I thank the committee for the invitation to make this presentation.
My name is H. David Rosenbloom. I am private a tax attorney and a professor of tax law at New York University's School of Law.
I have specialized for nearly 40 years in international or cross-border taxation. I direct the international tax program at NYU law school, and in the 1970s I was the International Tax Counsel in the United States Treasury Department. In that capacity, I was the chief U.S. negotiator of the 1980 Canada-U.S. Income Tax Treaty.
A colleague of mine, Scott Michel, testified before this committee about a year ago on the subject of offshore banking and undeclared accounts. That topic is a bit different from what I’m going to focus on today, because it’s both narrower and broader. The topic of tax evasion and the use of tax havens is much broader than simply offshore accounts and banking. On the other hand, offshore accounts and banking extend beyond tax havens.
So I’m taking the words at face value. I didn’t have much guidance on what the committee is interested in, so I prepared my own very succinct views on tax havens. I’m going to offer five observations about tax havens and tax evasion. I'll elaborate on any or all of these if the committee wishes.
First of all, the link between tax havens and tax evasion does not need to be made. It’s very clear. As I say in my written testimony, no one is deflecting income to Japan. The money is going from high-tax jurisdictions to low- or no-tax jurisdictions, so I don’t think there’s any effort needed to be made to make that link.
Secondly, in my view, the responses of the developed world to the use of tax havens for tax evasion has been pretty pathetic. It’s ranged from the catatonic, totally passive, to the contributory, helping tax evaders to use tax evasions. I don’t think taxation is a game, and I think that most governments in the developed world have not been faithful to their obligation to their citizens in their responses to tax havens and the role they play in tax evasion.
Third, the most difficult aspect of analyzing tax havens is identifying precisely who we are talking about. We all know that some countries have low or no income taxes and that some countries actively seek to entice investment from higher-taxed countries. But there is a range of countries—and I cite specifically in that regard Ireland, Singapore, Luxembourg—that are tax havens in some sense, but that also have genuine economic activity within their borders. And there is a larger group of countries that afford special benefits to foreigners in an effort to persuade them to use these countries as conduits for investments in third countries. Think in that regard of Switzerland, the Netherlands and, yes, in certain circumstances, the United States.
Fourth, I think it is self-defeating for a developed country with a rational tax regime to pretend that all other countries stand on the same footing insofar as it is concerned. There is a difference between Germany and the Cayman Islands. Tax havens need to be dealt with separately, both in the internal tax system and in considering which countries are proper candidates for the status of tax treaty partner.
Finally, I think a systematic review of the rules relating to cross-border activity is called for, with an eye to special rules and a special approach to tax havens. Whether this is in the form of a white list or a black list, or something else, at the end of the day does not matter. The point is that across the board, in internal law and in the treaties, the havens need to be singled out.
No country should be in the business of telling other countries what to do with their tax regimes or what they should look like. I am not suggesting that any country wishing to maintain low tax rates must change its policy or that any other country should be in the business of telling such a country to change its policy.
However, every country has the right, and indeed the duty, to protect its own tax base with rules that fit the real world and not some imaginary or ideological fairy tale. Tax havens exist. They need to be addressed.
Now finally, I am not a Canadian, and although I know something about the Canadian tax system, I am by no means an expert. My comments are general, and of course they're influenced heavily by my background with the U.S. tax experience.
I thank you for your attention and I'm prepared to respond to any questions that the committee may have.