The Procedural Aspects of U.S. Tax Policy towards Developing Countries: Too Many Sticks and No Carrots?

By Zagaris, Bruce | The George Washington International Law Review, January 1, 2003 | Go to article overview

The Procedural Aspects of U.S. Tax Policy towards Developing Countries: Too Many Sticks and No Carrots?


Zagaris, Bruce, The George Washington International Law Review


I. INTRODUCTION

This paper discusses the procedural, administrative, and tax treaty issues of the U.S. tax treatment of foreign source income earned in developing countries. Historically the United States has wanted its tax policy to be neutral to transnational investment.1 The recent focus of U.S. tax treaty of foreign source income earned in developing countries has been on closing loopholes on deferral, tax fraud, and evasion by U.S. persons using low tax and secrecy jurisdictions, and devising ways to provide incentives for certain types of U.S. exports.

United States tax treaty policy has been comparatively inflexible. As a result, the United States has had difficulty in concluding treaties with some important developing countries, such as Brazil and Argentina, even though these countries have large tax treaty programs of their own. Since the 1980s, the United States has developed a tax information exchange program with developing countries, especially in the Americas. The United States designed the program to supplement the effort of the U.S. Internal Revenue Service (IRS) to enforce its income tax laws and enhance its compliance. The paper takes the position that the inflexible approach of the United States towards developing countries and the emphasis on "sticks," or punishment of governments that do not change their policies and laws to conform with U.S. tax enforcement demands, in lieu of "carrots" or incentives is adversely impacting the environment in which foreign jurisdictions must implement the new tax enforcement cooperation.

This Article discusses the U.S. tax information exchange program, its legislative framework, and selected tax information exchange agreements (TIEAs). First, it outlines the United States' use of coercive means to obtain information because they provide alternative means of obtaining information and enforcing U.S. taxes over foreign source income. Second, the Article briefly analyzes mutual assistance in criminal law treaties and letters rogatory, which also provide means of obtaining tax information in a form that will be admissible in evidence. Third, the Article discusses mechanisms that are becoming more in vogue to obtain assistance in the collection of taxes. Fourth, the Article examines the use of extradition for tax matters. Finally, the Article concludes by considering the need for improved privacy and human rights protection in international evidence gathering in exchange of information as well as the need for incentives for developing countries, whose cooperation the United States would like to continue in a robust form. In addition, at the end this paper discusses two potential ways to tighten U.S. administration and procedure by focusing on the "sailing permit" and the operation of certain possessions' provisions.

II. TAX INFORMATION EXCHANGE PROGRAM

A. Introduction and Background

The United States pioneered its TIEA program in the 1980s as part of the Caribbean Basin Economic Recovery Act (CBERA).2 The United States now has TIEAs in effect with the following countries: Barbados, Bermuda, Costa Rica, Dominica, the Dominican Republic, Grenada, Guernsey, Guyana, Honduras, Jamaica, Jersey, the Isle of Man, Marshall Islands, Mexico, Peru, St. Lucia, and Trinidad and Tobago. On July 18, 2001, at a hearing of the U.S. Senate Permanent Investigative Subcommittee, Treasury Secretary Paul O'Neill promised the subcommittee Chairman Carl Levin that within one year the U.S. government would conclude tax information exchange agreements with at least one-half of the so called tax havens of the Organization for Economic Cooperation and Development (OECD) harmful tax competition initiative.3 Secretary O'Neill's promise, although obviously naively hyperbolic, underscores the increasing importance of this instrument. Since Secretary O'Neill's announcement, the United States has announced the signing of additional TIEAs with Antigua and Barbuda, the Bahamas, the Cayman Islands, Guernsey, the Isle of Man, and Jersey,4 although none of these are yet in force. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

The Procedural Aspects of U.S. Tax Policy towards Developing Countries: Too Many Sticks and No Carrots?
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.