A Tax Professor Feels a Little at Sea

boaty
Credit: https://nameourship.nerc.ac.uk

Last Thursday, Tulane Law School held its annual faculty scholarly retreat, which basically means we cloistered ourselves in a downtown conference room and workshopped eight papers over the course of a day. ’twas a nice end-of-semester opportunity to appreciate and engage with everybody’s work. I got to be discussant on a paper by my colleague, Martin Davies, Cross-Border Insolvency and Admiralty: A Middle Path of Reciprocal Comity, a working version of which was recently published in the Comité Maritime International 2015 Yearbook.  Martin is the Director of Tulane’s Maritime Law Center, and he has kindly given me permission to blog the paper here.

Warning: This blog post discusses areas of law that are only marginally related to tax law, which some may find unsettling. On the other hand, the paper implicates some interesting jurisdictional and distributional issues that parallel some of those found in international tax.

Continue reading “A Tax Professor Feels a Little at Sea”

Money Monster Review over at BLPB

Last Friday, I went and saw Money Monster, the new Jodie Foster-directed movie with Julia Roberts and George Clooney in it. For the three of you thinking about seeing Money Monster instead of, say, Captain America: Civil War, my colleague, Ann Lipton has the securities law-ish review over at Business Law Profs Blog. Bottom line: Entertainment good, securities law not so good. Also, there’s a line about tax in there somewhere.

 

Tax Professors on @Twitter

A little over a week ago, I came across an article titled Top 50 Law Professors on Twitter. I did not even want to link to the article (although I did) because there was not one tax professor on the list. So on this #followfriday, if that is still a thing, I thought I would created a list of tax professors on @twitter. If I missed you, I am sorry; just send me your twitter handle or follow me and I will add it to the list!

Starting with the SurlySubgroup (@surlysubgroup)

Jennifer Bird-Pollan (@jbirdpollan)

Sam Brunson (@smbrnsn)

Phil Hackney (@EOTaxProf)

David Herzig (@professortax)

Leandra Lederman (@leandra2848)

Ben Leff (@benmosesleff)

Francine Lipman (@Narfnampil)

Diane Ring (@ringdi_dr)

Shu-Yi Oei (@shuyioei)

Stephanie Hoffer (@Profhoffer)

Other United States/Canadian Tax Professor (in no particular order):

Continue reading “Tax Professors on @Twitter”

Lionel Messi, Tax Fraud and the Panama Papers

I have been fascinated by the accusations of tax fraud levied against soccer superstar Lionel Messi and his father by the Spanish tax authorities.  Right when I thought the story could not get more interesting of course Messi is tied to the Panama Papers.  As much as I like Hermione (h/t Shu-Yi), I love Messi!

As a quick background for non-sports and football (I mean soccer) fans, Messi is the greatest soccer player in the world and maybe the greatest soccer player of all time.  As a point of reference, he would be the equivalent of Michael Jordan, Joe Montana, Babe Ruth rolled into one player.  Imagine what would happen if LeBron James were accused right now of tax fraud by the IRS?  This would dominate ESPN and probably network television.  Well, this is what is happening in the rest of the world with Messi.

Last year, a bombshell was dropped when the Spanish taxing authorities accused Messi of defrauding Spain of more than $5 million. Continue reading “Lionel Messi, Tax Fraud and the Panama Papers”

Harry Potter/Panama Papers Fan Fiction Alert (Rated: Fiction T)

By: Shu-Yi Oei

Confession: I love Mallory Ortberg, and after today, I might love her even more.

Here’s the latest from Mallory and The Toast: Harry Potter/Panama Papers Fan Fiction! This, after various news sources reported that Emma Watson was named in the Panama Papers data leak as having set up a BVI offshore company.

(Hat tip: Various friends on Facebook)

Perhaps my favorite line: “I used to be a lot of things,’ Hermione said decisively. ‘I have money now instead.’” Boom! Harry Potter meets Ayn Rand.

The fan fiction is very funny, but honestly, I am personally more taken by Ortberg’s beautifully crafted pseudo-legal disclaimer:

“*WITH THE IMPORTANT CAVEAT THAT THE OFFICIAL LINE RIGHT NOW IS THAT HER SHELL CORPORATION WAS CREATED SO SHE COULD PURCHASE PROPERTY PRIVATELY AND WITHOUT FANFARE, WHICH IS CERTAINLY POSSIBLE, I DON’T MEAN TO IMPLY SHE IS 100% A TAX DODGER BUT IT CERTAINLY RAISES SOME QUESTION, OKAY, BACK TO THE FAN FICTION NOW, AGAIN BEARING IN MIND THAT THIS IS JUST FOR THE SHEER DELIGHT OF PICTURING A LIBERTARIAN HERMIONE IN A SMOKY ROOM CREATING SHELL CORPORATIONS AND BUILDING TAX SHELTERS, ALSO HERE IS A QUICK PRIMER ON THE PANAMA PAPERS IF YOU’RE UNFAMILIAR OR READ A PRIMER A FEW WEEKS AGO AND THEN FORGOT”

The tone is so spot on, it made me weep.

In seriousness, though, the fact that the Panama Papers has made The Toast (which can generally be described as a feminist website with lots of literary and pop culture references) tells us something about how public opinions surrounding offshore tax evasion and structuring become disseminated throughout popular consciousness. Sure, organizations like Tax Justice Network and Oxfam write about tax havens and offshore evasion all the time and those venues tend to be more salient to us tax people. But public opinion surrounding convulsive events such as data leaks is also shaped in other popular fora as well—in this case, by Ortberg using the fierce set of tools at her disposal (humor, sarcasm, wit, movie references, an encyclopedic knowledge of random things like the history of the Protestant church, Greek mythology, and 19th century Gothic romance novels, etc.). Whether and how these informal modes of opinion transmission actually affect legal and political outcomes is a question that needs systematic inquiry.

A Hot News Week for Krispy Kreme

By: Diane Ring

The big news this week about Krispy Kreme is that they are going to be acquired for $1.35 billion. As reported in the WSJ last night, JAB Holding Co. (a European investment fund, which the WSJ noted holds an interesting mix of assets including Caribou Coffee, Jimmy Choo shoes, and  Durex condoms) is about to add glazed donuts to its asset pool. But this was not the Krispy Kreme news of the week that caught my eye. I was fascinated instead to read that this week the Missouri Supreme Court ruled on Krispy Kreme’s request for a refund of sales tax it had remitted on sales of donuts and other related items from 2003 through 2005.

Krispy Kreme had collected sales tax at the 4% rate applicable to food sold that would be immediately consumed. In contrast, food sold at grocery stores generally bore only a 1% state sales tax. Essentially, as the media described it, Krispy Kreme argued that its donuts were like grocery store food, and thus should bear only the sales tax rate applicable to such food. I may not follow the healthiest of diets but even I do not think that donuts are the equivalent of broccoli from the produce aisle. What were they thinking? But then my tax brain kicked in. I immediately understood. . .

Continue reading “A Hot News Week for Krispy Kreme”

Church or Family Business? Puerto Rico Wants to Know

By: Sam BrunsonHacienda

On Friday, Shu-Yi posted an overview of Puerto Rico’s financial problems, and described the centrality of the island’s tax regime to those problems. Today, I’m going to dig into one particular aspect of Puerto Rican taxation: tax-exempt churches.

Last year, the Puerto Rican Treasury department launched an ambitious pilot program[fn1] under which it planned on auditing more than 40 tax-exempt organizations. Juan Zaragoza, Puerto Rico’s Secretary of Treasury, announced that this month the program moves to Phase 3: auditing churches.

As in the U.S., the Puerto Rican tax law exempts some nonprofit organizations from tax. Puerto Rican tax law explicitly exempts

Churches, church conventions or associations, as well as religious and apostolic organizations, including corporations and any community chest, fund, or foundation, organized and operated exclusively for religious purposes, no part of the net earnings of which inures to the benefit of any private shareholder or individual.[fn2]

Some tax-exempt churches, Zaragoza asserted, aren’t really churches, but rather family businesses. They make annual profits, just like a shoe store (and yes, his example was a shoe store), but, because they claim to be tax-exempt churches, they don’t pay taxes on their profits. Continue reading “Church or Family Business? Puerto Rico Wants to Know”

It’s Here! The #PanamaPapers Database

On April 3, 2016, the International Consortium of Investigative Journalists, in partnership with a number of news organizations, announced that it had received a leaked trove of 11.5 million documents from the Panamanian law firm Mossack Fonesca. Dubbed the “Panama Papers,” leak, the ICIJ documented how the wealthy and the powerful used Mossack Fonesca to move money around the world of tax havens and, at least sometimes, to hide it from their countries’ revenue agencies.

Originally, the ICIJ declined to make its data available, even to governments.[fn1] It explained that it is: Continue reading “It’s Here! The #PanamaPapers Database”

EU State Aid Debate Lit Up the ABA Teaching Tax Session in DC

By: Diane Ring

As I blogged last week, the ABA Tax Section Teaching Tax Committee held a panel discussion Friday on the EU State Aid investigations on advance tax rulings. As I’ll discuss below, the panel was every bit as interesting as forecast. But first, a quick overview of what EU State Aid is all about:

EU State Aid Doctrine and Recent Controversy

Under Art. 107(1) of the Treaty on the Functioning of the European Union (as interpreted by the ECJ), if a member state provides state aid that distorts competition in the EU then the member must recover that aid from the benefiting entity to undo the distortive effects. Although this competition doctrine developed outside the tax context, it has previously been applied to tax benefits granted by a member state to a taxpayer. The European Commission oversees the investigation of state aid cases and issues the decisions.

Recently, though, application of the state aid doctrine to tax rulings issued by member states to multinationals has become a subject of tremendous controversy. In the past two years, the EC has been investigating tax rulings granted by member states to multinationals, including U.S. multinational taxpayers. The concern is that the multinationals receiving these rulings are not getting “mere” clarification of the law, but rather are securing a distinct advantage that creates distortion in the market. The U.S., along with various commenters, has expressed concern that these investigations might be disproportionately targeting U.S. businesses. Others have questioned whether the state aid rules are the most appropriate tool for combatting transfer pricing and/or double nontaxation situations that the EU finds problematic.

The Panel Discussion

During the discussion, it became apparent that there was a notable gap between the way many (but not all) in the U.S. view the European Commission’s recent state aid investigations involving U.S. taxpayers, and the EC’s vision of the role of the state aid doctrine in addressing potential harm caused by tax rulings granted to U.S. multinationals with very low effective tax rates. Thus, I was not surprised to hear these divergent positions characterized during the panel as “ships passing in the night”. What I did not anticipate was hearing the phrases “legal science fiction” (applied to certain suggested challenges to EC state aid decisions) or “a horror movie” (applied to the unfolding state aid investigations and decisions).

But the energy in the room was only part of the story. The panel provided very rich insights into the many complicated issues surrounding the current state aid investigations. I could not do them all justice here but thought I would highlight those that were mentioned by various panelists that really caught my attention:

Continue reading “EU State Aid Debate Lit Up the ABA Teaching Tax Session in DC”

Is the Global Trend Toward Tax Transparency and Disclosure a Surprise to Many Multinationals?: Insights from the ABA Tax Section Meeting in DC, May 6, 2016

By: Diane Ring

As I mentioned in my post earlier this week, I am in DC for the ABA Tax Section Meeting and am very much looking forward to this afternoon’s session on the EU State Aid Investigations. But at this morning’s session of the Administrative Practice Section, much of the conversation during the panel on the post-BEPS world focused on the array of new mechanisms that have emerged–or are being contemplated–at all levels (domestic tax law, international agreements, etc.) to provide increased transparency regarding multinational taxpayers and their tax treatment. Among the key examples were FATCA, BEPS-based country-by country-reporting, and new rules in the EU.

The fact that this was a topic at the ABA was not surprising, nor was the specific list of transparency and disclosure measures noted during the discussion. What did surprise me was the observation made during the panel that for many multinationals (not the really large ones, but the next tier down) this emerging trend was not on their radar. The point was made that these businesses did not have the staff to monitor the activities of the major international organizations such as the OECD and JITSIC in the same way that the very largest businesses did. Thus, despite the fact that the current world of transparency and disclosure was in fact foreseeable and reflects a perceptible evolution that has been taking place since the 1990s, it nonetheless took some of these taxpayers by surprise.

I am not sure what to make of this–but one point it suggests is that there was a general sense among these multinational businesses that although institutions such as the OECD played a role in international tax, it was a limited and predictable role that did not warrant ongoing and extensive monitoring by such businesses. I imagine institutions such as the OECD are getting more scrutiny from these businesses now.

 

 

Tax Policy and Puerto Rico’s Fiscal Crisis: An Insolvency Primer and Some Tax Things to Read

By: Shu-Yi Oei

I’ve been following the story of Puerto Rico’s default on its public corporation debt repayment obligations, which has been unfolding over the last several months. The latest happened on Monday, May 2 (well, technically Sunday), when Puerto Rico missed a major debt payment that was due to the bondholders of its Government Development Bank (GDB).

The topic has been well covered from the sovereign debt/insolvency angle over on Credit Slips, so I won’t go into that in detail here. As I understand it, the main points are these:

(1) Puerto Rico owes around $70 billion total outstanding debt to its creditors, of which a significant chunk is public corporation debt. Public corporations are corporations owned by the government of Puerto Rico. For example, the GDB is a public corporation.

(2) Unlike U.S. municipalities such as Detroit, Puerto Rico entities aren’t considered debtors for purposes of Chapter 9 of the U.S. Bankruptcy Code. They therefore don’t have access to the Chapter 9 municipal bankruptcy process. See 11 U.S.C. § 101(52). This is a bit of a head scratcher.

(3) In 2014, Puerto Rico’s legislature passed a law, the Puerto Rico Public Corporation Debt Enforcement and Recovery Act, which created a mechanism analogous to Chapter 9 bankruptcy by which Puerto Rico public corporations can restructure their debt. See Puerto Rico Passes New Municipal Reorganization Act: Puerto Rico Public Corporation Debt Enforcement and Recovery Act, 2014 P.R. Laws Act. No. 71, 128 Harv. L. Rev. 1320 (2015).

(4) Some bondholders filed a lawsuit, contending that Chapter 9 of the U.S. Bankruptcy Code preempts the Recovery Act. The First Circuit ruled that the Recovery Act is preempted. Franklin California Tax-Free Trust v. Puerto Rico, 805 F.3d 322 (1st Cir. 2015). The Supreme Court granted cert and heard oral arguments on March 22, 2016. No decision yet. For one scholar’s take on the issue, see Stephen J. Lubben, Puerto Rico and the Bankruptcy Clause, 88 Am. Bankr. L.J. 553 (2014).

(5) In light of all this, some have called for U.S. Congressional action, and there’s been legislation drafted to address Puerto Rico’s fiscal crisis that will allow for both restructuring and reform going forward. The House Committee on Natural Resources put forth a draft bill, the Puerto Rico Oversight, Management & Economic Stability Act (“PROMESA”). See also here for a helpful executive summary that accompanied an earlier draft. So far, that legislation has stalled, but they’re still trying.

There are many important issues in play, about which various stakeholders and commentators disagree. Some big ones are: (a) whether the draft PROMESA legislation raises retroactivity issues that make it unfair to bondholders (including mutual funds and their investors) who may be subject to restructuring ex post without having had notice of that possibility ex ante; (b) relatedly, whether creating a bankruptcy-like restructuring process for Puerto Rico is bad for bondholders because it prevents holdout creditors from holding up restructuring negotiations, (c) how much oversight and sovereignty Puerto Rico should cede (for example, different stakeholders feel differently about the installation of an oversight board); (d) the extent to which austerity measures are feasible and should be imposed [fn1], and (d) and what substantive reforms should be put enacted going forward.

So where does tax come in?

Continue reading “Tax Policy and Puerto Rico’s Fiscal Crisis: An Insolvency Primer and Some Tax Things to Read”

ABA Tax Section May Meeting — Teaching Tax Panel: Government Speakers Will Debate EU-US Controversy Over State Aid (Friday, May 6, 3:00 pm)

By: Diane Ring

It’s already time for the May Meeting of the ABA Tax Section, in DC. and I wanted to highlight the session organized by the Teaching Tax Committee – it should prove to be immensely interesting.

As those who follow international tax know, there has been a been a controversy brewing between the U.S. and the EU regarding European Commission investigations into whether tax rulings that certain multinationals (most of which are U.S. corporations) received from EU member states constitute forbidden state aid. The U.S. has expressed concern that the investigations inappropriately target U.S. businesses, while the EU considers the inquiry a legitimate look at important tax rulings.

The panel discussion this Friday at 3:00pm will include the following government officials: Bob Stack, U.S. Deputy Assistant Secretary, International Affairs; Gert-Jan Koopman, Deputy Director-General State Aid, Directorate-General for Competition, European Commission; and Pierpaolo Rossi-Maccanico, European Commission.

I will be blogging about the panel later – but even better than reading about it will be attending and then reading the blog post!

For more information:

Continue reading “ABA Tax Section May Meeting — Teaching Tax Panel: Government Speakers Will Debate EU-US Controversy Over State Aid (Friday, May 6, 3:00 pm)”

Marijuana and Charitable Orgs Response

By: Philip Hackney

On Monday Ben Leff made some  good points about  illegality and charitable organizations that critiqued my post on a recent IRS denial of an organization that planned to distribute marijuana. I am excited to be able to engage on this issue here on our new effort at consolidated blogging. Ben makes one primary point: “even where conduct is facially “illegal,” there is ambiguity about whether it violates a fundamental public policy, and the IRS should hesitate before making a decision on that score.” He also makes a couple ancillary points on (1) the proper interpretation of the Religious Freedom Restoration Act (“RFRA”), and (2) whether the IRS should have avoided ruling on the issue of marijuana at all in its most recent denial. I will address the primary point first and then turn to the two ancillary points.

I agree that in general the IRS should not make choices about illegality that are not within the IRS’s jurisdiction. For instance, the IRS should not make a judgment that an organization is engaged in illegal behavior, and therefore not charitable, based on its belief that the organization  might be in violation of antitrust laws in a criminal way. The IRS simply has no way of generating the proper evidence nor of properly evaluating any evidence it does generate. Until the FTC makes a ruling on the legality of the conduct, the IRS should focus on charitable tax law and whether the acts themselves fall outside of charitable organization behavior in a substantial way. Continue reading “Marijuana and Charitable Orgs Response”

More on Income Share Agreements: Will Proposed Legislation Fix their Marketability Problem?

By: Diane Ring

Last week I blogged about the apparent resurgence of income share agreements (ISAs), noting for example, Purdue University’s planned offering to juniors and seniors this fall, and the $30 million capital infusion received by ISA provider Cumulus Funding. I discussed how regulatory uncertainty is one likely barrier to more widespread market interest in these instruments. This week I thought I would take a look at the current round of ISA-related legislation in the House and the Senate, which is aimed at addressing some of this uncertainty.

The current legislation is actually the second go round at legislating the consequences of some ISAs. In 2014, Senator Rubio and Representative Petri introduced the Investing in Student Success Act of 2014. That legislation went nowhere. In 2015, Senator Rubio introduced a revised version of his bill, following the introduction of a similar bill in the House by Representatives Todd Young and Jared Polis. Both 2015 bills have much in common, although the Rubio bill tracks the structure of his earlier version. The point of each bill is to clarify the legal and regulatory treatment for those ISAs that fall within the bill’s definition by providing affirmative legal treatment for covered ISAs. ISAs that don’t fall within the bill’s parameters aren’t necessarily barred—they just aren’t covered by the legislation and presumably are left in the same legal limbo in which all ISAs currently operate.

As my co-author Shu-Yi Oei and I have discussed elsewhere, trying to craft one set of rules to cover many types of ISAs is problematic, and as a result, the 2014 bill was both under- and over-inclusive. For example, although it might make sense to regulate ISAs used for education in a manner similar to student loans – such student loan treatment might be inappropriate for ISA funding used to start a business rather than for education. Also, we expressed concern about the possibility of long-term ISAs in which an individual effectively assigns away a significant percentage of future income for what might be virtually all of his or her working life (e.g., a 30 year ISA). The 2014 bill did not limit such agreements.

So, do the 2015 bills do any better?

Continue reading “More on Income Share Agreements: Will Proposed Legislation Fix their Marketability Problem?”

Stuck in the Middle With . . . the IRS?!?

By Sam Brunson

Pity the IRS.[fn1] It is, right now, stuck in the middle of a battle over religion. See, churches, like other public charities, are exempt from tax under section 501(c)(3). But the exemption comes with certain limitations, including an absolute prohibition on supporting or opposing candidates for office.

This prohibition has become something of a culture wars battleground, at least with respect to churches. Some churches argue that they have a moral and religious obligation to support candidates whose actions are in line with their beliefs, or, alternatively, to oppose candidates whose actions violate their beliefs. As such, they claim this prohibition violates their Free Exercise rights, and is unconstitutional, at least as applied to churches.

The funny thing is that, as best I can tell, only one church has ever lost its tax exemption for violating this campaigning prohibition. Continue reading “Stuck in the Middle With . . . the IRS?!?”