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Steven Dean describes the quiet aspect of the Liberia problem, explaining how strategic silence on the part of tax experts and officials leaves space for the public to conjure a vision of the international tax landscape consistent with anti-Black racism and other biases.

Image courtesy of interviewee. May 9, 2024

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This video video discusses the concept of the "Liberia problem" within the context of global tax policy and the mischaracterization of countries like Liberia as tax havens. It highlights the disparity between the knowledge of tax experts and the understanding of the general public, emphasizing how this gap can lead to misunderstandings and misconceptions about certain nations.

The speaker references Stanley Surrey, a significant figure in tax policy whose ideas remain fundamental today. Surrey contributed to the understanding of tax expenditures and was a chief tax policy advisor. In contrast, the Liberia problem stems from accusations against Liberia and similar countries as being responsible for global tax evasion and issues with revenue collection, despite their actual circumstances—marked by civil strife and lack of infrastructure.

The speaker recounts personal experiences with a Liberian asylum seeker and critiques the OECD's classification of Liberia as a tax haven, arguing that such categorization ignores the realities of the country's situation. Instead, he implies that the real tax problems lie within wealthier nations and complex corporate practices, which are often overlooked in favor of blaming poorer nations.

The speaker also notes that biases influenced the OECD's actions, leading to a flawed algorithm that classified countries based on income tax structure without considering their unique contexts. He explains that the narrative focusing on nations like Bermuda or the Caymans as tax evaders serves as a distraction from the systemic issues in tax policy, which disproportionately affects African countries.

Ultimately, the speaker advocates for a more inclusive and representative approach in tax governance and enforcement, suggesting that the UN and its diverse membership could provide better oversight and clarity than the OECD, which lacks racial diversity. This video video highlights the need for honest discussions about tax policy and the importance of confronting biases in how we perceive and address tax havens and economic inequalities on a global scale.

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You know, what's so important about the question is,

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understanding the gap between what tax experts know

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and take for granted,

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and what the rest of the world understands.

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Uh, and on the reverse, you know, what might make sense,

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to folks who are not tax experts,

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but tax experts struggle with.

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And I think these two ideas are,

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the opposite of the spectrum.

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So, Stanley Surry, you know, is sort

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of a combination for tax folks.

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He's viewed as a combination of maybe Oppenheimer

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and Einstein, right?

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He is sort of the, the 20th century giant of,

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of the field.

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He, created,

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or at least popularized concepts that are, at the core

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of tax policy these days.

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Uh, for example, the idea of the tax expenditure, the idea

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that you can spend, with, sort of synthetically

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through the tax law, which is certainly in the us,

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really the only way that spending can happen

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because of the, political dynamic.

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Um, so he is, you know, really at the core of the way,

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people think about tax law, and he did lot sales

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besides, he was Stanley Surrey's chief tax policy advisor.

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Um, he just, he was a giant of the field,

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and is really well regarded.

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Uh, his autobiography, which was not published

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during his lifetime, was just, sort of edited

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and published by two really well thought of scholars.

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So he's really somebody who is, who has had an impact

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and whose work is being, explored, even more deeply.

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Now, the Liberia problem, as I say,

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is the other end of the spectrum.

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Uh, it's something that tax experts, really,

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failed to understand.

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Uh, so, you know, I had the,

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good fortune when I was early in my practice to

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have a pro bono client who was a Liberian Asylum applicant.

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Uh, so this was, I'm, I'm old, so this is,

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in the nineties, early aughts.

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Um, and I, I actually, you know, spent hours

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and hours with him learning about his story, learning about

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what it was like, to be, a librarian dissident.

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I mean, he wasn't even a dissident.

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He was just some guy who wasn't, willing to, kowtow

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to the, Liberian president slash warlord Charles Taylor.

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Um, and that put his life in danger. It was, it was bad.

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Um, so he came to the US and applied for asylum,

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and through my firm's,

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pro bono practice when ended working with him.

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So, I, I, I happened to know a ton about Liberia.

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Uh, not, not a ton for a tax guy.

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I knew a ton for, for an ordinary human, maybe not so much,

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but for somebody who has,

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spent his days in a glass office tower thinking about

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transactions and all that, I knew a ton.

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And so I was very surprised when, the organization

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that is sort of the, the chief, the, it's often referred

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to as the World Tax Organization in all,

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but name, so it's an unofficial world tax organization,

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called the Organization

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for Economic Cooperation Development, or the, the OECD.

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Uh, they published a, a blacklist of Tax havens.

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Um, and on that blacklist of tax havens,

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around the same time at the same period, was Liberia.

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And, you know, I thought to myself,

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that seems really unlikely, given what I know about,

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this, this person's life, that, Liberia,

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is a place, where, Europeans

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and Americans are hiding money

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or, global corporations are,

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you know, booking profits.

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That's, that's certainly not what's happening.

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And I don't really understand how that is,

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how that's possible.

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Um, I'll also mention, you can see in the background,

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the painting there.

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Uh, I grew up in The Bahamas, so I, I know a thing

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or two about tax agents,

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and I have thoughts about that as well.

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Uh, but whatever you think about The Bahamas,

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Liberia at this time was just in the midst of,

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just an epically bloody civil war.

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And it had been going on for a long time.

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Uh, you know, Charles Taylor, won the presidency

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after being a warlord, while being a warlord.

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And one of his campaign slogans,

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and you can look this up, I'm not making it up, was,

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he killed my ma, he killed my paw.

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I'm gonna vote for him anyway.

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Uh, and the idea was, you know,

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he's gonna fight if you don't elect him,

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so you might as well just elect him.

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The idea that he was, you know, conspiring to,

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bring down the global tax system was, it's just,

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it's actually quite sickening.

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Uh, there were many things that he was guilty of,

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and this might have been the only thing

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that he was not guilty of.

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Um, so the Liberia problem is, this idea that,

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organizations and experts in the tax base, are accusing

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countries like Liberia, of being the problem.

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And of course, the problem, is,

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why we can't collect the revenues we need

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for our social welfare systems, right?

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So, around this era, there was, maybe a fantasy,

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paranoia, that, we wouldn't be able

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to sustain our welfare states.

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Social security in the us, was vulnerable.

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Um, and the OECD had been the World Tax Organization in

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all but name for years.

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Uh, and the G 20 said, Hey, OECD, what's going on?

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Uh, why, why is this happening?

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Um, and OE C'S response at, at the risk

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of oversimplifying was Liberia did it, which was,

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very effective.

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Uh, you can see a story in the New York Times

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where an OECD spokesman, talks about, Liberia,

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and these other, primarily brown

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and black countries, as gangsters.

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Uh, and there's a quote, not attributed

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to the OECD spokesman, that the noose is tightening,

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just really wacky, wacky stuff for, this kind of field.

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So the Liberia problem is, just using,

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exploiting these

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fundamental misunderstandings about the world,

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Uh, to distract from the real nature of the problems we

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as a society face.

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You know, how do we collect taxes? Who should pay taxes?

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Uh, you know, why are big, big companies able to,

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you know, engage in transactions like,

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Google's double Irish Dutch sandwich, with impunity?

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You know, why are these things happening?

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Um, and the Liberia problem, in a nutshell is,

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just using countries that, you know,

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some like The Bahamas, or have some culpability, certainly,

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but others like Liberia have absolutely no culpability.

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That episode, the, the, the blacklist

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that included Liberia was a particularly,

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startling episode.

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Um, and, you know, there's a, a, a sort of a happy ending,

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at least in the short term to, to that episode,

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because a group of, US legislators,

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the Congressional Black Caucus,

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senior are black legislators, from,

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different states,

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and territories in the us, got wind of this,

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effort to impose sanctions on the countries like Liberia.

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Uh, and they, wrote a letter, wrote a series of letters

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to, the then treasury secretary,

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George w Bush's secretary Paul O'Neal,

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and Paul O'Neill withdrew support from the OECD.

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So this was an episode where, something happened

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and the OECD was trying to exploit, it was, I

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apparently succeeding in exploiting anti-black racism.

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And the Congressional Black Caucus, said, no, you,

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you we're not gonna allow you to do that.

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Uh, that's not a legitimate use of your expertise.

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Uh, so that was one example.

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Uh, but unfortunately, this is still happening.

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Um, so just over the pa in 2021, take one year,

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just over the space of a couple of months,

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president Biden was,

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announcing his build back better plan, plan that was

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designed to, raise revenue to

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spend on infrastructure.

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Uh, you know,

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said it was gonna be the biggest infrastructure spending

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since, the interstate highways were built.

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Um, and he says, we're gonna do it, not

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by imposing a new tax in the middle class, but by going

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after countries like,

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making sure multinationals can hide profits,

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in Bermuda and the Cayman Islands.

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Um, and again, this is not as egregious as,

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calling out Liberia.

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It is certainly true that countries like Bermuda,

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jurisdictions like Bermuda and the Caymans,

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are involved in offshore finance,

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and are, engaged in, in this at some level.

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Uh, the problem there, is that all of Biden's experts,

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know that the key problem, the key players, in,

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that space are not Bermuda in the Caymans,

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it's Switzerland.

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Uh, it's Ireland, it's Luxembourg.

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So, you know, again, this is another example of using,

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this anti-black bias, especially, egregious

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for somebody like Biden, who positioned himself

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as an anti-racist president,

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to just a few weeks into his presidency, announced

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that he was, you know, going to,

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basically take money that, Bermuda

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and the Caymans were stealing from us,

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and use it to invest in our country.

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Um, I objected to that in writing, a few weeks later.

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Of course, I know a lot of his experts,

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a few weeks later in his speech, he repeated Bermuda

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and Caymans in this context.

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Uh, but he also added Switzerland, which, you know,

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I viewed as a personal win,

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and was good, not so great.

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'cause again, he's still mentioning Bermuda

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and the Caymans in a way that is, really out of context,

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and misleading at best.

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Uh, but, and he didn't mention Ireland.

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He's Biden, he loves, he loves Ireland,

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so he didn't quite mention them.

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Uh, so that's one example.

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Another example, the OECD, again, the same organization.

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Uh, they published a brochure, that same year to, to,

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describe and announce, this, global,

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tax proposal that they had been

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working on for several years.

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It was supposed to remake tax

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for the 21st century for the digital age.

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Um, and it's really complicated.

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It's really, it's really complicated.

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Um, and so they included, nice, sort of,

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cartoonish illustrations, to make it accessible.

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Um, and one of these illustrations, talking about one

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of these, one of the aspects of the program,

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the Reform, a global Minimum tax, is referred to,

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they used an illustration that showed a global headquarters,

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company, as a, a glass office tower.

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Uh, and they showed a, an operating, subsidiary

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that's also represented to the Glass Office Tower.

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Uh, and they had the low, low tax jurisdiction, sort

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of the villain in this scenario.

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Um, and again, the,

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the big players in the space are Switzerland, Ireland,

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Luxembourg, the Netherlands.

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Um, but they, used the illustration, not another,

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plain Glass office tower.

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Uh, they used a topical island with, coconut trees.

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Um, and again, I complained about this,

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and in print, and that it, this,

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illustration material mysteriously changed so

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that they just replaced that coconut tree,

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laid an island with, with,

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another plane office tower.

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So, the, the, the problem is that Liberia problem.

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So the loud aspect of Liberia problem is, the notion

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of using, this, this racist imagery.

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Um, these, these notions that the real problem,

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the contagion that the, OECD is,

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guarding against, are these majority black countries,

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and, that's, that's, that is the bigger problem.

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You know, it's not clear why they keep doing it.

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Um, I, I think that to a certain extent, it does work,

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if only

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because, you know, tax is so darn complicated

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and so inaccessible, right?

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You know, a lot of the concepts in the OECS reform, I,

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I don't understand, you know, and that that's

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'cause I'm a little grumpy, and I'm sort of,

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being a little, resistant to spending the time,

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to understand them.

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But, you know, somebody

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who hasn't spent decades thinking about

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tax is never gonna understand them.

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So it gives, po politicians an opportunity to,

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to have a talking point.

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So it is just, it's a talking point.

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So I don't know if it's an especially effective talking

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point, but it's something accessible that people, can,

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grab onto.

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But again, it's not always that successful.

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So, when the OECD, issue, the blacklist

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that include Liberia, they had this, interaction

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with Congressional Black Caucus,

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which was really bad for the OECD.

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Uh, it really didn't go well.

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It derailed their effort,

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and, it really set them back a while,

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and they could have done something very different.

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So, I do think that there is something,

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less than rational, about what's happening here.

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Uh, and you know, it, it's not clear, it's not clear

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how successful, these efforts are.

12:59.825 --> 13:04.245
Um, I, I do think that people, the public,

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see through this to a certain extent, I think they,

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are getting a little too smart for this.

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And certainly when somebody points out,

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that when you illustrate a story about the Channel Islands,

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with, coconut trees,

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you know, you're doing something wrong.

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So I think people are pretty quick to catch onto it.

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Um, so why are they doing it?

13:26.265 --> 13:30.485
Uh, honestly, I, I think that, I think that is,

13:30.665 --> 13:32.965
to a certain extent, it is their personal bias.

13:33.065 --> 13:37.485
So, when, when the OEC, added Liberia to its blacklist,

13:37.985 --> 13:40.925
you know, most of the folks there hadn't, like me,

13:41.945 --> 13:43.845
sat in a room with a guy from Liberia

13:43.845 --> 13:47.085
for hours understanding what Liberia was and what it wasn't.

13:47.385 --> 13:50.045
Um, so when they created the algorithm that they used

13:50.045 --> 13:51.965
to create the blacklist,

13:52.065 --> 13:54.085
and it produced a, a list of black

13:54.085 --> 13:57.085
and brown jurisdictions, they looked at that

13:57.085 --> 13:58.445
and said, that seems right.

13:58.865 --> 14:01.565
Um, so I, I think to a certain extent, it's not

14:01.565 --> 14:02.685
that it's especially effective.

14:03.405 --> 14:06.125
I think it's just, the limitations to an extent

14:06.125 --> 14:07.125
of the people who are doing it.

14:07.585 --> 14:09.605
And, you know, I don't wanna get too deeply into it,

14:09.905 --> 14:12.245
but part of the problem in tax,

14:12.245 --> 14:14.245
this is something I'm exploring in a, in a new book.

14:14.585 --> 14:19.285
Um, the OECD itself, was created, in 1960

14:20.025 --> 14:23.845
as an alternative to the United Nations at a time when the

14:23.915 --> 14:27.005
inclusivity, the racial diversity of the un,

14:27.425 --> 14:28.925
was viewed as a threat.

14:29.345 --> 14:33.085
So, to a certain extent, this all relates back to decisions

14:33.085 --> 14:36.245
that were made, you know, more than half a century ago,

14:36.345 --> 14:41.165
to have a less than representative, tax governing body.

14:41.425 --> 14:44.605
Um, because people were worried,

14:44.955 --> 14:48.165
that this was just too hard for these,

14:48.165 --> 14:49.805
for these ma majority black countries

14:49.955 --> 14:51.685
that were just becoming independent.

14:51.865 --> 14:53.165
Uh, you know, that was when the wave

14:53.165 --> 14:56.405
of independence really hit, the African colonies,

14:56.505 --> 14:58.325
in the fifties and sixties.

14:58.705 --> 15:00.645
Uh, and that's when this transformation happened.

15:00.665 --> 15:02.725
So, I think there's an historical explanation.

15:03.165 --> 15:05.445
I think people make bad decisions,

15:05.465 --> 15:07.445
and sometimes need to be nudged in a good direction.

15:07.825 --> 15:09.125
Um, and, you know,

15:09.125 --> 15:10.965
there may be something cynical about it as well.

15:11.185 --> 15:13.965
Uh, I think there are some folks who know better,

15:14.345 --> 15:18.365
and, who just view this as a way of reaching people,

15:18.675 --> 15:20.685
that, they wouldn't otherwise be able to reach.

15:21.345 --> 15:23.085
But there are two basic flavors.

15:23.225 --> 15:25.165
Uh, one is about individuals.

15:25.225 --> 15:29.885
So individuals, when they, use Tax Haven, they will,

15:30.305 --> 15:33.965
put money in an account that their,

15:34.115 --> 15:36.045
perhaps from illegal earnings,

15:36.395 --> 15:38.045
that their government doesn't know about.

15:38.305 --> 15:40.485
So, this income goes into an account.

15:41.385 --> 15:44.165
And, you know, it was one big scandal,

15:44.305 --> 15:48.205
in the nineties, where, Americans were using Visa,

15:48.375 --> 15:52.615
MasterCard cards, to spend from these hidden accounts.

15:52.995 --> 15:54.615
Um, and they got caught.

15:54.895 --> 15:56.935
'cause there's a, a paper trail,

15:56.935 --> 15:59.895
but it's about being able to spend your,

16:00.205 --> 16:01.855
illicit proceeds,

16:01.855 --> 16:03.975
or at least unreported proceeds, so that,

16:03.995 --> 16:05.295
that's the individual version.

16:05.515 --> 16:07.415
Or you could be a mobster hiding your,

16:07.415 --> 16:08.455
your list of proceeds.

16:08.555 --> 16:10.855
That's the sort of individual version of a tax haven.

16:11.275 --> 16:15.335
Uh, for multinationals, there's a, there's a misconception

16:15.445 --> 16:16.975
that they hide profits.

16:17.195 --> 16:19.215
You know, the last thing a corporate CEO

16:19.215 --> 16:20.375
is doing is hiding profits.

16:20.375 --> 16:22.855
That that's the, that's not, that's not what gets them rich.

16:22.955 --> 16:25.575
You know, they may over report profits,

16:25.575 --> 16:26.615
but they're not gonna hide them.

16:26.615 --> 16:27.655
So that's not what they're doing.

16:27.995 --> 16:30.895
Uh, what they're doing is they're exploiting the,

16:31.555 --> 16:35.775
the legal system, to, report profits,

16:35.915 --> 16:37.375
in countries with low tax rates.

16:37.375 --> 16:40.055
So the double Irish Dutch sandwich,

16:40.955 --> 16:44.215
and, so that allows companies, like Apple

16:44.275 --> 16:47.975
and Google that are us, that earn money, say in Germany,

16:48.475 --> 16:51.295
to report those profits in Ireland,

16:51.485 --> 16:54.975
with its low tax rate, relying on international agreements,

16:55.315 --> 16:57.335
that allow them to do that.

16:57.395 --> 17:01.135
So those are the two basic flavors, of,

17:01.275 --> 17:02.375
of a tax haven.

17:02.795 --> 17:07.405
Um, and the why

17:07.595 --> 17:09.245
Liberia is not either of those.

17:09.665 --> 17:13.605
Uh, so if you are, you know, a wealthy American

17:13.705 --> 17:16.565
who wanted to, cheating your taxes,

17:16.665 --> 17:20.565
by not reporting some of your, cash earnings,

17:20.585 --> 17:23.925
to the IRS, you're not gonna put that in a bank in Liberia.

17:24.195 --> 17:26.725
Like, you're just, that's ne that's not, that is a,

17:26.985 --> 17:28.845
you know, the goal of,

17:28.845 --> 17:31.485
underreporting your income is not to lose your income.

17:31.485 --> 17:34.085
And you're not gonna trust Charles Taylor, a man who is,

17:34.385 --> 17:36.965
you know, murdering his people, in order to,

17:37.265 --> 17:38.325
save some money on tax.

17:38.525 --> 17:40.085
That's just not, that's not rational.

17:40.745 --> 17:44.925
Nor is, Google going to,

17:45.415 --> 17:48.245
shift income to Liberia, in part

17:48.445 --> 17:50.605
'cause it doesn't have that network of,

17:50.715 --> 17:53.405
international agreements that Ireland has, right?

17:53.405 --> 17:56.045
So there's a reason it's the double Irish Dutch sandwich,

17:56.145 --> 17:57.765
not the double Liberia Dutch sandwich.

17:58.185 --> 18:00.645
Uh, they have the infrastructure being part

18:00.645 --> 18:01.725
of the OECD to do this.

18:01.945 --> 18:06.365
So, you know, the, when the algorithm that the OECD created,

18:07.025 --> 18:11.365
to identify tax havens to produce its blacklist, it,

18:11.675 --> 18:13.005
what it did was,

18:13.145 --> 18:15.285
and it's kind of obvious, looking at it now,

18:15.285 --> 18:19.525
certainly the 2024 lens on, these kinds

18:19.525 --> 18:20.805
of questions is very helpful.

18:20.985 --> 18:22.325
And I do feel like I'm cheating a little bit.

18:22.785 --> 18:25.925
Um, the algorithm they came up with basically said,

18:26.585 --> 18:29.165
if you don't have an income tax, if you don't have the,

18:29.165 --> 18:32.805
administrative infrastructure, to,

18:32.805 --> 18:35.365
administered income tax, and a few other,

18:35.545 --> 18:38.605
and you're sort of thought of, you know,

18:38.665 --> 18:39.805
you sort of have the flavor of

18:39.805 --> 18:40.885
a tax, even, you're a tax even.

18:41.385 --> 18:43.085
And of course, who doesn't have it?

18:43.085 --> 18:45.285
Uh, sort of a high functioning income tax.

18:45.635 --> 18:47.885
Well, for example, a company, a country

18:48.075 --> 18:51.245
that has been enmeshed in a bloody civil war for,

18:51.245 --> 18:52.325
years and years, right?

18:52.635 --> 18:53.805
They don't have it, but not

18:53.805 --> 18:55.845
because they're up to no good, but

18:55.845 --> 18:57.885
because they don't have anything else either.

18:58.795 --> 18:59.805
They, they have nothing.

19:00.145 --> 19:03.845
So the idea that you're identifying countries,

19:04.075 --> 19:08.525
that are not functioning well in this way,

19:09.505 --> 19:11.885
is, you know, the, the same sort of thing you have in the US

19:11.885 --> 19:13.885
where you have, there's a,

19:13.905 --> 19:15.885
not even the us So there was the Dutch,

19:15.985 --> 19:20.005
tax benefit scandal, where the Netherlands, were

19:20.565 --> 19:25.125
apparently using, nationality, as,

19:26.205 --> 19:29.215
part of their algorithm to figure out who, to audit.

19:29.755 --> 19:31.575
Um, so, you know,

19:31.575 --> 19:34.335
you have these biases working their way into algorithms.

19:34.595 --> 19:35.815
Uh, and that's, that's what was happening.

19:35.815 --> 19:38.695
So it was just a clearly biased algorithm,

19:38.765 --> 19:41.815
that people at the time, again, who unlike me,

19:41.975 --> 19:44.015
hadn't had the opportunity to sit in a room

19:44.015 --> 19:46.815
with a guy from Liberia knowing that this was not a place

19:46.815 --> 19:48.095
where any of these things were happening.

19:48.315 --> 19:51.455
You know, I mentioned earlier that Stanley Surry was,

19:51.805 --> 19:53.495
John f Kennedy's chief tax advisor.

19:53.805 --> 19:57.135
They had connected, earlier in Siri's career

19:57.145 --> 20:00.695
where he was negotiating the U US Pakistan treaty.

20:00.875 --> 20:03.295
And he was, you know, a real tiger on it.

20:03.475 --> 20:05.295
Um, and Kennedy really liked his fire.

20:05.515 --> 20:07.135
Uh, so we ended up bringing him on board

20:07.155 --> 20:08.935
as his chief tax advisor.

20:09.355 --> 20:14.215
Uh, and at that time, the big threat that, JFK,

20:14.595 --> 20:17.855
highlighted in one of his first,

20:17.935 --> 20:21.415
remarks on taxation, were, were transactions

20:21.415 --> 20:23.535
that were essentially the forebearers

20:23.875 --> 20:25.215
of the double liar step sandwich.

20:25.515 --> 20:28.695
So, in this special message to Congress in 1961,

20:28.695 --> 20:31.535
the very start of his first term, his term, he,

20:31.625 --> 20:33.735
talks about transactions,

20:33.825 --> 20:37.575
where you're using licensing arrangements, very, very,

20:37.675 --> 20:38.695
wonky stuff.

20:39.035 --> 20:40.935
Uh, but he calls out Switzerland.

20:41.275 --> 20:44.255
And it turns out, when you look at, I, you know,

20:44.295 --> 20:47.805
I wandered over, to the Harvard Library, I, sorry,

20:47.865 --> 20:49.245
was a professor at Harvard for many years.

20:49.475 --> 20:50.525
They have a lot of his papers.

20:50.945 --> 20:53.925
And I got those papers out of the rare book, collection.

20:54.425 --> 20:56.085
And it turns out,

20:56.315 --> 20:58.925
that they were laser-like focus on Switzerland.

20:59.385 --> 21:01.205
So, Kennedy had mentioned this in these,

21:01.225 --> 21:02.285
in this message Congress.

21:02.625 --> 21:05.445
Uh, but they were, you know,

21:05.765 --> 21:07.165
counting the Swiss subsidiaries

21:07.225 --> 21:09.165
of US multinationals like Chrysler.

21:09.465 --> 21:13.085
Uh, they were really, they were really,

21:13.275 --> 21:15.125
carefully focused on Switzerland.

21:15.465 --> 21:18.165
In fact, they were so focused on Switzerland,

21:18.355 --> 21:21.405
that the Swiss Attorney General, threatened

21:21.405 --> 21:23.965
to prosecute them for corporate espionage.

21:24.305 --> 21:26.725
Uh, so Switzerland was really, this was really sort

21:26.725 --> 21:28.525
of a, a heated moment.

21:28.985 --> 21:33.485
Um, and so what subpart f ultimately was,

21:33.705 --> 21:36.725
was their response to, this

21:37.495 --> 21:41.025
corporate tax abuse, involving multinationals like

21:41.625 --> 21:44.185
Chrysler, involving Switzerland.

21:44.345 --> 21:46.705
'cause again, Switzerland, had

21:46.705 --> 21:49.945
that infrastructure in place of international agreements,

21:50.245 --> 21:53.305
sort of had an early treaty, with the United States,

21:53.305 --> 21:56.225
so was even before, the OECD was founded

21:56.225 --> 21:57.745
that really helped proliferate these treaties.

21:58.005 --> 22:00.185
Uh, it was really, an early treaty.

22:00.185 --> 22:03.545
So it, it had the ability to, you know, again,

22:03.545 --> 22:05.025
unlike Liberia,

22:05.285 --> 22:08.585
to have income placed in Switzerland in a way

22:08.585 --> 22:09.625
that would stick, right?

22:09.625 --> 22:10.865
It was, they were able to do that.

22:11.365 --> 22:15.345
So what sub Part F did, was basically,

22:17.515 --> 22:20.955
overturn the basic rules of, interal tax

22:20.955 --> 22:23.675
that had governed, these transactions for many years,

22:24.175 --> 22:27.435
to reallocate, some of the profits,

22:27.435 --> 22:30.155
the multinationals profits, to the residence country.

22:30.495 --> 22:33.715
Uh, so the residence country where Apple's headquarters is,

22:33.845 --> 22:35.155
where Google's headquarters is,

22:35.285 --> 22:37.755
where Chrysler's headquarters is at the time,

22:37.865 --> 22:42.475
Subpart f essentially says, we are going to take money

22:42.475 --> 22:45.915
that even under the normal rules, wouldn't be ours.

22:46.175 --> 22:48.035
Uh, we're gonna claim that, that's

22:48.035 --> 22:49.715
what Subpart F was in response to

22:49.715 --> 22:51.315
what was happening in Switzerland at the time

22:51.745 --> 22:53.075
with companies like Chrysler.

22:53.495 --> 22:55.195
The real challenge here is,

22:56.175 --> 22:59.355
and this is something that I, I face,

22:59.385 --> 23:03.035
just in my professional life, you know, people now know me

23:03.055 --> 23:06.755
as somebody who says we need to talk, honestly,

23:07.095 --> 23:08.795
in a non,

23:08.795 --> 23:11.955
biased way about the problems that our system has.

23:12.265 --> 23:14.835
Only we really face them. Can we, can we address them?

23:15.375 --> 23:19.235
So, I had somebody who I really respect, you know,

23:19.315 --> 23:21.275
a scholar who is really, brilliant

23:21.375 --> 23:23.115
and caring and thoughtful.

23:23.615 --> 23:27.035
Um, he sent me an article about s

23:27.215 --> 23:31.755
and, said, he asked my comments,

23:31.935 --> 23:33.995
and one of the comments was, why do you keep

23:33.995 --> 23:35.155
talking about Bermuda?

23:35.735 --> 23:36.995
You know, what, why are you doing that?

23:37.375 --> 23:40.475
Um, and, you know, he, this is somebody who was coming to me

23:40.895 --> 23:44.435
who knew my criticisms of, this kind of rhetoric,

23:44.815 --> 23:48.085
and even he couldn't quite bring himself,

23:48.425 --> 23:51.005
to either just not name a country at all

23:51.425 --> 23:52.445
or to name Switzerland.

23:52.585 --> 23:56.285
Uh, it, it just is something about the way that,

23:56.535 --> 23:59.925
we've been trained as a profession, as a discipline

23:59.945 --> 24:03.605
to think about this, that we still,

24:04.425 --> 24:08.885
to explain this very difficult concept of why, Chrysler

24:08.885 --> 24:10.125
and its day, or now Google

24:10.145 --> 24:12.205
and Apple are able to not pay taxes.

24:12.825 --> 24:17.605
Uh, we just default, to, these,

24:17.815 --> 24:20.485
these tropes, to, explain it.

24:20.745 --> 24:21.965
Um, and I think it really

24:23.095 --> 24:24.815
hampers our ability to solve the problems.

24:25.115 --> 24:29.055
Uh, it certainly, I think the public can understand,

24:29.595 --> 24:31.775
you know, the public can understand what's going on in the,

24:31.995 --> 24:34.615
will it understand what's happening in the double Irish

24:34.625 --> 24:35.695
Dutch sandwich, right?

24:35.915 --> 24:38.455
To a certain extent, yes, to a certain extent, no.

24:38.635 --> 24:40.615
And that's okay. They don't need to understand everything

24:40.815 --> 24:42.655
that's going on order in order to understand it.

24:42.915 --> 24:46.775
Uh, but it's really not helpful, to suggest

24:46.775 --> 24:51.735
that the problem is Bermuda rather than a systemic problem

24:51.955 --> 24:54.255
in the way that we organize our tax rules.

24:55.245 --> 24:58.725
I, I operate in a field where good news is not,

24:59.265 --> 25:01.485
is not part of our daily menu,

25:01.485 --> 25:02.645
but there is some good news here.

25:02.825 --> 25:05.525
So I, I think part of the problem is this structure we

25:05.525 --> 25:09.045
inherited, from the 1960s,

25:09.275 --> 25:12.085
when we thought about the world very differently,

25:12.665 --> 25:15.685
and what's been happening just since over the last year,

25:16.105 --> 25:20.605
the UN has reasserted, a role that it, lost

25:20.605 --> 25:24.685
to the OECD, in the 1950s going to 1960.

25:25.145 --> 25:28.685
Uh, and it is reasserting, its authority here.

25:28.825 --> 25:32.045
Uh, so if we have a world tax organization,

25:32.105 --> 25:35.045
and just to be clear, so the OECD is international,

25:35.065 --> 25:38.165
but it is still never had a majority black member, right?

25:38.165 --> 25:40.005
The OCD is a membership organization

25:40.005 --> 25:41.965
that has never had a majority black member.

25:42.465 --> 25:44.245
And if your world tax organization

25:44.785 --> 25:46.485
has never had a majority black member,

25:47.435 --> 25:49.055
and it's making these kinds of errors

25:49.075 --> 25:51.175
and it's propagating this kinds of misinformation,

25:51.905 --> 25:53.735
maybe it's to be that's the problem.

25:54.195 --> 25:56.495
Uh, so I think a first step,

25:56.595 --> 25:58.295
and I don't think it's a perfect solution,

25:58.595 --> 26:00.335
but I do think that it is a way

26:00.435 --> 26:03.215
to combat this misinformation,

26:03.315 --> 26:08.015
and this tendency to, to make these, claims,

26:08.115 --> 26:11.775
is to have an organization, involved like the un,

26:11.925 --> 26:15.735
that actually has, a diverse global membership.

26:15.995 --> 26:19.095
Um, so I, I think that is, a really important step

26:19.515 --> 26:21.535
to combat the Liberia problem.

26:21.975 --> 26:22.095
I.

Tax Knowledge: Bridging the Understanding Gap

00:00:00 - You know, what's so important about the question is, understanding the gap between what tax experts know and take for granted, and what the rest of the world understands. and on the reverse, you know, what might make sense, to folks who are not tax experts, but tax experts struggle with. And I think these two ideas are, the opposite of the spectrum. So, Stanley Surry, you know, is sort of a combination for tax folks. He's viewed as a combination of maybe Oppenheimer and Einstein, right? He is sort of the, the 20th century giant of,
00:00:35 - He, created, or at least popularized concepts that are, at the core of tax policy these days. for example, the idea of the tax expenditure, the idea that you can spend, with, sort of synthetically through the tax law, which is certainly in the us, really the only way that spending can happen because of the, political dynamic. so he is, you know, really at the core of the way, people think about tax law, and he did lot sales
00:01:09 - he just, he was a giant of the field, and is really well regarded. his autobiography, which was not published during his lifetime, was just, sort of edited and published by two really well thought of scholars. So he's really somebody who is, who has had an impact and whose work is being, explored, even more deeply. Now, the Liberia problem, as I say, is the other end of the spectrum. it's something that tax experts, really,
00:01:39 - so, you know, I had the, good fortune when I was early in my practice to have a pro bono client who was a Liberian Asylum applicant. so this was, I'm, I'm old, so this is, in the nineties, early aughts. and I, I actually, you know, spent hours and hours with him learning about his story, learning about what it was like, to be, a librarian dissident. I mean, he wasn't even a dissident. He was just some guy who wasn't, willing to, kowtow
00:02:15 - and that put his life in danger. It was, it was bad. so he came to the US and applied for asylum, and through my firm's, pro bono practice when ended working with him. So, I, I, I happened to know a ton about Liberia. not, not a ton for a tax guy. I knew a ton for, for an ordinary human, maybe not so much, but for somebody who has, spent his days in a glass office tower thinking about transactions and all that, I knew a ton.
00:02:47 - that is sort of the, the chief, the, it's often referred to as the World Tax Organization in all, but name, so it's an unofficial world tax organization, called the Organization for Economic Cooperation Development, or the, the OECD. they published a, a blacklist of Tax havens. and on that blacklist of tax havens, around the same time at the same period, was Liberia. And, you know, I thought to myself,

The Misunderstanding of Liberia in Tax Discussions

00:03:18 - this, this person's life, that, Liberia, is a place, where, Europeans and Americans are hiding money or, global corporations are, you know, booking profits. That's, that's certainly not what's happening. And I don't really understand how that is, how that's possible. I'll also mention, you can see in the background, the painting there.
00:03:47 - or two about tax agents, and I have thoughts about that as well. but whatever you think about The Bahamas, Liberia at this time was just in the midst of, just an epically bloody civil war. And it had been going on for a long time. you know, Charles Taylor, won the presidency after being a warlord, while being a warlord. And one of his campaign slogans, and you can look this up, I'm not making it up, was,
00:04:15 - I'm gonna vote for him anyway. and the idea was, you know, he's gonna fight if you don't elect him, so you might as well just elect him. The idea that he was, you know, conspiring to, bring down the global tax system was, it's just, it's actually quite sickening. there were many things that he was guilty of, and this might have been the only thing that he was not guilty of. so the Liberia problem is, this idea that, organizations and experts in the tax base, are accusing
00:04:51 - And of course, the problem, is, why we can't collect the revenues we need for our social welfare systems, right? So, around this era, there was, maybe a fantasy, paranoia, that, we wouldn't be able to sustain our welfare states. Social security in the us, was vulnerable. and the OECD had been the World Tax Organization in all but name for years. and the G 20 said, Hey, OECD, what's going on?
00:05:20 - and OE C'S response at, at the risk of oversimplifying was Liberia did it, which was, very effective. you can see a story in the New York Times where an OECD spokesman, talks about, Liberia, and these other, primarily brown and black countries, as gangsters. and there's a quote, not attributed to the OECD spokesman, that the noose is tightening, just really wacky, wacky stuff for, this kind of field. So the Liberia problem is, just using,
00:05:54 - fundamental misunderstandings about the world, to distract from the real nature of the problems we as a society face. You know, how do we collect taxes? Who should pay taxes? you know, why are big, big companies able to, you know, engage in transactions like, Google's double Irish Dutch sandwich, with impunity? You know, why are these things happening? and the Liberia problem, in a nutshell is, just using countries that, you know,

Misunderstanding Tax Issues and Racial Bias

00:06:27 - but others like Liberia have absolutely no culpability. That episode, the, the, the blacklist that included Liberia was a particularly, startling episode. and, you know, there's a, a, a sort of a happy ending, at least in the short term to, to that episode, because a group of, US legislators, the Congressional Black Caucus, senior are black legislators, from, different states, and territories in the us, got wind of this,
00:06:59 - and they, wrote a letter, wrote a series of letters to, the then treasury secretary, George w Bush's secretary Paul O'Neal, and Paul O'Neill withdrew support from the OECD. So this was an episode where, something happened and the OECD was trying to exploit, it was, I apparently succeeding in exploiting anti-black racism. And the Congressional Black Caucus, said, no, you, you we're not gonna allow you to do that.
00:07:30 - so that was one example. but unfortunately, this is still happening. so just over the pa in 2021, take one year, just over the space of a couple of months, president Biden was, announcing his build back better plan, plan that was designed to, raise revenue to spend on infrastructure. you know, said it was gonna be the biggest infrastructure spending since, the interstate highways were built.
00:08:02 - by imposing a new tax in the middle class, but by going after countries like, making sure multinationals can hide profits, in Bermuda and the Cayman Islands. and again, this is not as egregious as, calling out Liberia. It is certainly true that countries like Bermuda, jurisdictions like Bermuda and the Caymans, are involved in offshore finance, and are, engaged in, in this at some level. the problem there, is that all of Biden's experts,
00:08:38 - that space are not Bermuda in the Caymans, it's Switzerland. it's Ireland, it's Luxembourg. So, you know, again, this is another example of using, this anti-black bias, especially, egregious for somebody like Biden, who positioned himself as an anti-racist president, to just a few weeks into his presidency, announced that he was, you know, going to, basically take money that, Bermuda
00:09:06 - and use it to invest in our country. I objected to that in writing, a few weeks later. Of course, I know a lot of his experts, a few weeks later in his speech, he repeated Bermuda and Caymans in this context. but he also added Switzerland, which, you know, I viewed as a personal win, and was good, not so great. 'cause again, he's still mentioning Bermuda and the Caymans in a way that is, really out of context, and misleading at best. but, and he didn't mention Ireland. He's Biden, he loves, he loves Ireland,

OECD's Misrepresentation in Tax Policy Discussions

00:09:37 - so that's one example. Another example, the OECD, again, the same organization. they published a brochure, that same year to, to, describe and announce, this, global, tax proposal that they had been working on for several years. It was supposed to remake tax for the 21st century for the digital age. and it's really complicated. It's really, it's really complicated. and so they included, nice, sort of, cartoonish illustrations, to make it accessible.
00:10:09 - of these, one of the aspects of the program, the Reform, a global Minimum tax, is referred to, they used an illustration that showed a global headquarters, company, as a, a glass office tower. and they showed a, an operating, subsidiary that's also represented to the Glass Office Tower. and they had the low, low tax jurisdiction, sort of the villain in this scenario. and again, the, the big players in the space are Switzerland, Ireland,
00:10:40 - but they, used the illustration, not another, plain Glass office tower. they used a topical island with, coconut trees. and again, I complained about this, and in print, and that it, this, illustration material mysteriously changed so that they just replaced that coconut tree, laid an island with, with, another plane office tower. So, the, the, the problem is that Liberia problem.
00:11:12 - of using, this, this racist imagery. these, these notions that the real problem, the contagion that the, OECD is, guarding against, are these majority black countries, and, that's, that's, that is the bigger problem. You know, it's not clear why they keep doing it. I, I think that to a certain extent, it does work,
00:11:45 - because, you know, tax is so darn complicated and so inaccessible, right? You know, a lot of the concepts in the OECS reform, I, I don't understand, you know, and that that's 'cause I'm a little grumpy, and I'm sort of, being a little, resistant to spending the time, to understand them. But, you know, somebody who hasn't spent decades thinking about tax is never gonna understand them. So it gives, po politicians an opportunity to,
00:12:16 - So it is just, it's a talking point. So I don't know if it's an especially effective talking point, but it's something accessible that people, can, grab onto. But again, it's not always that successful. So, when the OECD, issue, the blacklist that include Liberia, they had this, interaction with Congressional Black Caucus, which was really bad for the OECD. it really didn't go well. It derailed their effort, and, it really set them back a while, and they could have done something very different.

Bias and Misunderstanding in Tax Policy

00:12:48 - less than rational, about what's happening here. and you know, it, it's not clear, it's not clear how successful, these efforts are. I, I do think that people, the public, see through this to a certain extent, I think they, are getting a little too smart for this. And certainly when somebody points out, that when you illustrate a story about the Channel Islands,
00:13:19 - you know, you're doing something wrong. So I think people are pretty quick to catch onto it. so why are they doing it? honestly, I, I think that, I think that is, to a certain extent, it is their personal bias. So, when, when the OEC, added Liberia to its blacklist, you know, most of the folks there hadn't, like me, sat in a room with a guy from Liberia for hours understanding what Liberia was and what it wasn't.
00:13:50 - to create the blacklist, and it produced a, a list of black and brown jurisdictions, they looked at that and said, that seems right. so I, I think to a certain extent, it's not that it's especially effective. I think it's just, the limitations to an extent of the people who are doing it. And, you know, I don't wanna get too deeply into it, but part of the problem in tax, this is something I'm exploring in a, in a new book. the OECD itself, was created, in 1960
00:14:23 - inclusivity, the racial diversity of the un, was viewed as a threat. So, to a certain extent, this all relates back to decisions that were made, you know, more than half a century ago, to have a less than representative, tax governing body. because people were worried, that this was just too hard for these, for these ma majority black countries that were just becoming independent.
00:14:53 - of independence really hit, the African colonies, in the fifties and sixties. and that's when this transformation happened. So, I think there's an historical explanation. I think people make bad decisions, and sometimes need to be nudged in a good direction. and, you know, there may be something cynical about it as well. I think there are some folks who know better, and, who just view this as a way of reaching people, that, they wouldn't otherwise be able to reach. But there are two basic flavors.
00:15:25 - So individuals, when they, use Tax Haven, they will, put money in an account that their, perhaps from illegal earnings, that their government doesn't know about. So, this income goes into an account. And, you know, it was one big scandal, in the nineties, where, Americans were using Visa, MasterCard cards, to spend from these hidden accounts. and they got caught.

Tax Havens: Misconceptions and Realities Explained

00:15:56 - but it's about being able to spend your, illicit proceeds, or at least unreported proceeds, so that, that's the individual version. Or you could be a mobster hiding your, your list of proceeds. That's the sort of individual version of a tax haven. for multinationals, there's a, there's a misconception that they hide profits. You know, the last thing a corporate CEO is doing is hiding profits. That that's the, that's not, that's not what gets them rich. You know, they may over report profits,
00:16:26 - So that's not what they're doing. what they're doing is they're exploiting the, the legal system, to, report profits, in countries with low tax rates. So the double Irish Dutch sandwich, and, so that allows companies, like Apple and Google that are us, that earn money, say in Germany, to report those profits in Ireland, with its low tax rate, relying on international agreements, that allow them to do that.
00:17:01 - of a tax haven. and the why Liberia is not either of those. so if you are, you know, a wealthy American who wanted to, cheating your taxes, by not reporting some of your, cash earnings, to the IRS, you're not gonna put that in a bank in Liberia. Like, you're just, that's ne that's not, that is a, you know, the goal of,
00:17:31 - And you're not gonna trust Charles Taylor, a man who is, you know, murdering his people, in order to, save some money on tax. That's just not, that's not rational. Nor is, Google going to, shift income to Liberia, in part 'cause it doesn't have that network of, international agreements that Ireland has, right? So there's a reason it's the double Irish Dutch sandwich, not the double Liberia Dutch sandwich. they have the infrastructure being part
00:18:01 - So, you know, the, when the algorithm that the OECD created, to identify tax havens to produce its blacklist, it, what it did was, and it's kind of obvious, looking at it now, certainly the 2024 lens on, these kinds of questions is very helpful. And I do feel like I'm cheating a little bit. the algorithm they came up with basically said, if you don't have an income tax, if you don't have the, administrative infrastructure, to,
00:18:35 - and you're sort of thought of, you know, you sort of have the flavor of a tax, even, you're a tax even. And of course, who doesn't have it? sort of a high functioning income tax. Well, for example, a company, a country that has been enmeshed in a bloody civil war for, years and years, right? They don't have it, but not because they're up to no good, but because they don't have anything else either. They, they have nothing. So the idea that you're identifying countries,

Biases in Tax Algorithms and Historical Impacts

00:19:09 - is, you know, the, the same sort of thing you have in the US where you have, there's a, not even the us So there was the Dutch, tax benefit scandal, where the Netherlands, were apparently using, nationality, as, part of their algorithm to figure out who, to audit. so, you know, you have these biases working their way into algorithms.
00:19:35 - So it was just a clearly biased algorithm, that people at the time, again, who unlike me, hadn't had the opportunity to sit in a room with a guy from Liberia knowing that this was not a place where any of these things were happening. You know, I mentioned earlier that Stanley Surry was, John f Kennedy's chief tax advisor. They had connected, earlier in Siri's career where he was negotiating the U US Pakistan treaty. And he was, you know, a real tiger on it. and Kennedy really liked his fire.
00:20:07 - as his chief tax advisor. and at that time, the big threat that, JFK, highlighted in one of his first, remarks on taxation, were, were transactions that were essentially the forebearers of the double liar step sandwich. So, in this special message to Congress in 1961, the very start of his first term, his term, he, talks about transactions, where you're using licensing arrangements, very, very,
00:20:39 - but he calls out Switzerland. And it turns out, when you look at, I, you know, I wandered over, to the Harvard Library, I, sorry, was a professor at Harvard for many years. They have a lot of his papers. And I got those papers out of the rare book, collection. And it turns out, that they were laser-like focus on Switzerland. So, Kennedy had mentioned this in these, in this message Congress. but they were, you know, counting the Swiss subsidiaries of US multinationals like Chrysler.
00:21:13 - carefully focused on Switzerland. In fact, they were so focused on Switzerland, that the Swiss Attorney General, threatened to prosecute them for corporate espionage. so Switzerland was really, this was really sort of a, a heated moment. and so what subpart f ultimately was, was their response to, this corporate tax abuse, involving multinationals like
00:21:44 - 'cause again, Switzerland, had that infrastructure in place of international agreements, sort of had an early treaty, with the United States, so was even before, the OECD was founded that really helped proliferate these treaties. it was really, an early treaty. So it, it had the ability to, you know, again, unlike Liberia, to have income placed in Switzerland in a way that would stick, right? It was, they were able to do that. So what sub Part F did, was basically,

Tax System Flaws and Historical Context

00:22:20 - that had governed, these transactions for many years, to reallocate, some of the profits, the multinationals profits, to the residence country. so the residence country where Apple's headquarters is, where Google's headquarters is, where Chrysler's headquarters is at the time, Subpart f essentially says, we are going to take money that even under the normal rules, wouldn't be ours. we're gonna claim that, that's
00:22:49 - what was happening in Switzerland at the time with companies like Chrysler. The real challenge here is, and this is something that I, I face, just in my professional life, you know, people now know me as somebody who says we need to talk, honestly, in a non, biased way about the problems that our system has. Only we really face them. Can we, can we address them? So, I had somebody who I really respect, you know,
00:23:21 - and caring and thoughtful. he sent me an article about s and, said, he asked my comments, and one of the comments was, why do you keep talking about Bermuda? You know, what, why are you doing that? and, you know, he, this is somebody who was coming to me who knew my criticisms of, this kind of rhetoric, and even he couldn't quite bring himself, to either just not name a country at all
00:23:52 - it, it just is something about the way that, we've been trained as a profession, as a discipline to think about this, that we still, to explain this very difficult concept of why, Chrysler and its day, or now Google and Apple are able to not pay taxes. we just default, to, these, these tropes, to, explain it. and I think it really
00:24:25 - it certainly, I think the public can understand, you know, the public can understand what's going on in the, will it understand what's happening in the double Irish Dutch sandwich, right? To a certain extent, yes, to a certain extent, no. And that's okay. They don't need to understand everything that's going on order in order to understand it. but it's really not helpful, to suggest that the problem is Bermuda rather than a systemic problem in the way that we organize our tax rules.
00:24:59 - is not part of our daily menu, but there is some good news here. So I, I think part of the problem is this structure we inherited, from the 1960s, when we thought about the world very differently, and what's been happening just since over the last year, the UN has reasserted, a role that it, lost to the OECD, in the 1950s going to 1960. and it is reasserting, its authority here.

Addressing Diversity in Global Tax Organizations

00:25:32 - and just to be clear, so the OECD is international, but it is still never had a majority black member, right? The OCD is a membership organization that has never had a majority black member. And if your world tax organization has never had a majority black member, and it's making these kinds of errors and it's propagating this kinds of misinformation, maybe it's to be that's the problem. so I think a first step, and I don't think it's a perfect solution, but I do think that it is a way
00:26:21 - and this tendency to, to make these, claims, is to have an organization, involved like the un, that actually has, a diverse global membership. so I, I think that is, a really important step to combat the Liberia problem. I.

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