trust]
  • Gordon Brown and the Financial Crisis [Andrew Rawnsley for Channel 4]
  • RBS : Inside the Bank that ran out of money  
  • Meltdown: The Global Financial Collapse (four part series)
  • 3 Part BBC Series by Michael Cockerell on The Great Offices of State, with part 3 entitled The Secret Treasury
Many, many more resources at the link.

Tuesday, March 11, 2014

This Sunday at McGill: Info Session on FATCA

This Sunday there will be a Foreign Account Tax Information Act (FATCA) Information Session at the Faculty of Law at McGill, featuring John Richardson from Toronto and Andrew Grossman from London (UK); each has extensive experience with U.S. taxation issues. The session will be geared toward those with US status and the speakers will discuss issues of disclosure, compliance, and other obligations raised by this legislation.

This event is free and open to the public. Please note that it is St. Patricks' Day so attendees are advised to plan their travel arrangements accordingly. Details:

16 Mar 2014 
12:00 to16:00
Location: Chancellor Day Hall, Maxwell Cohen Moot Court (NCDH 100)
3644 rue Peel Montreal Quebec Canada, H3A 1W9


Monday, March 10, 2014

Christians & Cockfield: Submission to Finance Dept on FATCA in Canada

I have just posted on SSRN a submission to the Canadian Finance Department co-authored by myself and Professor Arthur Cockfield of Queen's University. Here is the abstract:
The United States enacted a tax reform in 2010 known as the Foreign Account Tax Compliance Act (FATCA), which will impose an extensive third-party monitoring and disclosure regime on financial institutions around the world in an effort to “smoke out” American tax cheats and expose their undeclared foreign assets to the U.S. Internal Revenue Service (IRS). The flow of information from Canadian financial institutions directly to the IRS that is required by FATCA would violate a number of laws in Canada. Accordingly, the United States has requested changes to these laws. The Canadian government now seeks to accommodate these requests in the form of an “intergovernmental agreement” (IGA) with the United States, which will be enacted into law as the Canada–United States Enhanced Tax Information Exchange Agreement Implementation Act (the Implementation Act) pursuant to a proposal released for comment by the Department of Finance. The Department of Finance invited public comments on these documents. We examined the proposed Implementation Act and the IGA and we find that they raise a number of serious issues ranging from likely constitutional violations to violations of international law. We submit these comments in the hope that they will help lawmakers and the public understand that FATCA, while intended to catch tax evaders, is poised instead to impose serious and unjustified harms on people who live around the world as non-resident U.S. citizens and green card holders, as well as their family members and business associates.
I know that some of my good friends and colleagues view FATCA as a net positive step toward a much-needed global automatic information sharing regime, and some have not understood my reasons for caution. I hope that this submission will help explain some of these reasons.

I want to add that in my view, the Department of Finance unnecessarily inhibited public debate on the impact of the proposed legislation by setting an arbitrarily short period for comments. The agreement itself is complex and must be analyzed in the context of the underlying U.S. law and regulations as well as the more than twenty agreements the U.S. has signed to implement FATCA with other countries. In the little more than one month’s time that the Department of Finance allotted for public comment, these thousands of pages of applicable law and regulations have been augmented by several hundred new pages of guidance from the United States tax authorities, and will be further augmented when the Canada Revenue Agency (CRA) publicly releases its own guidance for Canadian financial institutions.

In restricting the time for Canadian tax practitioners and policy observers to review this lengthy, complex, and fundamentally global regime, the Department of Finance has deprived itself of the opportunity to receive more meaningful and thorough consideration of the many policy and practical issues involved in implementing FATCA in Canada. I hope that the Finance Department will extend its time to receive comments, especially if and when further guidance is issued.

Wednesday, March 5, 2014

Alain Deneault--Paradis fiscaux: La Filière Canadienne/Tax Havens: The Canadian Connection

Alain Deneault, auteur de Noir Canada: Pillage, corruption et criminalité en Afrique, lance son nouveau livre, Paradis fiscaux : La filière Canadienne [Montreal Book Launch]:

* La première séance sur les liens historiques entre le Canada et les paradis fiscaux, à l'Upop.

 Date : Mercredi, 5 mars 2014, 17h
Location: Salle des Boiseries, UQAM Pavillon Judith-Jasmin - Salle des Boiseries
405, rue Sainte-Catherine Est Salle J-2805

Revue de Presse


Voici une vidéo de Deneault, où il discute du livre:




J'ai lu le livre et j'aimerais fournir le commentaire suivant:
C’est avec enthousiasme et plaisir que je recommande le livre d’Alain Deneault, Paradis fiscaux : La filière canadienne. Cet ouvrage aborde une question importante et très actuelle, celle de la concurrence que se livrent les États sur le plan de la fiscalité pour séduire le capital et privilégier certaines industries. Ce faisant, ils imposent au reste de la société des coûts dont on ne mesure pas l’ampleur. 
Deneault dépeint habilement le portrait de ce régime mondial en mettant l'accent sur les acteurs canadiens qui ont facilité sa mise en place. En tant que professeure et chercheuse dans le domaine du droit fiscal, je considère que ce livre est une ressource indispensable; il offre une riche mise en contexte culturelle, sociale et historique dont on a grandement besoin pour comprendre comment la concurrence fiscale est devenue le phénomène mondial qu’on connaît aujourd’hui.
I read the book and was happy to provide the following comment:
I am happy to enthusiastically recommend Tax Havens: The Canadian Connection, by Alain Deneault. The book deals with the timely and important topic of how governments engage in tax competition in order to lure in capital and privilege certain industries, at an unmeasured cost to the rest of the society. Deneault deftly weaves a narrative about tax competition by focusing in on the unique roles Canadian players have had in enabling and facilitating this global landscape. As a tax law professor and scholar, I view this work as an indispensable resource, providing a rich cultural, social, and historical context that is surely needed for understanding how tax competition developed into the global phenomenon it is today.  

Tuesday, March 4, 2014

Apple not solely focused on Shareholder value

Business Insider reports on a recent Apple shareholder meeting, during which a representative from a decidedly far right thinktank asked Tim Cook "to commit on the spot to only making moves that were profitable for the company," to which Cook replied
"When we work on making our devices accessible by the blind, I don't consider the bloody ROI." He said that the same thing [applies] about environmental issues, worker safety, and other areas where Apple is a leader.
This is an interesting comment on the role of corporate social responsibility in shaping how CEOs talk about their management practices. One area where Apple is a leader is in its tax dodging capacity, though perhaps its leadership in this respect is less well known than that associated with its contract manufacturing practices. If those activities are not ROI-focused, it is difficult to know why they form such an integral part of Apple's global business strategy. I continue to look for signs that the aggressive tax planning is becoming anathema to Apple's polished CSR image, but none have yet emerged.

Friday, February 28, 2014

FATCA in Canada-constitutional challenge mounting

A group of Canadians has put together a campaign to explore the constitutional violations posed by FATCA in Canada. Some of these issues were raised by pre-eminent constitutional scholar Peter Hogg, in this letter to Finance. Others arise because of the adoption of the intergovernmental agreement (IGA), which bypasses data protection laws and lacks even the minor anti-discrimination clause seen in other IGAs.

I've been asked if these issues are serious. I think they are. The issue FATCA raises for me is not so much sovereignty--though I perfectly understand the instinct on that front--but rather it is the problem of serious mismatch between the goals targeted and what will be attained by FATCA when law on the books meets law in practice. The constitutional challenge is a signal that something is seriously awry with FATCA. As with most activism, this effort demonstrates that a not-small number of people are experiencing some not-small violation of fundamental principles, and in light of government failure to respond, are forming grassroots responses in an effort to achieve a remedy.

Let's have a look at why this might be so.

The goals of FATCA are clear and the law writes a clear narrative that is palatable to the public: we must stop tax evasion. Who would possibly speak out against that goal? I don't know too many people that would.

However, the law in practice is a completely different story, with a normative dimension unique to the United States. This dimension has, as far as I can see, been completely ignored by lawmakers both in America and internationally. It involves the attempt by the United States to impose taxation of persons based on their legal status instead of their actual inclusion in American society.

I know that this s difficult to understand conceptually. An example might help.

A was born in Illinois to a Swedish mother and an American father. The family moved to Sweden when A was 6 months old, and she spent her whole life in Sweden, working there, paying taxes there, using the schools and the health care system there, and getting married to a fellow Swede. A is a US national, and therefore subject to US taxation as if A had done all of those things in America. A has always been subject to US taxation, and FATCA doesn't change that in the slightest. But A never paid any attention to US law or politics, decisions of the US Supreme Court, or Congressional hearings. Why would she? She is a resident of Sweden paying high taxes and living her life. A has bank accounts at her neighbourhood bank, and tax-deferred savings account sponsored by her government.

In the eye of FATCA, A is an offshore tax evader.

Since she is an evader, she must be monitored to ensure she is caught and brought to justice, and further that she goes forward in full compliance with all US tax laws. Since she cannot be trusted to come forward, her bank must disclose her personal and financial information, and that of her spouse (guilty by association), to the IRS. Since the bank has no incentive to do that, it must be threatened with sanctions if it fails to do so. Since banks don't want to work under that threat, Sweden must be compelled to step in and facilitate the data transfer.

As I have said often, this is an extraterritorial jurisdictional claim that requires the help of other countries. Getting help is not a choice, it is a necessity. One country simply cannot assert its jurisdiction over people who live in another country, without that other country's help. American scholars know this, and they say America should ask for the help it needs. The problem that we have seen FATCA reveal is that this help necessarily involves America's needs trumping domestic laws that apply to targeted persons in the country of their residence.

I do not think America should be demanding help from other countries in taxing the residents of those countries. America needs to learn to tax its own residents, like every other country must do. If the world's biggest economy cannot figure out how to make its own people pay for their own public goods, it is difficult to see why other countries should be enlisted to help it along.

This is why the mismatch between the law on the books and the law in practice is so troubling in the case of FATCA. Looking past the use of legal status instead of residence as a jurisdictional claim, a regime that requires financial institutions to report nonresident accounts to these account holder's home countries is absolutely necessary to protect the income tax base from widespread tax evasion facilitated by foreign bank secrecy laws.  Of that there is simply no doubt. To the extent FATCA can do that, it is to be applauded and most of all extended globally because this is a global issue. I explain and advance this argument here

Most countries cannot act alone in instituting this necessary regulatory structure, since foreign financial institutions would simply shun a given market rather than comply. This is the potentially positive side of what makes the United States different from most, maybe all, other countries. This also explains why the OECD is very very quickly trying to ride the coattails of FATCA (before it is too late and the US changes its mind about being part of a global data exchange system, as it has before), by gearing up to create a global FATCA, or call it a GATCA

GATCA is FATCA minus two key aspects: the normatively unjustifiable legal-status based tax, and most of the economic sanctions. The UK has done something similar with those same parameters with respect to a selected list of countries. (The OECD's GATCA is also fully reciprocal, but that deficiency in FATCA is another issue). These differences make a GATCA supportable exactly where FATCA is not (both systems have other major flaws but we can leave those aside for the big picture here).

FATCA's enforcement of legal-status based taxation renders it normatively unjustifiable. It violates the residence principle, which Reuven Avi-Yonah has gone so far as to call an international customary law. It is also of course completely unworkable on a global scale: imagine if other countries decided to learn from the US example and started smoking out their own disapora to enforce their own FATCA regimes. It is unimaginable that if the OECD countries got together and seriously debated status-based taxation, they would agree on a global standard to enforce it for all countries. The common reporting standard GATCA they have devised, which is so obviously based fundamentally on the residence principle, shows that the OECD recognizes that enforcing status-based taxation is not and should not be a goal of any project to counter tax evasion.

Yet no conversation is being had about the outlier, whose demands will make enforcement of GATCA more extensive and more expensive for every other country.

Residence based taxation is not perfect by any means but it is the least worst alternative if governments want to continue to use personal income taxes in a world in which individuals are to be allowed the freedom to move. FATCA deserves to fail to the extent it ignores this reality. A constitutional challenge will at minimum open a desperately needed political conversation about why this is so.