How Corporate Sovereignty Threatens The Power Of Governments To Collect And Set Taxes

from the undermining-the-rule-of-law dept

The dangers of corporate sovereignty chapters in so-called "free trade" agreements are increasingly well-known. That's especially the case for Techdirt readers, since we've been warning about this parallel legal system, which puts corporations above national laws, for well over three years. Now that the general issues of these investor-state dispute settlement (ISDS) mechanisms are widely understood, people are starting to explore more specific problems. Here, for example, is a new report from the Transnational Institute (TNI) looking at how ISDS cases limit the ability of governments to collect and even set taxes in their own lands:

Analysis of data and documents on hundreds of ISDS cases filed so far reveals that foreign investors have already sued at least 24 countries from India to Romania over tax-related disputes -- including several cases where companies have used this system to successfully challenge -- and lower -- their tax bills.

There's a particular issue faced by developing nations:

Eager to attract foreign investment, many developing countries have offered huge tax breaks to multinational companies. Governments must be able to review and reconsider their tax laws and any tax incentives they may have granted to foreign investors in the past. Tax breaks cost developing countries as much as $138bn a year, and repealing these could release much needed funding for healthcare and other critical public services.

Corporate sovereignty means that national sovereignty suffers: governments that want to remove tax breaks run the risk of punitive ISDS cases being brought against them, so often daren't try. Many nations are fully aware of this risk, and try to mitigate it with "carve-outs":

Though some of these carve-out clauses are stronger and clearer than others, they have not prevented lawyers from filing tax-related ISDS cases, and they have not prevented arbitrators from agreeing to consider them. The language in these treaties is often convoluted and sometimes contradictory, with exceptions within exceptions -- giving lawyers a lot to argue about but making it difficult for policymakers to know what actions could risk a treaty claim.

This exposes one of the fundamental flaws of corporate sovereignty. No matter how much new treaties may claim to "solve" the problems of traditional ISDS through the use of carve-out clauses, or by tweaking some of its features, arbitrators always have the last say, and can override or just ignore whatever changes have been made.

That's why there is only one solution to the many problems of ISDS: to drop it altogether, and let national courts resolve disputes. If domestic courts aren't fair or reliable enough, investors should refuse to put money into the country until they are. That will give governments a powerful incentive to fix any weaknesses in their legal systems. Corporate sovereignty clauses actually remove that pressure to improve traditional court systems, since investors won't use them and local people don't have any choice. In other words, despite frequent claims that ISDS is simply about strengthening the rule of law in countries that sign up to it, in reality, it does the opposite.

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Filed Under: corporate sovereignty, isds, taxes, tpp, ttip

Congress Passes Permanent Internet Access Tax Ban... But May Enable More e-Commerce Sales Tax

from the the-taxes-shall-continue dept

In 1998, Congress passed the Internet Tax Freedom Act (ITFA), which placed a ban on taxing internet access. The bill was temporary, and every few years had to be extended by Congress to stop attempts to add taxes to the cost of your internet access. For a long time, there's been a push to make the ITFA permanent, and Congress finally did that yesterday, when the Senate approved such a bill (the House approved its version last summer). As Senator Ron Wyden noted in response to this passing, this inevitably saves the public a lot of money on a vital service. He notes that mobile phone service is taxable, and average consumers pay a 17% tax on such service. The President still needs to sign the bill, but it would be a surprise if he vetoed it.

The reason it took the Senate so long to actually vote on this was because a bunch of brick-and-mortar retailers have been trying to sabotage it, by tying the approval of the permanent ban on access taxes to a totally unrelated bill that would force e-commerce providers to charge a sales tax. This is a fight that's been going on for years. Historically, mail order and e-commerce shops didn't have to pay sales tax unless they had a physical presence in a state. This made sense, as the taxes were supposed to be to support local services that those companies relied on. However, brick-and-mortar retailers have been claiming that this is some sort of evil "loophole" because it creates an excuse for why people like shopping online rather than in their stores. So they've been demanding that increasingly onerous tax regimes be placed on online retailers, and insisted that such a bill must be approved in conjunction with the permanent ITFA.

However, in the end, that strategy appears to have failed -- at least for now. The retailers could only get an agreement that Congress will take up the retail sales tax issue later this year, rather than tying the two directly together. Still, it will be worth watching what happens on that issue in the coming months. Expect a full court press of misleading stories about a horrible "loophole" in the coming months, as these stores look to increase the taxes on things you buy online.

Filed Under: e-commerce, internet, internet access, internet tax freedom act, itfa, sales tax, taxes

Donald Trump Threatens Ridiculous Defamation Lawsuit Over Attack Ad

from the slappity-slapp-slapp dept

Donald Trump may be running for President, but apparently his notoriously thin-skinned approach (along with the quick legal trigger) to handling criticism has not yet gone away. Trump has been fighting with the conservative group Club for Growth for some time, and it put out something of an attack ad against him noting, among other things, that Trump has supported raising taxes (a huge no-no for the Club for Growth) among other things. As political attack ads go, this one is fairly tame. But it didn't stop Trump from having his lawyers send a blustery cease and desist letter to Club for Growth, claiming the ad is defamatory (the letter was first posted by Olivia Nuzzi from the Daily Beast):

Simply stated, your Attack Ad is not only completely disingenuous, but replete with outright lies, false, defamatory and destructive statements and downright fabrications which you fully know to be untrue, thereby exposing you and your so-called "club" to liability for damages and other tortious harm. For example, while your Attack Ad blatantly misrepresents to the public that Mr. Trump "supports higher taxes", nothing could be further from the truth. To be clear, Mr. Trump's tax plan, which is scheduled to be released later this week, supports a lowering of taxes.

Not surprisingly, a closer look at your Attack Ad reveals that your supposed "source" for this statement is -- according to the small print on your website -- nothing more than a single article published in the Advocate on February 15, 2000, which quoted Mr. Trump as supposedly saying he would "impose a one-time net worth tax of 14.25% on the superwealthy ... to pay off the national debt." That's it. While a reputable organization would have at least had the decency to disclose its source -- and the fact that the source article is more than 15 years old -- your pitiful little grup conveniently chose to leave that information out in a delierate attempt to mislead the public into believing that it is reflective of Mr. Trump's current position -- when unquestionably, it is not. Making matters worse, you then chose to appear on several talk shows, including MSNBC's Morning Joe, in which you furthered the erroneous notion that Mr. Trump "supports higher taxes" even though you have absolutely no factual support for that statement. In other words, you lied. Mr. Trump does not support higher taxes. This is the very definition of libel.

Actually, it's not even close to the definition of libel. It's almost certainly not libel at all.

The letter concludes in usual bluster:

In the event, however, we do not promptly receive these assurances, please be advised that we will commence a multi-million dollar lawsuit against you personally and your organization for your false and defamatory statements and the damage you have intentionally caused in my client's interests as well as pursue all other remedies available to us at law or in equity.

You'd think that someone running for president would know better than to totally flip his lid over some random attack ad. You'd think that his lawyer would (1) know that this is not defamation and that (2) threatening as such only gives the original ad much more attention. Trump, as a very public figure, would need to show that the information in the ad was not just false, but that Club for Growth knew it was false and deliberately posted such false information to harm Trump. That's not going to happen, not in the least because there's plenty of evidence to support the claims that Trump has advocated (recently) for higher taxes. The Federalist provides a list of some recent articles:

ABC (Aug. 6): Donald Trump Once Proposed the Biggest Tax Hike Ever
Bloomberg (Aug. 26): Donald Trump says he wants to raise taxes on himself
CNN (Aug. 27): Donald Trump: Tax the rich more
New York Times (Aug. 31): Increase taxes? Talk by Donald Trump alarms G.O.P.
International Business Times (Sept. 8): Elizabeth Warren Praises Donald Trump Tax Plan

Yeah, good luck with that "very definition of libel" thing.

Club for Growth seemed to take the whole thing in stride, tweeting out the following reply: If you can't read it, it says: Short response to @realDonaldTrump Stop Whining. Threatening a bullshit SLAPP suit against a political attack ad that says things that are basically true doesn't seem particularly presidential.

Filed Under: attack ad, donald trump, first amendment, raise taxes, slapp, taxes, thin skin
Companies: club for growth

Driverless Cars: Disrupting Government Reliance On Petty Traffic Enforcement

from the uber-but-for-killing-your-small-town-speed-trap dept

Self-driving cars are on the way, and in their wake, they'll leave a variety of entities slightly less better off. Insurance companies may be the first to feel the pinch, as less-than-risk-averse drivers are replaced with Electric Grandmothers more than willing to maintain safe speed limits and the proper distance between vehicles. And as goes the car accident, so go other areas of the private sector: personal injury/DUI lawyers, hospitals, body shops, red light camera manufacturers, towing companies, etc.

But the public sector will take the hit as well. "Flow my tears," said the policeman.

Consider the following. This past year, the City of Los Angeles generated $161 million from parking violations. Red light violations have a fee of $490. Californians caught driving under the influence are fined up to $15,649 for a first-offense misdemeanor DUI conviction and up to $22,492 for an under-21 equivalent. Cities in California collect, on average, $40 million annually in towing fees that they divide with towing firms. Simply put, the hundreds of millions of dollars generated from poor driving-related behaviors provide significant funding for transportation infrastructure and maintenance, public schools, judicial salaries, domestic violence advocacy, conservation, and many other public services.

Since California legalized driverless vehicles, Google has logged more than 1.7 million miles during the testing phase and been involved in 11 accidents, none of which were the fault of the driverless vehicle. Tesla, Mercedes, and others are not far behind. It turns out that automated vehicle technology—unlike humans—abides by the law. And that’s bad news for local government revenues. In other words, once driverless cars become mainstream, deep revenue sources acquired from driving-related violations such as speeding tickets and DUIs will decrease greatly.

Someone has to pay for the roads and other government activities, but it won't be drivers. So, as the Brookings Institution report points out, new revenue streams will have to be sought. The obvious suggestion is tax-per-mile billing, but that puts the government right in your vehicle -- an idea that's not going to gain in popularity any time soon.

While the loss of revenue will have an impact, the picture painted here is skewed. For many years, communities have treated police departments as revenue generators, rather than crime fighters. This has skewed incentives so badly that some small towns have become nothing more than profitable speed traps. That's one end of the issue: the pressure (or the willingness) to overpolice minor traffic violations to keep city governments (and the police departments themselves) funded.

But that's only part of it. The situation looks rather dire, especially if one doesn't examine what's not being said in these paragraphs. As Scott Shackford at Reason points out, the Brookings Institution report does some mighty fine cherry-picking for its list of potentially-affected government services. Without a doubt, a downturn in revenue will affect good government programs like public schools and domestic violence programs. But it will also cut back funding for far more dubious government spending.

What an interesting list of government-financed uses they've chosen. Notice they left off "Poorly made third-party database software that will stop working properly in less than three years and that was purchased from somebody belonging to the same frat as the assistant city manager," "police abuse settlements," and "blatant pension spiking."

These "losses" will also be somewhat offset by less tax revenue being spent on traffic enforcement, accident response units and other related law enforcement activities. This will also mean fewer law enforcement officers will need to be employed, which should further reduce government expeditures.

The problem is that most governments aren't capable of heading off this sort of "threat" to their livelihoods, even with years of advance notice. Trimming back unneeded public sector employees won't happen until years after it's obvious they're no longer needed and will often come accompanied with expensive severance packages. New tax revenue streams won't be explored until they can be put off no longer, and often will just be added on top of existing taxes, rather than replacing those that have slowed to a trickle.

Worse, those most affected by this sort of shift will be the same people most affected by most government tax increases: the poor. The lowest income brackets will be the last to adopt driverless vehicles, leaving them the most exposed to fines for traffic violations (fines that will likely increase as revenue dwindles), as well as new costs like per-mile taxation. They're also most likely to see support programs they rely on suffer cuts as traffic enforcement money dries up.

The report somewhat addresses this outcome with a discussion of income inequality and the "disappearance of the middle class." While some of it is accurate and some of it is mostly buzzwords in search of a point, there's no doubt that traffic enforcement revenue will mostly be collected from those who can least afford it. After all, governments have done this for years -- something that helped fuel the outrage and backlash in Ferguson after the shooting of Michael Brown.

Is Brookings actually trying to blame the gap between billionaires and the poor for the racial tension in Ferguson? Which venture capitalist was it who told the Ferguson police to step up fine collection to rake in more money for the city's coffers? Which hedge fund manager invented the bureaucratic court system in Ferguson and other St. Louis County cities designed to wring every last cent from any indigent minority who couldn't afford an attorney? Which Wall Street "fat cat" is adding additional fees to every little fine so that getting pulled over for something as simple as not signaling a turn could end up costing hundreds of dollars for somebody who could end up losing his license and his ability to even work?

While driverless cars hold a great deal of disruption potential, when it's all said and done, governments will remain largely undisrupted. Whatever changes are made in response will arrive well after they're needed and be badly implemented. The same people who suffered in the previous system will find no improvement in the next one. While one would hope the drastic reduction in traffic enforcement would result in better, smarter policing more focused on serious criminal activity, old habits die hard. Cops will just go where the driverless car ain't, rather than trim that area of law enforcement to the minimum required. And cities will cut programs deemed expendable, rather than subject their own spending habits to greater scrutiny.

Filed Under: autonomous vehicles, driverless cars, taxes, traffic enforcement, traffic fines

Virginia Towns Using Federally-Funded License Plate Readers To Collect Local Taxes

from the thanks-for-the-exploitable-tech,-US-citizens! dept

Two things remain certain in life: death... and law enforcement agencies using license plate readers obtained with Homeland Security grants for purposes not even remotely related to securing the homeland.

Here's how Newport News, Virginia's police department obtained its automatic license plate readers:

Grant money from a terrorism prevention program of the U.S. Department of Homeland Security through the Virginia Department of Emergency Management provided the funding for automatic license plate readers for several Hampton Roads agencies, including Newport News, Suffolk, Norfolk, Williamsburg, James City County, York-Poquoson and Isle of Wight, said Laura Southard, public outreach coordinator for the state's emergency management department.

Hampton Roads law enforcement departments received $869,000 in 2009, $357,000 in 2010 and $143,000 in 2011 for license plate readers, Southard said.

And here's what it's doing with them:

Delinquent taxpayers in Newport News could have their vehicles impounded if new cameras snap a photo of their license plates around town.

In an attempt to claim the nearly $4 million in delinquent personal property taxes owed, the city will soon begin using license plate scanners to find vehicles on which more than $200 in personal property taxes are owed.

The cameras will be mounted to the backs of six sheriff's department cruisers to automatically read license plate numbers. Those numbers will be cross-searched with a database updated daily of all the license plates in the city with more than $200 in personal property taxes owed, Treasurer Marty Eubank said.

The terms "terrorism" and "drug enforcement" were likely thrown around during the application process, but the end result is the city viewing law enforcement technology as just another revenue generator. A "hit" from the ALPR will result in the vehicle being towed within three days if the delinquent taxes aren't paid off or a payment plan set up.

While the city has every right to pursue delinquent taxes, it has no business re-purposing federally-purchased law enforcement technology to do so. Citizens concerned about ALPR databases housing millions of non-hit records have always been assured that this technology will be used to fight the baddest of the bad: drug dealers, terrorists, auto thieves, kidnappers, etc. But now it's being used to collect back taxes -- hardly the sort of thing Homeland Security funds should be used for.

Things get even more petty a little down the road in Hampton, Virginia. While Newport News' enforcement efforts don't kick in unless more than $200 is owed, Hampton is all about the Lincolns.

Hampton has one camera mounted to a city minivan, not a police vehicle, which is driven around town every week day, said Dave Ellis, field compliance supervisor in the Hampton Treasurer's Office. When field investigators find a vehicle with a license plate for which more than $5 in property taxes is owed, they first place a warning sticker on the vehicle telling the owner to make contact with the city. If there is no response from the owner after about a week, the investigators go back and remove the license plates or put on a wheel lock, Ellis said.

Hampton's tax-collecting ALPRs were first deployed in 2008. It's left unclear how the usually "law enforcement-only" technology ended up in the city's hands, but most likely a Memorandum of Understanding allowed the transfer of the plate readers. To date, $1.4 million in federal funds have been dispersed to pay for law enforcement's ALPRs -- and now some of them are being used to track down $5 property tax deadbeats.

Isle of Wight doesn't even bother doing its own tax collection efforts. According to the article, this is outsourced to a private company with its own plate readers, meaning there's next to zero accountability. Turning a city job private keeps records related to tax collection efforts a little further away from curious constituents and their Freedom of Information requests.

Not that the Hampton Roads law enforcement network is too concerned about overstepping its bounds or potentially violating constitutional rights. As was covered here late last year, these same law enforcement agencies have built their own phone record database -- filled with data obtained from subpoenas, warrants and court orders -- which is shared between the multiple agencies with no apparent oversight.

Once you get past the re-purposing of federal funds for local tax collection, you arrive at the question of cost effectiveness. Hampton sends its city vehicle out every weekday to troll for plates. On top of the paycheck handed out to the driver(s), there's fuel and vehicle wear-and-tear costs to be considered, along with whatever's being paid to maintain the technology and its database. And yet, it seems satisfied to have collected $60,000 in unpaid taxes last year -- seemingly "break even" at best.

The bottom line is this: if you want to use ALPRs to catch delinquent taxpayers, then be upfront about this and use local funds to purchase the equipment. Don't simply use the technology because it's there. Using federally-funded plate readers is basically asking the rest of the US to fund your local tax collection efforts. And just like when law enforcement deploys these readers, there should be explicit, public information about how the data is collected, retained and destroyed. Sure, law enforcement agencies have been less than open about these factors, but at least they have the (poor) excuse that there are means and methods to protect. The cities doing this don't have anything to protect -- at least nothing that would (supposedly) threaten public safety if it were made known.

Filed Under: alpr, license plate readers, privacy, taxes, terrorism, virginia

Big Pharma Companies Happy To Use The US Government To Push Industry Agenda, Not So Happy To Pay US Taxes

from the hardly-fair dept

Big pharma companies exert considerable influence on US trade policy. Research by the Sunlight Foundation shows that the pharmaceutical industry has been lobbying for the measures it wants in TPP longer and more consistently than any other sector. For example, one of the most important -- and contentious -- chapters of TPP is about keeping drug prices artificially high. Big pharma has also been vocal in calling for the European Union to be put on the Special 301 Report's "Priority Watch List" for daring to require that basic safety data about drugs be made available. Given this wide-ranging support from the US government, you'd think that pharmaceutical companies would be only happy to pay back in the form of taxes, say, but as Quartz points out, that's far from the case:

Pfizer's bid to purchase AstraZeneca failed, but the company's attempt to move to London in an effort to avoid US corporate taxes has inspired a new round of commentary on America's corporate tax system. Perhaps it should also spur a look at America's commitment to raising drug prices around the world.

The US taxes the global income of its companies, which has lead many of the largest to keep profits overseas indefinitely to avoid paying Uncle Sam, and even shift US profits overseas to avoid public levies. So-called “inversions” -- reverse mergers where a US company buys a foreign one and assumes their jurisdiction, as Pfizer proposed -- have also become more popular. Four US pharmaceutical companies have used the tactic to go overseas in the last year, and four more are considering similar moves.

It's probably too much to hope that the US government will abandon its unquestioning support for the pharmaceutical industry, but if more drug companies do relocate overseas to avoid paying US taxes, the public outcry against it doing so may grow.

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Filed Under: drugs, pharma, pharmaceuticals, taxes, tpp, trade, ttip

French Gov't Rejects Plan To Tax DRM eBooks More Than Non-DRM eBooks

from the good-idea,-severely-flawed-targeting-and-execution dept

For a moment, it looked as though France might utilize its tax system to make a point about how much DRM devalues electronic goods. A few months ago, an initiative surfaced seeking to amend tax laws in order to hit DRM-laced ebooks with a higher VAT. (Or, more accurately, lower the VAT on non-DRMed ebooks.)

A French deputy (Isabelle Attard) thinks that proprietary and DRM protected eBooks should not be legally considered books and should not benefit from the fiscal advantages enjoyed by books as cultural artifacts.

This is a good point, but this deputy's suggestion wasn't based on the ongoing removal of "first sale" rights by the addition of DRM. Rather, her amendment looked to target the largest purveyors of ebooks.

Arguing that the real problem was not a question of pricing, but rather the vertical integration of platforms like those of Amazon, Apple and Google, Attard proposed to address the problem by offering a fiscal advantage in the form of reduced VAT to sellers offering open books that consumers can read on any platform.

Although the targeting was off (and France's relationship with Amazon [in particular] can safely be described as "antagonistic"), the idea of punishing DRM-laden merchandise by hitting it with a higher tax rate appealed to many people, many of whom perhaps didn't share the same antipathy towards Apple, Amazon and Google.

Not that France wasn't already giving ebooks a cut rate on taxes. It's that this amendment would have excluded ebooks with DRM from that reduced rate, as Nate Hoffelder at The Digital Reader explains.

Under France’s [proposed] tax laws, DRMed ebooks will be taxed at a higher rate (currently 19.6%), while DRM-free ebooks will be taxed at the lower 5.5% rate.

[E]books are already sold in France with a 5.5% VAT, or value added tax, bundled into the list price. Technically that is illegal under current EU regulation; ebooks are defined as a service and thus should have a higher VAT applied. But no penalty has been applied (so far) so at this point it is really a matter of opinion.

Attard's rationale for the rate change tracks with the proper application of the VAT by differentiating between DRM-laced ebooks ("services") and non-DRM ebooks ("goods") based on what DRM does to a product.

“Yes, everything that goes against interoperability, or imposes reading constraints would be subject to a VAT of 19.6%, in the capacity of services, and not sale of a book, therefore of a product."

Unfortunately for anyone hoping France would open a discussion on the DRM issue, the amendment was shot down. Parsing this out from an iffy translation, the reasoning appears to be that while the French government feels it should make an effort to diffuse the power of "vertical markets" (Amazon, Apple, etc.), screwing with the VAT rate isn't the right approach. Furthermore, lowering the rate for non-DRM ebooks would likely subject the French government to further "condemnation" from the European Commission for "distorting" market activity.

In short: good idea, wrong tool.

But there's another factor in play as well. While Apple and Amazon sell many ebooks with DRM, they do so at the behest of publishers -- large publishers who would probably be none too thrilled to see any shrinkage in their market share thanks to a higher VAT rate, as a commenter at The Digital Reader pointed out.

[Y]ou can bet the major publishers, who license DRMed e-books for the most part and were caught unawares the first time, will not let it pass so easily this time round.

So, an amendment that targeted Amazon (the publishers' worst enemy, according to entities like the Authors' Guild) should have been the publishers' best friend, except for the fact that it targeted DRM, another of the publishers' best friends. (The enemy of my friend is my enemy, even if the enemy of my enemy is my friend?)

If the publishers did help get this amendment kicked to the curb, they're probably fine with it slightly benefitting Amazon as well. And as for Amazon, France is still hard at work pushing through legislation specifically targeting the online giant.

French lawmakers on Thursday took aim at Amazon to protect local bookshops by voting through a law that bars online booksellers from offering free delivery to customers on top of a maximum 5 percent discount on books.

Its rather telling that these actions have very little to do with protecting consumers and everything to do with protecting the status quo. The latest anti-Amazon law springs from a 1981 law passed to protect small bookstores from the encroachment of supermarket chains. Thirty years down the road, the same tactics are being deployed, which would indicate the past efforts haven't done much other than assure France's booksellers that they'll never have to make an effort to compete in the market, and that any detrimental effects of these laws will continue to be borne by French citizens.

Filed Under: drm, ebooks, france, taxes, vat