Corporate Migrations and Tax Transparency and Disclosure
Diane M. Ring*
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INTRODUCTION
Migration generally refers to the movement of peoples across borders. But the broader look at migration in this conference incorporates the movement of business across borders. This expanded concept enables us to better understand the complex jurisdictional relationships between and among nations and their members. The latter part of the twentieth century, in particular the period from the 1980s onward, saw notable growth in business expansion across borders. Such expansion, though certainly not without precedent, was spurred by a number of factors including reduced currency and investment restrictions, and increased ability to manage global activities through technology and communications.
Twenty plus years into this business globalization, we have also witnessed the rise of transparency and disclosure rules and regimes that have dominated much of global international tax reform. Debates over tax transparency and disclosure have permeated public discussions and the advocacy platforms of nongovernmental organizations. With regard to corporate taxpayers, the primary concern has been the ability of multinationals to pursue various tax structures and planning strategies that, though perhaps not constituting evasion, nonetheless constitute a form of tax avoidance that is not, or should not be, permitted. Accompanying the various substantive law reforms targeting such tax avoidance have been a series of transparency and disclosure mechanisms aimed at supporting the effort to curtail tax base erosion.
Among the most prominent examples of such transparency and disclosure mechanisms, either enacted or being considered, are: (1) country-by-country reporting of tax information (from the Organisation for Economic Co-operation and Development (“OECD”) Base Erosion and Profit Shifting (“BEPS”) Project), (2) automatic exchange of tax rulings among jurisdictions, and (3) disclosure of beneficial ownership of entities. Additional high-profile measures, predominantly aimed at the conduct of individual tax evaders, include the Common Reporting Standard (“CRS”) for automatic exchange of certain financial account information and Intergovernmental Agreements (“IGAs”) calling for automatic sharing of certain information by foreign financial institutions with the United States. These measures come at some cost to taxpayers and third parties, which must gather, collate, review, and report the data. Additionally, taxpayers express concern over the possibility that the newly reported data will be made public illegally, or perhaps legally in the future, and thus harm their business competitiveness.
In this Essay, I suggest that the contemporary focus on transparency and disclosure is substantially due to the ease of corporate migration and movement across borders. Increased transparency and disclosure are the price for the increased business border flexibility. International transactions have always been part of the economic picture. But to the extent taxpayers and transactions were historically domestically focused, tax authorities had more access to information and more ability to control all of the relevant tax law.
With the advent of globalization, the information necessary to understand and evaluate taxpayers has become harder to secure because more data is outside the United States and because tax planning now implicates both domestic and foreign tax law. This observation does not justify any specific form of disclosure and reporting requirement. It does explain why such reporting has become increasingly important in recent years. Moreover, it suggests that the BEPS momentum and its focus on certain categories of tax planning are not the core drivers for transparency and disclosure developments. Rather, modern business migration is the fundamental force underpinning the creation of new reporting and disclosure regimes. The regimes’ precise shape and timing are then a function of convulsive triggers such as tax leaks and/or financial crises that trigger specific moments of reform.
*Professor of Law and the Dr. Thomas F. Carney Distinguished Scholar, Boston College Law School. I would like to thank participants in the Sanford E. Sarasohn Conference on Critical Issues in Comparative and International Taxation II at St. Louis University School of Law, including Allison Christians, David Elkins, Heather Field, Leandra Lederman, Shu-Yi Oei, Henry Ordower, Kerry Ryan, and Cristina Trenta for their helpful comments. I would like to thank the Dr. Thomas F. Carney '47 Gift Fund for its valuable support.