U.S. International Tax Administration & Developing Nations: Administrative Policy at the Crossroads

By Brown, Karen B. | The George Washington International Law Review, January 1, 2003 | Go to article overview

U.S. International Tax Administration & Developing Nations: Administrative Policy at the Crossroads


Brown, Karen B., The George Washington International Law Review


Issues involving administration of U.S. international taxation laws relate to a number of important topics dominating policy debates. These include: international trade policy; efforts to defeat garden-variety international tax avoidance (legal manipulation of tax laws to achieve results unintended by the legislature) and tax fraud (intentional violation of established law); post-September 11, 2001, efforts to counter funding of acts of terrorism against the United States; concerted action to dictate harmonization of national taxation rates; concerted action to standardize exchange of information agreements among nations; efforts to support competitiveness of U.S.-based multinationals by subsidizing export activities through tax incentives; efforts to protect U.S. banks from monitoring payments to foreign recipients through elimination of withholding requirements viewed as onerous; "expatriation" by U.S. corporations through complex transactions known as "corporate inversions;" allocation of resources for effective administration of the tax laws by the Internal Revenue Service (IRS); and, proposals that the United States adopt a territorial system that would exempt foreign source income from taxation. Addition of the historical lack of genuine regard for the special needs and concerns of developing nations on the part of the U.S. government, especially those in the Caribbean, Latin American, and African regions, brings a complexity to this laundry list of issues that deserves further exploration.

Most recently, U.S. administrative policy may be characterized as one involving promotion of short-term U.S. interests and under-appreciation of long-term interests in cooperative policymaking among trading partners in both the developed and the developing worlds. In the case of developed nations, for example, the current administration in Washington, D.C. initially rejected the Organization for Economic Cooperation and Development's (OECD) Harmful Tax Competition Report and Recommendations, which denounced so-called preferential tax regimes of countries providing special tax breaks in exchange for local investment, on the ground that it impinged on sovereignty.1 After the events of September 11, 2001, in which criminals belonging to the Al Qaeda group of terrorists committed horrendous acts of violence in New York and Washington, D.C., the administration embraced the OECD report, emphasizing that it felt that the problems posed by preferential regimes could be alleviated by a well-developed network of information exchange provisions. After September 11, the United States perceived a need for cooperation with other nations to uncover the income and funding sources of the Al Qaeda and related terrorist networks, groups posing a particular threat to the safety and well-being of the United States.

In addition, the United States has not supported efforts of the European Union (EU) to implement a Savings Directive,2 requiring member states to agree to information sharing and tax withholding on interest payments to their residents. Switzerland, Luxembourg, Belgium, and Austria conditioned approval of the savings proposal on the agreement of the United States and certain other countries (Monaco, Andorra, Liechtenstein, and San Marino) to implement equivalent measures. Recent indication that the U.S. government does not support the Directive is expected to defeat the plan.3

In a related action, in July 31, 2002, the Treasury Department withdrew proposed regulations issued by the Clinton administration that expanded a requirement that banks report interest payments to alien individuals resident in Canada to include payments to any nonresident alien individual. The revised proposed regulations expand information reporting to include only alien individuals resident in Canada and fifteen other countries (including Australia, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, and the United Kingdom). …

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