Scott Michel and David Rosenbloom Quoted on Recent U.S. Efforts to Tackle Offshore Tax Evasion

Tax Notes quoted Scott D. Michel and H. David Rosenbloom regarding their testimony in front of a Canadian parliamentary committee on recent U.S. efforts to tackle offshore evasion. The committee recommended that the Canada Revenue Agency combat tax avoidance and the use of tax havens by applying the general antiavoidance rule to aggressive international tax planning and by better publicizing the names of tax cheats. For the complete article, please visit Tax Notes' website.

Excerpt taken from the article.

Two U.S. practitioners, Scott D. Michel and H. David Rosenbloom (both of Caplin & Drysdale in Washington), testified on recent U.S. efforts to tackle offshore tax evasion.

Michel, who also previously discussed his February 2011 testimony with Tax Analysts, gave the committee an overview of some of the problems U.S. taxpayers and practitioners encountered when navigating the special voluntary disclosure initiative announced by the IRS in 2009 in the wake of the U.S. government's high-profile enforcement activities against Swiss banks. Based on his experience with the U.S. initiative, Michel said an effective voluntary disclosure program should include amnesty from criminal prosecution, penalties proportional to the offense, no penalties for nonresident individuals who pay foreign income tax, timely resolution of cases, random checks of amended returns to ensure compliance, and aggressive enforcement of tax law.

Rosenbloom suggested that Canada conduct a systematic review of rules for cross-border activity and develop special rules for tax havens. He gave his views on what's wrong with transfer pricing and the prevailing arm's-length standard. Noting that the United States was the leader in developing the standard, Rosenbloom said the methods used to determine what price would have been charged between related persons if they had been unrelated is too complicated and asks ‘‘the wrong question.''

‘‘We probably need to go much more in the direction of a method that is easier to apply, much less factually weighted and requiring almost an economics Ph.D. to apply appropriately, and go to something that's simpler and does rough justice in the area,'' Rosenbloom told the committee. He suggested that formulary apportionment would be a better approach.

‘‘The efforts of the Canadian House of Commons to address offshore enforcement issues underscore the fact that this is a global problem, and not just an American problem,'' Michel told Tax Analysts. ‘‘Canada, like the U.S. and other countries, has a strong interest in ensuring that its taxpayers pay their proper share of taxes and that they file complete and accurate reports of their assets as required by Canadian law.

‘‘The House of Commons' work in this area also makes it clear — for the many families that have footprints in both the U.S. and Canada — that disclosure efforts in either country will generally necessitate confronting the possibility of disclosure in the other, given the robust information sharing between both nations,'' Michel added.