International Tax Law as a Ponzi Scheme

Article excerpt

I. INTERNATIONAL TAX LAW?

It may be, as Benjamin Franklin famously wrote, that "in this world nothing can be said to be certain, except death and taxes." (1) The former, however, has a universal quality that the latter lacks, and the two share little in terms of legal theory: taxes are imposed by positive act of state while death is more typically an expression of natural law. (2) The incongruity, of course, is what makes Franklin's bon mot so clever. At the same time, it forms the basic premise and theoretical challenge for the discipline of international tax. The foundational question for international tax lawyers is whether a global tax regime truly exists, or whether tax law is only about the revenue generating system which each sovereign authority unilaterally makes for itself. (3)

It is the ambition of this paper to explore the extent to which international tax law is more than the sum of its parts. It will do so by examining three recent legal/policy decisions. The first of these, the 2006 judgment of the Tax Court of Canada in MIL Investments, (4) decided that a statutory general anti-avoidance rule of interpretation does not operate so as to bar the practice of treaty shopping for corporate residence, and that strict construction applies to the taxpayer's use of the Canada-Luxembourg tax treaty. The second one, the 2008 judgment of the U.S. Tax Court in Jamieson, (5) determined that the alternative minimum tax credit limitation trumps the Canada-U.S. tax treaty foreign tax credit as the last-in-time enactment, and that implied repeals of earlier enactments are not favored as an interpretive approach to tax conventions. The third decision is contained in a series of progress reports on internationally agreed tax standards issued by the Organisation for Economic Cooperation and Development (OECD), (6) which seeks to implement a coordinated international standard for tax and to publicly expose non-compliant states maintaining full or partial tax secrecy regimes.

Each of the three decisions raises distinct doctrinal issues that arise in different policy contexts. Nevertheless, these three decisions and decision-makers share normative concerns that go beyond the fact that they each, in one way or another, call into question the relationship between domestic tax policy and international agreements. More specifically, each of them concerns the interpretation or application of instruments designed to promote tax neutrality and transparency in international investment as the shared values of the international revenue system. (7) The puzzle raised by the two adjudications and one policy initiative is an existential one about the nature of the international tax system. Is the space between state tax regimes really a fiscal vacuum, (8) or is it a normative universe filled with shared definitional and enforcement ideals? (9) In a world where every taxation authority is sovereign, does the discipline of international tax--with its treaty networks and OECD framework provide any normative authority that doesn't just circle back, like one big intellectual Ponzi scheme, (10) to the system's sovereign members?

II. REVENUE AND THE STATE

Adjudicators in the British Commonwealth, (11) the United States, (12) and various international institutions, (13) have all had a number of occasions to consider constitutional restrictions on the revenue raising jurisdiction of states. One would assume that it is in constitutional law that states sculpt their respective revenue raising authorities to fit with each other. After all, in other fields of state power an overstepping of bounds into the terrain of a foreign nation has been assimilated to a due process violation; in this way, constitutional rules can form the backbone of a coordinated international regime. (14)

A paradigm for the constitutional law approach to taxation power is provided by the Privy Council's opinion in B.C. Electric Railway Co. …