International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Tuesday, August 2, 2016

CFTC Announces Fourth Whistleblower Award

The U.S. Commodity Futures Trading Commission (CFTC) announced an award of approximately $50,000 to a whistleblower who voluntarily provided key original information that 720px-US-CFTC-Seal.svg led to a successful CFTC enforcement action.

The award is the fourth award made by the CFTC’s Whistleblower Program to a whistleblower who provided valuable information about violations of the Commodity Exchange Act (CEA), and the third whistleblower award made in the last 10 months. The award represents between 10 percent and 30 percent of the monetary sanctions collected to date, and the whistleblower will be entitled to the same percentage of any additional amounts collected. 

By law, the CFTC protects the confidentiality of whistleblowers and does not disclose information that might directly or indirectly reveal a whistleblower’s identity.

“Whistleblower tips are an increasingly important source of information for the Division, and we encourage anyone with knowledge of a violation of our statute to contact our Whistleblower Office as soon as possible,” said Aitan Goelman, Director of the CFTC’s Division of Enforcement.

Christopher Ehrman, the Director of the CFTC’s Whistleblower Office, added, “Whistleblowers continue to be an important weapon in the CFTC’s arsenal, and we are dedicated to rewarding valuable information and cooperation.”

The CFTC’s Whistleblower Program was created by Section 748 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act). The CFTC pays monetary awards to eligible whistleblowers who voluntarily provide the CFTC with original information about violations of the CEA that leads the CFTC to bring a successful enforcement action resulting in monetary sanctions exceeding $1,000,000.

The CFTC also pays monetary awards to eligible whistleblowers whose information leads to the successful enforcement of a related action brought by another governmental entity where that action is based on original information submitted to the CFTC, and the CFTC also brings an action based on that same information.

Whistleblowers are eligible to receive between 10 percent and 30 percent of the monetary sanctions collected. All whistleblower awards are paid from the CFTC Customer Protection Fund established by Congress and financed entirely through monetary sanctions paid to the CFTC by violators of the CEA. No money is taken or withheld from harmed investors to fund the program.

Under the Dodd-Frank Act, employers may not retaliate against whistleblowers for reporting violations of the CEA to the CFTC. In general, employers may not discharge, demote, suspend, threaten, harass, directly or indirectly, or in any other manner discriminate against a whistleblower because of any lawful act done by the whistleblower.

The last award announced by the CFTC was in April 2016, in the amount of more than $10 million (see CFTC Press Release 7351-16). To learn more about the CFTC’s Whistleblower Program and to find out how to provide a tip or apply for an award, visit the program’s new website at www.whistleblower.gov.

August 2, 2016 | Permalink | Comments (0)

Monday, August 1, 2016

Vote for Financial Law Professor Blog for ABA 100 List!

The ABA is collecting votes this week for its 10th annual list of the 100 best legal blogs, and you can vote!

Use the form below to tell us about a blog—not your own—that you read regularly and think other lawyers should know about.  If there is more than one blog you want to support, feel Abajournal_weblogo_2015free to send us additional amici through the form. We may include some of the best comments in our Blawg 100 coverage. But keep your remarks pithy—you have a 500-character limit.  Friend-of-the-blawg briefs are due no later than 11:59 p.m. CT on Aug. 7, 2016.

Vote for the Financial Law Prof blog for top ABA 100 list here: http://www.abajournal.com/blawgs/blawg100_submit/
 
link to Financial Law Prof blog: http://lawprofessors.typepad.com/intfinlaw/

August 1, 2016 in Education | Permalink | Comments (0)

Profit-Shifting Structures: Making Ethical Judgments Objectively, Parts 1 and 2

Jeffery M Kadet and David L Koontz (Tax Notes 151TN1831 and 152TN85)

Part 1: http://ssrn.com/abstract=2811267

Abstract:

MNCs and their advisors have seemingly taken ethics out of the mix when considering the profit-shifting tax structures they have so prolifically and Jeffrey-M-Kadet-244x300enthusiastically implemented over the past several decades. There may be a variety of reasons for this. First, U.S. tax law is a self-assessment system, meaning that in most cases taxpayers compute and pay tax without advance approval of their tax positions from the IRS. No third party technical test or propriety standard has to be passed on the front end for any tax strategy or structure. Second, direct personal benefits accrue to management and advisors from implementing such structures, often measured, either, directly or indirectly, by a structure’s short-term success. Stock options and stock issued under performance share plans become more valuable more quickly, bonuses are higher, promotions may be faster, and professional advisors earn more fees and enhance their reputations and client relationships. With no up-front objective test to determine if the planning will survive later scrutiny and the fact that everyone else is doing it, there’s an easy inference that it represents good business practice. Third, some Congressional actions have encouraged and enabled such questionable and problematic tax strategies.

MNC boards of directors, senior management, and professional advisors need an objective ethical benchmark to test the appropriateness of their profit-shifting structures and any new strategies they might consider. Given the strong motivation to implement such structures, a counterweight is needed to balance the unfettered acceptance and adoption of profit-shifting strategies based solely on the mere possibility that they might pass technical tax scrutiny by the government. Greater thought needs to be given to whether these plans are consistent with and serve the long term objectives of the MNC and its many global stakeholders. Stating this proposition more directly, it is time to ask if all of these stakeholders would accept the efficacy of these structures if they were made fully aware of and understood the technical basis, the strained interpretations, the hidden arrangements, the meaningless intercompany agreements, the inconsistent positions, and the lack of change in the business model for the schemes proposed or already implemented.

This article presents an objective ethical benchmark to test the acceptability of certain profit shifting structures. In addition, the benchmark is defined solely from a U.S. perspective, though it is applicable to all MNCs that conduct U.S.-centric businesses. Thus, it applies to non-U.S.-based MNCs that have inverted or that have acquired U.S. MNCs. The concept behind this benchmark could also be applied in other countries in which global businesses are headquartered and conducted.

In brief, this ethical benchmark requires an examination of the factual situation for each of an MNC’s low or zero taxed foreign group members regarding three factors, which are:

(a) identification and location of critical value-drivers,

(b) location of actual control and decision-making of the foreign group member’s business and operations, and

(c) the existence or lack thereof of capable offshore management personnel and a CEO located at an office of the foreign group member outside the U.S. who has the background and expertise to manage, and does in fact manage, the entity’s business.

Through this examination, it should be possible to determine whether a foreign group member is recording income that is economically earned through business decisions and activities conducted in the jurisdiction in which it claims to be doing business. Where, however, the facts indicate that a portion or all of the business of the foreign group member is done substantially in the U.S. by U.S. based affiliates, the Congressional intent is clear. And that clear intent is to directly tax such income through the effectively connected income rules of the Internal Revenue Code.

This benchmark should be used by MNCs with the active participation of board and management members. An MNC could also use this approach to proactively respond to critics or to demonstrate its tax bona-fides.

This article concludes by suggesting a number of steps to be considered by MNC Boards, professional tax advisors, and the Congress, Treasury and the IRS, with a view to improving the quality and outcomes of tax strategies, corporate governance, and the equitable collection of taxes. The suggestions include actions that could be instituted by Treasury and the IRS without the need for any Congressional action.

August 1, 2016 in BEPS | Permalink | Comments (0)

Report by the Platform for Collaboration on Tax to the G20: Enhancing the Effectiveness of External Support in Building Tax Capacity in Developing Countries

G20 Finance Ministers, in their communique of February 2016, called upon the IMF, OECD, UN and World Bank Group to "recommend mechanisms to help ensure effective Logooecd_enimplementation of technical assistance programmes, and recommend how countries can contribute funding for tax projects and direct technical assistance, and report back with recommendations" at their July meeting.

The report points to several key enablers to building tax capacity:

• A coherent revenue strategy as part of a development financing plan
• Strong coordination among well-informed and results-oriented providers
• A strong knowledge and evidence base
• Strong regional cooperation and support
• Strengthened participation of developing countries in international rule setting

The structure of the report is as follows: Section 2 provides context, and sets out overall aims for tax system reform and the role of capacity building, Section 3 briefly outlines the current state of play of tax capacity development, looking at the actors, cooperation, and aid effectiveness principles. Section 4 draws on experience and evidence to identify the enabling elements of successful capacity development and make recommendations. These recommendations are summarised in Appendix 4.

The four organisations, working jointly as the members of the new Platform for Collaboration on Tax – drawing on their individual experiences in delivering technical advice and their interactions with other providers of technical assistance, development partners, and especially country governments – developed a series of recommendations and enabling actions in response to this request. The recommendations in this report further benefitted from a public request for feedback on draft recommendations which attracted responses from governments, businesses, civil society and individuals.   Download Enhancing-the-effectiveness-of-external-support-in-building-tax-capacity-in-developing-countries

This report seeks to identify core elements of successful tax capacity building programmes, as well as the enabling factors that help to produce such successes. The paper emphasises the need for a supportive political and social environment for reform at the country level – to ensure country-led reform is supported by all key stakeholders: leading government officials, political and business leaders, civil society and the citizenry more generally. The international organisations and G20 countries can help to build this through well-designed support for revenue reform initiatives, including through the inclusion of appropriate incentives. Coherent revenue reform strategies are needed as part of development financing plans – as recognised in the Addis Ababa Action Agenda a year ago. Co-operation and collaboration among development partners – including Regional Tax Organisations – at the country level will become even more important with the anticipated scaling up of support for work on tax capacity building. Further inclusion of developing countries in international discussions will help to foster the needed consensus for revenue policy and administrative reforms.

The recommendations present an ambitious agenda to be supported by development partners. The report notes that further monitoring and evaluation will be needed to ensure the effectiveness of this support in enabling countries to fulfil their development goals.

 

August 1, 2016 in OECD, Tax Compliance | Permalink | Comments (0)