Diane Ring may not actually be here from the future, but it would help to explain how she has remained one step ahead of the rest of the world for decades. She recognized the importance of power in international tax law early on, mapping the politics of states and international organizations long before anyone else realized it mattered. Today, international tax law seems to be nothing but politics. Ring shows us how we got here and what it may mean for our future. We also discuss her new research with Shu-Yi Oei that grapples with the challenges of regulating a rapidly changing world. The pencil question is about tax policy in ancient Athens.
She writes about information exchange, tax leaks, international tax relations, sharing economy and human equity transactions, and ethics in international tax. Ring was a consultant for the United Nation’s 2014 project on tax base protection for developing countries, and the UN's 2013 project on treaty administration for developing countries. Ring is also co-author of three case books in taxation. Before entering academia, Ring practiced at the firm of Caplin & Drysdale and clerked for Judge Jon O. Newman of the Second Circuit Court of Appeals.
Our student quote is read by Sebastian from Whiting, New Jersey.
Resources:
Speaker 1:
All of us should be willing to pay whatever taxes are necessary to enable efficient government to improve or expand any essential service.
Speaker 2:
You have a beautiful tax return, the nicest one I've ever seen.
Speaker 3:
Okay folks, but remember your manners, no stampeding. Walk slow like you do when you come to pay your taxes.
Steven Dean:
Hi, I'm Steven Dean, this is the Tax Maven. Here we are going to in each episode talk to our tax maven, who will be a person proving Archimedes' point that a single person with a lever long enough and a place to put it can change the world. The lever in this case is tax and the place to put it is here at NYU Law. I'm Steven Dean, the Faculty Director of the Graduate Tax Program at NYU Law. I'm here with Diane Ring, who is Associate Dean of Faculty and Professor, and Dr. Thomas F. Carney, Distinguished Scholar at Boston College Law School.
Steven Dean:
Over the course of her career, Professor Ring has watched international tax grow from a quirky little field into an arena in which the most powerful states and businesses square off across from one another. Throughout it all she's helped us understand why international tax matters. In one sense it's quite simple, it's about power.
Diane Ring:
One the hand you still see the OECD playing a really active role in big policy questions that are important to a lot of countries, but we see them responding to criticism, at least nominally expanding participation in certain ways. And we see some countries maybe the BRICS or others who are Brazil say for example, China, India, resisting certain paths set out by the OECD in traditional international tax and really pushing in a new direction. I think we're in the context of digital starting to see interesting ways in which we can both answer that question and see the shifts.
Steven Dean:
It's very interesting you mentioned the changes related to the digital economy and the proposals that some countries have embraced and adopted in some cases. For those who haven't thought about this quite as much as you and I have, tell us what's happening, what's driving the change and what's changed in the landscape now?
Diane Ring:
Right. So a couple of different things. One, I think one way to understand how countries describe the change in terms of the economic change is the idea that not just globalization has been taking place, that is businesses operate multinationally across many borders, but also that they are now able to do so, that is they're able to operate in a country with minimal presence. And by minimal presence I mean they don't really have much of a footprint on the ground, maybe no major offices, employees, et cetera, yet they're still able to do business in that economy, whether it's sell good services, whatever.
Diane Ring:
The reason that matters is that it is I think fair to say that the traditional international tax regime that's been in place grants countries power to tax where a business is actually doing something relatively present in the country. They have some type of what we call permanent establishment but you can really think of it as almost a real physical presence, people, real activities, building, something of that sort. If countries now find that multinationals can do business in their country but not actually touch the country, the countries feel that they're not able to tax, not able to tax adequately and sort of pushing back now on the rules that make that inability to tax a barrier they see themselves facing.
Steven Dean:
Because Professor Ring has studied this area of the law so carefully for so long, she has little trouble identifying key turning points along the way. She can pinpoint when the conversation in international tax stopped being about technical debates over concepts like permanent establishment or PE, and when experts accepted that something new and important was afoot that could not be dismissed as nothing more than old wine in new bottles. Or by invoking what Harold Koh called in that famous non-book "The Law of the Horse" which consists of "Chapter I: Contracting for a Horse", "Chapter II: Owning a Horse", "Chapter III: Torts by a Horse", "Chapter IV: Litigating a Horse", and so on.
Diane Ring:
I remember being at a conference in the US about, now, I'm probably thinking that six years ago, and it was not academics and government people predominantly it was a little more tilted towards practice and in the context of discussion of PE. So this predates the current digital conversation. But at that time there's already an understanding that a business might be looking a little different, ability to access markets might be able to be done by a multi-national without much presence in the country. But at that time I distinctly remember a panel conversation of some prominent practitioners in the US talking about this issue and whether or not we needed a new regime. That's the question. Do you need new rules?
Diane Ring:
And the clearance was absolutely not, this is "Law of the Horse" which just had something that looks new, it's all dressed up differently, but when you take away that covering you realize it's the same old business as usual and so the rules will continue to be adequate. And it's interesting to see how much that conversation has changed in six years. And so I think there is, I mean, really the fact that the OECD has moved this far on something about digital I think is a clear signal that there's recognition, it can't stay exactly the same. The question is how it buckles.
Steven Dean:
That's right. And one of the things that's changed just in terms of maybe the optics of the politics of it, there's a tension among within the OECD. We've got whatever your favorite acronym is for these, FANG, Facebook, Apple, there's all these different ways of describing what these big global digital players are. And there's a sense that depending on whether you're on this side of the Atlantic or the other, either that you're getting a good deal or a bad deal from these players. And to me that's a big part of what's changed and what's driving change.
Diane Ring:
Yeah, absolutely. And this has come out actually not just in the context of digital but even going back just a couple of years in of battles over state aid, so basically EU efforts to stop states in their view from offering favorable tax rules to big multinationals. When the EU tried to stop the states from doing that it was viewed as an attack upon primarily US multinationals because the cases that they brought tended to tilt towards being US multinationals. So there's a bit of a tension, it's not just sector-based, so certain kinds of businesses that may be especially mobile, high IP value, able to be active in a market with minimal presence, there's that sort of sector element to it but also where are they coming from, and a lot of them are coming from the US.
Steven Dean:
The change Professor Ring has seen over the last half decade is not the first time she's watched that kind of geologic shift take place.
Diane Ring:
When I was in law school and then moving into practice, I was interested in international tax but that wasn't what you did. If you were cool and you had job opportunities in tax you would not choose international, you did mergers and acquisitions in New York City, that is where the cool kids went. But I loved international. And what's really interesting is really not long after I was in practice, international started to really pick up steam. Obviously nothing to do with my presence in the field, but it is interesting, and then from that point forward I think it's really gathered momentum as being an important legal field within firms, within businesses.
Diane Ring:
And then on the academic side, you really saw the same kind of lag, I'd say even more so, and also in terms of the kinds of questions. So nowadays it's very widespread in, I'd say, academic research across the globe to be thinking about international tax law, not just as economics and law and assessment of rules but also about regimes and power and history and the kinds of questions that people are writing about regularly today—but quite honestly if you went back 20 years, nobody wrote on.
Steven Dean:
Although experts may not have all understood that a major change was headed their way half a dozen years ago, with a benefit of hindsight, Ring and her colleague and co-author Professor Shu-Yi-Oei have traced some of the key changes in international tax law in recent year to an unlikely source: Panama.
Diane Ring:
Panama Papers about UBS bank accounts, situations in which either financial institutions or law firms had their data essentially grabbed and made public in some... grabbed by somebody and then made public on the internet. And essentially what was revealed are the accounts, the activities of various taxpayers all around the globe—in and of themselves not necessarily anything illegal. But in many cases these were accounts not being reported at home, these were hidden assets and that's really where the information was interesting.
Diane Ring:
What drove us to look at this questions we explore in leak-driven law was the following: At the time these leaks were taken can place, and as I say it's sort of a period maybe of eight years starting around 2008, I'd say the attitude was generally very positive in the sense that leaks are great, they reveal all sorts of information that can help us figure out who's avoiding what and how to stop it. And that does sound good. If you've got important rules and your people are avoiding them it's good to know how.
Diane Ring:
But we were interested in whether or not there are any risks, any downsides and what those were and how you might prepare for them or think about them. And so what we did in that particular paper is really try to work through the impact you see from leaks being made public. And so just by way of example, I'll highlight two potential concerns one might have. So one is that we were seeing a situation in which the leaks are not just a universal release of data, their data being put on the internet or on a site but curated by a particular group, so in this case it was the International Consortium of Investigative Journalists, the ICIJ. But they decide what they put out. They don't put out everything, I'm not suggesting they should. Some of that data would be highly inappropriate to release, certain personal information, but they curate it. Right?
Diane Ring:
They create a package in a picture. We may be fine with that now but it's important to understand that somebody is controlling it, it's not just a natural pool of information coming to us. There's also a way in which the information is very... because it's so high profile it forces immediate reactions by government. Governments sometimes feel an immediate visceral response and then the public outcry. And then there's a real question of whether that leads to good policymaking.
Diane Ring:
So the example I would offer from a US perspective is FATCA. So in 2010 Congress passed FATCA which was legislation designed to impose two things. To impose reporting requirements on foreigners financial institutions, tell us, the US, about US people with foreign accounts, number one, and number two, require those US people to report their foreign accounts as they have often been required, but with really high penalties when they don't. And that all sounds great, why are you avoiding and we should find out.
Diane Ring:
But... and so the impetus behind the legislation makes sense. The connection to the leaks is really clear, the leaks were revealing how much was being hidden off shore, but the problem was the failure to think about the full scope of taxpayers subject to the regime. And not, the kinds of taxpayers who have foreign accounts are not just wealthy US taxpayers creatively hiding assets off shore, but they're ex-pats working in foreign countries. They're immigrants to the US who retain ties to their home country, maybe to family, maybe on some family account. There's mother's account, they may have a social security account in their home jurisdiction. They come to the US, they're subject to these rules. That group is not doing anything particularly clever by having an offshore account, but they often made mistakes and the penalties were draconian.
Diane Ring:
And there was an interesting report put out by the National Taxpayer Advocate office, Nina Olson's office, looking at the kinds of penalties that taxpayers were facing under FATCA and the ways in which if you had essentially a low dollar amount problem, you're not really a big fish and you're not represented by tax counsel, you got a really bad deal in the tax negotiation. If you were well-represented and often if you had very high dollar accounts, that's why you're well-represented, you did very well in the tax negotiations working out how much you should pay.
Diane Ring:
And so that's the kind of thing where we're concerned, it's not that you wouldn't want to do any legislation, but to the extent leaks have this part of their powers, the high profile immediate public news face of it, we want countries to step back and think, "Okay, that's going to put pressure on us to respond. How do we make sure we're doing it in a tempered way?"
Steven Dean:
More recently, Professors Ring and Oei have brought that same empathy for ordinary people facing daunting tax challenges to taxpayers closer to home: The tax lives of Uber drivers.
Diane Ring:
Yes.
Steven Dean:
So you learn lots of interesting things in doing your research and so that was troubling, I think. Some of your conclusions were not very optimistic.
Diane Ring:
Yeah, well, it's interesting. We went to that project having done the initial look at taxation and how to think about taxation and the sharing economy. We were interested then in what the actual participants understood about tax, what they were thinking about tax, how are they talking about tax? And so what we decided to do was look at the two major online discussion forums for ride-sharing drivers, primarily Lyft and Uber, and that was Reddit and another platform that was more targeted. And we looked at every discussion thread related to the topic.
Diane Ring:
So we didn't do a selection we just read all of them and coded them for all the different kinds of things being discussed, whether it was deductions, filing, just everything down the line we could come up with. And it was fascinating. I mean, on the one hand, I think we were both surprised at the degree to which there were at least some players seriously focused on tax and quoting code and regulation in their posts. There's something deeply heartwarming about that.
Steven Dean:
I'm pretty excited.
Diane Ring:
And so that was actually not... I mean, it's a select group, et cetera, but that anybody, I mean, literally anybody was doing it, that was really interesting. On the other hand there's a lot of, I think what we did see also was the degree to which it's very complicated. The kinds of rules in place for this kind of worker were originally drafted with a different kind of actor in mind. These are not really small businesses. They're not investing in record-keeping documentation, learning law in the same way I might if I was a small business owner. Even if I had a series of failed small businesses, if I'm a business owner that's the thing I do, I keep creating small businesses, I'm sort of investing in that kind of knowledge base.
Diane Ring:
If I'm a ride-sharing driver and there's recent, very interesting empirical evidence coming out of treasury and also IRS studies looking at who are these kinds of platform workers and the degree to which they're often, at least this latest study, tilting towards those who are on the younger side, doing it during periods of underemployment or non-employment. So it's a short burst and it's not so worth it for them to really invest in learning complicated rules. And so I think one of the things you start to see there is a clash between the tax regime we have in place for "small business people" and really what the realistic capabilities are and what makes sense for them to even spend time on for those particular taxpayers.
Steven Dean:
Interesting. Professor Ring has been ahead of the curve her entire career. So of course we have now a question that is about something that happened a long, long time ago. And so if you get this question right Professor Ring, you are going to go home with this lovely NYU Law Graduate Tax Program.
Diane Ring:
Oh, I will try so hard.
Steven Dean:
This is quite, I leave it right here to motivate you-
Diane Ring:
Do tempt me, okay. You have my full focus.
Steven Dean:
... To motivate. All right. Here's the question. You're one of the world's top experts in taxation, digital economy so I'm going to ask you about ancient taxes, especially classical Athenian taxes. And the question is this, which of the following was the most important tax in the classical Athenian world? So it going to be three choices: A). Wealth taxes; B). Income taxes; or C). Consumption taxes.
Diane Ring:
I would have said wealth.
Steven Dean:
You are correct. And I'll read you the quote from an article titled "When I Squeeze You With Eisphorai"—I think that's what it is—"Taxes and Tax Policy in Classical Athens" by Peter Fawcett from the journal Hesperia. So the quote is, "Modern scholarship and classical Athenian taxes based on the surviving ancient sources has confirmed that the most important taxes were the direct taxes on wealth."
Diane Ring:
Wow.
Steven Dean:
"And the indirect taxes on imports and exports followed by taxes on silver and on foreigners, and also demonstrated previously unsuspected importance of religious taxes."
Diane Ring:
Interesting.
Steven Dean:
But wealth taxes I...
Diane Ring:
Fascinating to hear. And so, well, when was the article written?
Steven Dean:
2016.
Diane Ring:
Oh my goodness.
Steven Dean:
So this is a fairly new scholarship.
Diane Ring:
Great.
Steven Dean:
Maybe that's what Elizabeth Warren has been reading, Ancient Athenian Sources.
Diane Ring:
Reaching into even that.
Steven Dean:
Maybe that's what's going on there. Well, Professor Ring, I'm so grateful to you for coming and talking about some of your, just some of your very interesting work in two different, very, very different fields, both international tax side and then the digital side and they do seem to be converging. And again, maybe that's your fault or maybe you just saw it coming, but thank you very much.
Diane Ring:
Oh, it was absolute pleasure to be here.
Steven Dean:
Thank you for listening to the Tax Maven. And I also want to give a very special thank you to those that help make the podcast possible. Patrick Kelly, Joe Rivera, Greg Addison, Rebekah Carmichael, Jill Rachlin and Anthony Pietrangelo. And thank you, Rachel Burns. The NYU Law Graduate Tax Program has been the premier place to learn about tax law for the past 75 years. So please visit us on the web, visit our Graduate Tax Program website to see the different programs we offer, both in-person and online, both for lawyers and non-lawyers. Take a look at we offer and I hope you'll consider joining us. And now we like to end each of our episodes with a quote about taxes read by one of our students. Today's quote is from Sebastian Iagrossi from Whiting, New Jersey.
Sebastian:
This quote is from Nobel Prize winning economist, William Vickery, on the three-factor formula that some states use to apportion the corporate income tax. "This simple but arbitrary and capricious formula has all the earmarks of having been concocted by a committee of lawyers who had forgotten anything they were ever taught about statistics or economics."
Steven Dean:
Please email us at info@taxmavenpodcast.com if you have any questions or comments or suggestions. And if you are a student and want to email us a recording of your favorite tax quote, please email it there as well. Thanks for tuning in.