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Double Taxation, Multiple Citizenship, and Global Inequality

Ana Tanasoca

Abstract

National membership in itself aggravates global inequality, and plural membership does all the more so. A key mechanism by which that occurs are double taxation agreements that (given certain contingent facts about the world) have the effect of favoring the global rich at the expense of the global poor. One egalitarian solution is a levy on multiple citizenship; another is redesigning double taxation agreements along prioritarian lines. Revising the OECD Model Tax Convention could be a feasible strategy for implementing such reforms.

Acknowledgments

I thank Robert Goodin for his extensive invaluable comments on (way too) many drafts of this paper and for his constant encouragement. I also thank the editors of this special issue for their guidance and efforts in putting together the issue and two anonymous referees for their comments which greatly improved the paper.

  1. 1

    James Tobin, The New Economics, One Decade Older (Princeton, NJ: Princeton University Press, 1974); Thomas Pogge, “Eradicating systemic poverty: brief for a global resources dividend”, Journal of Human Development, 2, 1 (2001): 59–77; Ayelet Shachar, The Birthright Lottery: Citizenship and Global Inequality (Cambridge, MA: Harvard University Press, 2009).

  2. 2

    Shachar, op. cit., 7–18.

  3. 3

    Ibid., ch. 1.

  4. 4

    See Joseph Heath, “Rawls on global distributive justice: a defence”, in Daniel Weinstock (ed.), Global Justice, Global Institutions, Canadian Journal of Philosophy (Calgary, AB: University of Calgary Press, 2005), 211.

  5. 5

    Rogers Brubaker, Citizenship and Nationhood in France and Germany (Cambridge, MA: Harvard University Press, 1992), 21.

  6. 6

    Shachar, op. cit., 96–108.

  7. 7

    On Shachar’s logic, we ought presumably impose a birthright levy on dual citizens twice, in respect of each citizenship. But should we not also impose a “multiple citizenship levy” on them insofar as those multiple citizenships interact in such a way as to confer yet further advantages on them globally?

  8. 8

    Kenneth J. Arrow and Anthony C. Fisher, “Environmental preservation, uncertainty and irreversibility”, Quarterly Journal of Economics, 88, 2 (1974): 312–19.

  9. 9

    Consider the case of investor citizenship or citizenship-by-investment. (See Jelena Dzankic, “Citizenship by investment: can money buy citizenship?” <http://eudo-citizenship.eu/news/citizenship-news/583-citizenship-by-investment-can-money-buy-citizenship>). Birth citizens of advantaged nations (those who are already pretty well off globally) will be better able to “buy” a second citizenship, with the resources brought by their birthright citizenship. Thus, the global rich will have a greater propensity of becoming multiple citizens (and of maximizing their advantages subsequently).

  10. 10

    In a world in which all national citizenships promoted identical life conditions, citizenship itself would not give rise to global inequalities, but multiple citizenship still would. If national citizenships give access to equal resources, welfare, opportunities, and capabilities, then multiple citizenship allows some to double or triple their otherwise equal share. Imagine, for example, that each state would pay the exact same pension (this could apply to other citizenship benefits as well) to all its citizens over 65. In virtue of a dual or triple citizenship, an individual would, in principle, be able to collect two or three pensions, whereas a mono-citizen only one. It depends on how each country sets up the rules for the distribution of its benefits of course – but the mere possibility is evidence that multiple citizenship can remain problematic even under ideal conditions of perfect global equality.

  11. 11

    A few states also tax on grounds of citizenship alone, irrespective of a person’s residence or source of income (e.g. US, Eritrea). In those cases, income could be taxed thrice: by the third state in virtue of the citizenship of the taxpayer generating that income. This might be rationalized on the doctrine of “perpetual allegiance”. In Blackstone’s words, citizenship creates “a debt of gratitude which cannot be forfeited, cancelled, or altered, by any change of time, place and circumstance”. William Blackstone, Commentaries on the Laws of England (Chicago, IL: University of Chicago Press, 1979), 357.

  12. 12

    According to Lord Mansfield “One nation does not take notice of the revenue laws of another”. The “notice” doctrine was iterated in two eighteenth century cases: Holman v. Johnson and Planche v. Fletcher. William J. Kovatch, Jr., “Recognizing foreign tax judgments: an argument for the revocation of the revenue rule”, Houston Journal of International Law, 22, 2 (2000): 265–86.

  13. 13

    There are also multilateral double taxation treaties like the 1996 Convention between Nordic Countries for the avoidance of double taxation with respect to taxes on income and capital, or the 1971 Andean Pact.

  14. 14

    2010 Browsable Full Version of the OECD Model Tax Convention (OECD MTC), I-5, <http://www.keepeek.com/Digital-Asset-Management/oecd/taxation/model-tax-convention-on-income-and-on-capital-2010_9789264175181-en>. In cases of exceptions to that rule, double taxation can occur, and two “methods of relief” are available: exemption and credit (ibid, I-8). Under the exemption method (preferred by European states), income taxed in the state of source shall be exempted from taxation in the state of residence; but the state of residence may take this income into account when calculating the rate at which the taxpayer’s remaining income will be taxed in that state. The credit method (preferred by the US) provides that the tax levied by the state of source shall be credited against the tax levied by the state of residence on that income.

  15. 15

    OECD MTC, I-6-I-7.

  16. 16

    Ibid., I–7.

  17. 17

    One’s contribution to the public welfare is not reduced to taxation. However, I am referring to public goods provided through public expenditures and thus dependent on fiscal contributions.

  18. 18

    Garrett Hardin, “The tragedy of the commons”, Science, 162, 3859 (1968): 1243–8.

  19. 19

    Visa regimes usually favor skilled workers (e.g. medical professionals) to cope with shortfalls of the labor force. Yet these are not the poorest individuals out there. Fewer visas are granted to unskilled workers, although they are the most vulnerable. Giving the poorest also fewer opportunities to migrate diminishes the probability for them to become dual nationals.

  20. 20

    See fn. 9.

  21. 21

    Putting together 2001 information from the World Bank <http://data.worldbank.org/indicator/NY.GDP.PCAP.CD?page=2> and the US Office of Personnel Management <http://www.multiplecitizenship.com/worldsummary.html>, states with the lowest GDP per capita did not recognize dual citizenship. These states are the Democratic Republic of Congo (US$ 92), Afghanistan (US$ 92), Burundi (US$ 127), Malawi (US$ 149), Niger (US$ 172), Liberia (US$ 175), Eritrea (US$ 180), Sierra Leone (US$ 187), and Rwanda (US$ 198).

  22. 22

    Richard Falk, “The making of global citizenship”, in Bart van Steenbergen (ed.), The Condition of Citizenship (London: Sage, 1994), 133–5.

  23. 23

    Craig Calhoun, “The class consciousness of frequent travelers: toward a critique of actually existing cosmopolitanism”, South Atlantic Quarterly, 101 (2002), 872–3.

  24. 24

    Some states (like Canada and the US) have adopted “expatriation taxes” on deemed disposition of property to discourage renunciation of citizenship and relocation abroad for tax avoidance. See the US Internal Revenue Code (IRC) <http://www.law.cornell.edu/uscode/text/26/877>; <http://www.law.cornell.edu/uscode/text/26/877A> and, for Canada <http://www.cra-arc.gc.ca/E/pub/tg/t4056/t4056-e.html#P136_12387>.

  25. 25

    Jagdish N. Bhagwati, “Taxing the brain drain”, Challenge, 19, 3 (July–August 1976): 34–8.

  26. 26

    It is far from absurd talking of poor states as sources of income for dual citizens: even the poorest states have plutocratic elites who can afford to relocate while retaining business interests in their states of origin.

  27. 27

    If S1 is the total tax the individual would have to pay to both states normally, and S2 the total tax after the application of the treaties, then we should tax S1–S2, either as a flat tax (say 5%), or progressively (2–7%).

  28. 28

    For sure an Australian–American dual citizen would be better off than a Malian–Ivorian one. This is however beyond the point I am trying to make, concerning the negative externalities of multiple citizenship. What matters is: (a) that the Malian–Ivorian citizen is still better off than his Ivorian fellow citizens; (b) that his dual citizenship is making his fellow nationals worse off, increasing global inequality (following tax exemptions he gets via double taxation). Thus we should assist these people even when this would involve a reasonable individual cost for the dual citizen who may not be particularly rich.

  29. 29

    If the credit method is preferred – or nothing at all (if the exemption method is preferred). See fn. 14 above for definitions.

  30. 30

    And all other beneficiaries of double taxation agreements, of course.

  31. 31

    Some types of aid, debt relief included, are subject to conditionality arrangements. On the justification of such conditionality, see Christian Barry, “Sovereign debt, human rights, and policy conditionality”, Journal of Political Philosophy, 19, 3 (2011): 282–305.

  32. 32

    Of course helping such states may not only be inefficient but also morally wrong (a dirty hands problem or a compliance objection to helping the bad guys could be the reason).

  33. 33

    For example, studies show that skilled workers remit less than unskilled ones, although earning more than the latter. This is explained by two things: their families back home are not in need of money, or the ties to their families are not so strong as a consequence of their living abroad for a longer time. In fact, the flow of remittances decreases with the time spent by the migrant abroad. See Richard H. Adams, Jr., “The demographic, economic and financial determinants of international remittances in developing countries”, Policy Research Working Paper 4583, World Bank Development Economics Department, available at <http://elibrary.worldbank.org/doi/book/10.1596/1813-9450-4583>, and Riccardo Faini, “Remittances and the brain drain: do more skilled migrants remit more?” World Bank Economic Review, 21 (2007), 177–91, at p. 179. What can the above tell us about multiple citizens? Spending time abroad is of course facilitated by their citizenship. Just as skilled workers, multiple citizens will be unlikely to remit (or remit less) because of their fading ties (as a consequences of spending more time abroad) or because their families are not in urgent need of resources.

  34. 34

    Although remittances might promote economic growth (consumption-induced, not investment-induced, and thus unsustainable), this economic growth will not spread throughout society.

  35. 35

    OECD MTC I-1.

  36. 36
  37. 37

    Martin Marcussen “The Organization for Economic Cooperation and Development as ideational artist and arbitrator”, in Bob Reinalda and Bertjan Verbeek (eds.), Decision Making Within International Organizations (London and New York: Routledge, 2004), 92, my emphasis.

  38. 38

    Ibid.

  39. 39

    Martin Marcussen, “OECD governance through soft law”, in Ulrike Mörth (ed.), Soft Law in Governance and Regulation (Cheltenham: Edward Elgar), 103–28.

  40. 40

    The main goal for developing an international civil service was to insulate the international domain from pervasive national interference, which impedes cooperation. See James O.C Jonah, “Independence and integrity of the international civil service: the role of executive heads and the role of states”, N.Y.U Journal of International Law and Politics, 14, 841 (1981–1982): 841–59.

  41. 41

    Niklas Noaksson and Kerstin Jacobsson, The Production of Ideas and Expert Knowledge in OECD. The OECD Jobs Strategy in Contrast with the EU Employment Strategy, SCORE Reports 7 (2003), <http://eucenter.wisc.edu/OMC/Papers/EES/noakssonJacobsson.pdf>.

  42. 42

    Ibid., 10.

  43. 43

    Peter M. Haas, “Introduction: epistemic communities and international policy coordination”, International Organization, 46, 1 (1992): 1–35.

  44. 44

    Libertarians are, for example, baffled by how the Congress accepted the OECD’s interference with an exclusive right that it has: to tax American citizens. Richard Rahn, “Rise of the global tax collectors: Congress is giving international bureaucrats the power to intrude”, Washington Times, 9th July 2012, <http://www.washingtontimes.com/news/2012/jul/9/rise-of-the-global-tax-collectors/>.

  45. 45

    The OECD and the Millennium Development Goals, <http://www.oecd.org/dac/theoecdandthemillenniumdevelopmentgoals.htm>.

  46. 46

    OECD Strategy on Development, Meeting of the OECD Council at Ministerial Level, Paris, 23–24 May 2012, <http://www.oecd.org/development/50452316.pdf>.

  47. 47

    Diane Gibson and Robert E. Goodin, “The veil of vagueness: a model of institutional design”, in Morten Egeberg and Per Lægreid (eds.), Organizing Political Institutions: Essays in Honour of Johan P. Olsen (Oslo: Scandinavian University Press, 1999), 357–85.

  48. 48

    According to which it’s better to agree on an imperfect general solution now, than to wait for an agreement on a detailed one; details can be worked later on (Gibson and Goodin, op. cit.).

  49. 49

    Gibson and Goodin, op. cit.

  50. 50

    The ban of chlorofluorocarbons followed this model. Progressive small agreements ultimately lead to important reforms and tight international regulation.

  51. 51

    Gibson and Goodin, op. cit.

  52. 52

    Kenneth W. Abbott and Duncan Snidal, “Hard and soft law in international governance”, International Organization, 54, 3 (2000): 421–56. The OECD Council issues a non-binding Recommendation to the member states to conform to the Convention.

  53. 53

    Marcussen, “The Organization for Economic Cooperation and Development as ideational artist and arbitrator”, 91.

  54. 54

    Much to libertarians’ chagrin, for example. See posts on the Cato Institute’s blog such as: Daniel J. Mitchell, “Acting as the typhoid Mary of the global economy, the OECD urges higher taxes in Latin America”, 7th February 2012, <http://www.cato.org/blog/acting-typhoid-mary-global-economy-oecd-urges-higher-taxes-latin-america>.

  55. 55

    James G. March and Johan O. Olsen, “The logic of appropriateness”, in Robert E. Goodin (ed.), Oxford Handbook of Political Science (Oxford: Oxford University Press, 2009), 478–97.

  56. 56

    Gibson and Goodin, op. cit.

Published Online: 2014-3-6
Published in Print: 2014-5-1

©2014 by Walter de Gruyter Berlin / Boston