Monday, June 24, 2019

Congress Enacts Robust Protections For Tax Whistleblowers

How To Avoid A Sexist Tax On Tampons? Sell Them In Books

In order to avoid the unreasonably high VAT on tampons in many European countries, a startup in Germany (where the tax is 19%!) has started packaging 15 tampons with a 46-page booklet about menstruation as a book (taxed at 7%). The Tampon Book’s first printing sold out in a day, the second within a week. What’s more, it just won the Grand Prix in PR at the Cannes Lions festival for advertising professionals. – Melville House

There is a consensus that the existing international taxation rules and standards are not adequate to allocate taxing rights and income among countries, prevent tax base-eroding transactions carried by multinationals and fight harmful tax competition among countries. The digitalization of the economy rushed and escalated the problems, and even developed countries are not able to collect taxes on the profits of multinationals anymore. Thus, countries are pursuing the reform of the international legal tax system focusing on the corporate taxation standards and the tax challenges of the digitalization of the economy. In this context, the challenges faced by developing countries are higher.

Darren Rosenblum (Pace), The Futility of Walls: How Traveling Corporations Threaten State Sovereignty, 93 Tul. L. Rev. 645 (2019):
Inversions — mergers in which one firm merges with another abroad to avoid taxes in its home country — have spread as globalization has reduced many of the transactional costs associated with relocating. As firms acquire the power to choose the laws that govern them, they challenge the sovereignty of nation-states, who find their ability to tax and regulate firms depleted. States and firms compete in a game of cat and mouse to adapt to this new global reality. The subversion of state power by these firms reveals the futility of walls, both literal and regulatory. This Essay describes the phenomenon of these “traveling corporations” and analyzes several remedies that could limit future mergers. We conclude by arguing that inversions provoke deglobalization and yet may continue to flourish despite it as firms take the lead in dictating global norms.

TaxJudith Freedman (Oxford), Restoring Trust in the ‘Fairness’ of Corporate Taxation: Increased Transparency and the Need for Institutional Reform, in Tax and Trust Institutions, Interactions and Instruments (Sjoerd Goslinga (Leiden) et al. eds. 2018):

This paper examines the relationship between trust and transparency in the context of corporate taxation. Transparency will not always increase trust and might even undermine it. Sometimes this loss of trust will be deserved and might help to bring about change that is needed, but at other times transparency can lead to misunderstanding and inability to absorb or utilize the information that is being made available, with a consequential unjustified and unfortunate loss of trust. In such cases, increased transparency can actually lower tax morale and the willingness of taxpayers to pay their taxes voluntarily, with little or no corresponding benefit.

Eric C. Chaffee (Toledo), Collaboration Theory and Corporate Tax Avoidance, 76 Wash. & Lee L. Rev. ___ (2019):
Tax revenue is the primary source of income for the government, yet corporations regularly engage in tax avoidance. Corporate managers and advisers commonly claim that the corporate form requires that they undertake this behavior because the nature of that form mandates it. Direct and indirect references are made to the classic case of Dodge v. Ford, as providing an edict that corporations must engage in unrelenting profit maximization that requires them to undertake aggressive tax avoidance.
As explored in my co-authored piece with Professor Karie Davis-Nozemack [Georgia Tech),Corporate Tax Avoidance and Honoring the Fiduciary Duties Owed to the Corporation and Its Stockholders [58 B.C. L. Rev. 1425 (2017)], the “Dodge Mandate,” as it may be termed, is far from absolute.

Although plagued by delays and other challenges, the IRS Whistleblower Reward Program has achieved some success in encouraging insiders with information about significant tax underpayments to come forward.  Since Congress established the IRS Whistleblower Program in 2006, whistleblower disclosures to the IRS have enabled the IRS to recover $5 billion, and the Whistleblower Office has awarded whistleblowers approximately $811 million.

But many whistleblowers are reluctant to come forward because there is no federal law protecting tax whistleblowers against retaliation.  For several years, the IRS Office of the Whistleblower has called on Congress to enact statutory protections from retaliation.  In its FY 2018 annual report to Congress, the IRS Whistleblower Office notes that  “[p]roviding whistleblowers with a zone of protection from economic or physical harm is imperative to the success of any whistleblower program as Congress has recognized in other whistleblower statutes . . . The need for greater protection of whistleblowers is amplified as sophisticated taxpayers are increasingly attempting to learn the existence or identity of a whistleblower.”

This week, Congress heeded that request by enacting robust whistleblower protections for tax whistleblowers, modeled on the whistleblower protection provisions of the Sarbanes-Oxley Act and False Claims Act

National Taxpayer Advocate Nina E. Olson today released her 37th and final report to Congress in advance of her previously announced retirement on July 31. In the preface, Olson reflects on her 18 years in the job and provides her assessment of the key challenges facing the IRS and the Taxpayer Advocate Service (TAS) in the coming years. The report also presents a review of the 2019 filling season.