June 2, 2016 | Commentary on National Security and Defense, Taxes

Let's Send Your Tax Forms to China

There are bad ideas – such as making our tax code so complicated and intrusive that compliance costs billions, yet we can’t be sure what we owe, or that we’re not paying too much.

Then there are really bad ideas – such as taking the tax forms of any American who does any international business and sending them to the People’s Republic of China or Russia.

Your name, your address, your Social Security number, and all your financial information shipped straight to Beijing  or Moscow. What could possibly go wrong?

Yet that’s what the Organization for Economic Cooperation and Development’s boring-sounding “Protocol Amending the Multilateral Convention on Mutual Administrative Assistance in Tax Matters” will do. The Protocol currently awaits the advice and consent of the Senate.

The Protocol applies to all taxes on income, profits, capital gains, and net wealth, to estate taxes and taxes on movable property, to social security contributions, and to “any other taxes.”

It requires nations to “exchange any information . . . that is foreseeably relevant for the administration or enforcement” of laws related to these taxes. It also allows for the automatic exchange of information “with respect to categories of cases and in accordance with procedures which they shall determine.”

In short, the Protocol will give the Executive Branch the power to negotiate whatever arrangements it pleases for the automatic transfer of your information. And if the White House wants to widen the Protocol even further, it can do that too: no Congressional vote required.

The Protocol would also require the U.S. to inform other nations whenever we have “grounds for supposing” that they may be owed tax payments. In short, it turns every signatory into a tax collector for all the others, and requires all its signatories to share all the information at their disposal.

In theory, the Protocol requires all national signatories to respect the confidentiality of individuals. I invite you to read this official OECD questionnaire and decide for yourself if this confidentiality requirement is serious. Literally all any nation has to do is to assure the OECD that it has relevant laws, and explain how they supposedly ensure confidentiality.

The Protocol self-evidently takes data sharing vastly more seriously than it takes your privacy. For sharing, it demands action. For privacy, it accepts promises.

And that brings us to the signatories. This Protocol isn’t limited to decent places like Canada and the U.S. — though even if it were, giving so much power to the tax agencies of the world is a bad idea.

The Protocol includes wildly corrupt places like Albania and Azerbaijan, dictatorships with aggressive intelligence services and a history of cyber thefts like China and Russia, and lots of places like Kazakhstan and Tunisia, which can’t hope to protect the information we send them, even if they don’t intentionally misuse it. None of their promises is worth anything.

Can anyone seriously believe that the OECD’s little questionnaire is enough to prevent China from misusing whatever information we send them, if it is any way convenient or useful for Beijing?

Moreover, as my colleague David Burton points out, sending financial information to places like Russia is simply asking for them to use it to suppress dissidents, or anyone who gets in the way of the regime.

The story of Bill Browder, and his murdered attorney Sergei Magnitsky, is now well-known in the West. How much worse off would Browder be – would any of Vladimir Putin’s opponents be – if Russia’s corrupt tax authorities had the right to demand all information “foreseeably relevant” to Browder?

And what is the point of this? It is, of course, to tax you more. Or, to put it in the OECD’s terms, it is to combat increased “possibilities of tax avoidance and evasion.”  We should remember, first, that legally avoiding taxes is not a crime. On the contrary: it is a praiseworthy exercise of personal responsibility.

But what is going on here is bigger than stopping tax avoidance, or even tax evasion. The Protocol is not a sign of how the authorities are moving with these globalized times: it is a sign of their Darth Vader-like belief that the appropriate response to losing a star system is to tighten their grip.

At all costs, the authorities feel they must prevent taxpayers from drawing the obvious conclusion from the bloated U.S. tax code, which is that simpler taxes are easier to file, easier to collect, and less distorting to the economy at large. Their answer is not to reform the tax code: it is to push yet more administrative power into the system, in order to duct-tape its deficiencies together with a global enforcement net.

The right standard for the U.S. is to cooperate with other nations when there is a genuine criminal case to pursue. It is not to exchange as much information about American citizens as possible in the hope that this will turn up a crime. Nor should other nations be eagerly shoveling data on their own citizens to the IRS.

Innocent until proven guilty is the right standard. The OECD’s Protocol comes much too close to the reverse: a presumption of guilt. There’s no need to mandate the sharing of all “foreseeably relevant” information if the people whose information you’re sharing are innocent.

I hope the Protocol stays right where it is: stuck, permanently, in the Senate.

About the Author

Theodore R. Bromund, Ph.D. Senior Research Fellow in Anglo-American Relations
The Margaret Thatcher Center for Freedom

Originally published in Forbes Opinion