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Archive for the ‘Legal History’ Category

The History of Life Insurance in America: Producers, Commissions, & Premium Financing

Posted by William Byrnes on September 10, 2010


This article explores the development of life insurance in America through the Civil War.  Many common factors from the old policies and companies are still apparent in the system of Life Insurance underwriting today, including producers, commissions, and premium financing.

Please read my blogticle at Advisor FYI The History of Life Insurance in America: Producers, Commissions, & Premium Financing

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The History of Life Insurance in America: Insurance Companies

Posted by William Byrnes on September 9, 2010


This article continues the exploration of life insurance in America. Here the development of life insurance companies as compared to individuals covering the risk leads to new underwriting standards and objectives.

Please read my blogticle at Advisor FYI The History of Life Insurance in America: Insurance Companies

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The History of Life Insurance in America: New Standards

Posted by William Byrnes on September 8, 2010


This article explores the new development of actuarial analysis to improve life underwriting standards.  The life companies writing insurance in the early period of America experienced significant growth and created the beginnings of the policies we recognize today.

Please read my blogticle at Advisor FYI The History of Life Insurance in America: New Standards

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The History of Life Insurance in America: Development of a New Product

Posted by William Byrnes on September 7, 2010


This article continues the exploration of life insurance in America. In this chapter we follow the development of life insurance itself and its growth and development from a simple concept to complex arrangements.  Learn about how the creation of insurance markets in the Colonies led to the development of life insurance as we know it today. 

Please read my blogticle at Advisor FYI The History of Life Insurance in America: Development of a New Product

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The History of Life Insurance in America: The Beginning

Posted by William Byrnes on September 6, 2010


In a turn from addressing weekly subjects like ‘Alternative Risk Transfer’ and ‘Independent Contractors’,  this week our AdvisorFYI blog will provide the financial advisor with the history of life insurance in America.  AdvisorFX Journal will focus on avoiding transfer taxes with a capitalized entity sale to a defective grantor trust.

This article explores the beginnings of life insurance in America.  The foundations of life insurance is actually found in other areas of risk management at the end of the 18th century.  Follow along as we take a tour though history and examine how insurance evolved to be the way it is today.  Read it as The History of Life Insurance in America: The Beginning

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Death and Taxes – The American Way

Posted by William Byrnes on August 31, 2010


Why is this Topic Important to Financial Professionals? The only certainties in this life are death and taxes. Right?  A brief discussion of the history of taxation on the American people is discussed in relation to the new reporting requirements surrounding the Patient Protection and Affordable Care Act, as discussed earlier this week.

Please read my blogticle at Advisor FYI Death and Taxes – The American Way

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Historical Anecdotes Regarding the European Union Savings Directive

Posted by William Byrnes on November 1, 2009


Historical Anecdotes Regarding the European Union Savings Directive

This week I continue in my historical anecdotes on the subject of cross-border tax (financial) information exchange and cross-border tax collection in the context of the European Union Tax Savings Directive.  In our live course webinars, we will continue our indepth address of the related compliance issues.

2003 Savings Directive Agreement

On 21 January 2003, the EU Finance Ministers meeting within the Council of Ministers (“the ECOFIN Council”) reached a political agreement on a “tax package”, which comprises a Code of Conduct for business taxation, a proposal for a Community Directive on the taxation of interest and royalty payments and a proposal for a Community Directive on the taxation of income from savings (“the Savings Directive”).  Furthermore on 7 March the ECOFIN Council agreed the text of the Savings Directive, although the Directive has not yet been formally adopted.

In its current form, the Savings Directive only applies to interest paid to individuals, and in particular it does not apply to companies.

Article 2

Definition of beneficial owner

1. For the purposes of this Directive, ‘beneficial owner’ means any individual who receives an interest payment or any individual for whom an interest payment is secured…”[1]

The Savings Directive requires an automatic, cross-border, exchange of information between the EU members states and their territories.[2]

EXCHANGE OF INFORMATION

Article 8

Information reporting by the paying agent

1. Where the beneficial owner is resident in a Member State other than that in which the paying agent is established, the minimum amount of information to be reported by the paying agent to the competent authority of its Member State of establishment shall consist of:

(a) the identity and residence of the beneficial owner established in accordance with Article 3;

(b) the name and address of the paying agent;

(c) the account number of the beneficial owner or, where there is none, identification of the debt claim giving rise to the interest;

(d) information concerning the interest payment in accordance with paragraph 2.

Article 9

Automatic exchange of information

1. The competent authority of the Member State of the paying agent shall communicate the information referred to in Article 8 to the competent authority of the Member State of residence of the beneficial owner.

2. The communication of information shall be automatic and shall take place at least once a year, within six months following the end of the tax year of the Member State of the paying agent, for all interest payments made during that year.

Three EU members, the territories and dependencies of the UK, and to date the accession state of Switzerland have been granted a transitional period of time to implement automatic exchange of information.  The transitional period of time is to last until all listed non-EU members, i.e.  Switzerland, Monaco, Andorra, Liechtenstein, and the USA, have entered into automatic exchange of information with the EU member states.  During the transition, these States and jurisdictions must collect a withholding tax of which 75% of that tax must then be forward to the Member State of residence of the beneficial owner of the interest.  

Article 11

Withholding tax

1. During the transitional period referred to in Article 10, where the beneficial owner is resident in a Member State other than that in which the paying agent is established, Belgium, Luxembourg and Austria shall levy a withholding tax at a rate of 15 % during the first three years of the transitional period, 20 % for the subsequent three years and 35 % thereafter.

Each of the twenty-five members (including the accession of the new group of ten members), their relevant territories, and the non-EU members acceding to the Directive is allowed to interpret the Directive for legislative implementation under its national law.

Tax Based Elasticity and Capital Flight

The Savings Directive recognises the issue of capital flight due to the sensitivity of taxpayers to exchange of information.  At paragraph 24 it states, “So long as the United States of America, Switzerland, Andorra, Liechtenstein, Monaco, San Marino and the relevant dependent or associated territories of the Member States do not all apply measures equivalent to, or the same as, those provided for by this Directive, capital flight towards these countries and territories could imperil the attainment of its objectives. Therefore, it is necessary for the Directive to apply from the same date as that on which all these countries and territories apply such measures.calls for.”  This capital flight issue is based upon three historical benchmarks regarding the imposition of withholding tax on interest and the immediate and substantial impact that withholding tax on interest has on capital flight.  The benchmarks are (1) the 1964 US imposition of withholding tax on interest that immediately led to the capital flight of hundreds of million of dollars and the corresponding creation of the London euro-dollar bond market; (2) the 1984 US exemption of withholding tax on portfolio interest that immediately led to the capital flight from Latin America of US$300 billion to US banks; and (3) the 1989 German imposition of withholding tax that led to immediate capital flight to Luxembourg and other jurisdictions with banking secrecy of over a billion DM, so substantial that the tax was repealed but four months after imposition.  Please refer to my earlier blogticles for further information about this topic.

Please contact me with any comments or follow up research materials.

Prof. William Byrnes wbyrnes@tjsl.edu


[1] COUNCIL DIRECTIVE 2003/48/EC of 3 June 2003 on taxation of savings income in the form of interest payments.

[2] The directive does not apply to Bermuda, but Bermuda has entered into agreements that have equivalent measures.

Posted in Compliance, information exchange, Legal History, Taxation | Tagged: , , , , | 1 Comment »

Mutual Assistance in the Recovery of Tax Claims

Posted by William Byrnes on October 26, 2009


Historical anecdotes relating to tax information exchange and cross-border assistance with tax collection (continued)

This week I continue in my historical anecdotes leading back up to the subject of cross-border tax (financial) information exchange and cross-border tax collection.  In this blogticle I turn to the OECD Model Convention for Mutual Administrative Assistance in the Recovery of Tax Claims and the EU Directive on the Mutual Assistance for the Recovery of Claims  In our live webinars in the tax treaty course, Marshall Langer will continue to address these issues indepthly.

1981 OECD Model Convention for Mutual Administrative Assistance in the Recovery of Tax Claims

This 1981 OECD Model provides for both the exchange of information (article 5) and the assistance in recovery (article 6), which state respectively:

EXCHANGE OF INFORMATION

At the request of the applicant State the requested State shall provide any information useful to the applicant State in the recovery of its tax claim and which the requested State has power to obtain for the purpose of recovering its own tax claims.

ASSISTANCE IN RECOVERY

1. At the request of the applicant State the requested State shall recover tax claims of the first-mentioned State in accordance with the laws and administrative practice applying to the recovery of its own tax claims, unless otherwise provided by this Convention.

Procedurally, the documentation must state (1) the authority requesting, (2) name, address and other particulars for identification of the taxpayer, (3) nature and components of the tax claim, and (4) assets of which the Requesting State is aware of from which the claim may be recovered.  The nature of the tax claim must include documentary evidence in the form of the instrumentality establishing that the tax is determined, that it is due, and that it is without further recourse to contest under the Requesting State’s laws.  The applicable Statute of Limitation is of the Requesting State.

The Requested State’s obligation is limited, as under the OECD DTA Model Article 26 and 27, if the request requires the Requested State to go beyond its own or the Requesting State’s capacity to either provide information or take administrative actions pursuant to their respective internal laws.  The Requesting State has a duty to exhaust its own reasonable collection remedies before making the request which procedural requirement may be relied upon by the Requested State.  All requests are also limited by ordre public.

1988 Convention On Mutual Administrative Assistance In Tax Matters

Coming into force April 1, 1995 amongst the signatories Belgium, Denmark, Finland, Iceland, Netherlands, Norway, Poland, Sweden, and the US, this multilateral convention was originally agreed in 1988.  The Convention provides for exchange of information, foreign examination, simultaneous examination, service of documents and assistance in recovery of tax claims.

Tax covered includes income, capital gains, wealth, social security, VAT and sales tax, excise tax, immovable property tax, movable property tax such as automobiles, and any other tax save customs duties.  The tax also includes any penalties and recovery costs.  The tax may have been levied by the State and any of its subdivisions. 

The convention allows the request of information regarding the assessment, collection, recovery and enforcement of tax.  The information may be used for criminal proceedings on a case-by-case basis pursuant to the Requested State agreeing, unless the States have waived the requirement of agreement.

Spontaneous provision of information shall be provided without request when a State with information:

(1) has “grounds for supposing” a loss of tax to another State,

(2) knows that a taxpayer receives a tax reduction in its State that would increase the tax in the other State,

(3) is aware of business dealings between parties located in both States that saves tax,

(4) has grounds for supposing an artificial intro-group transfer of profits, and

(5) that was obtained from the other State has led to further information about taxes in the other State.  

Similar to the OECD Model Conventions above, procedurally the requesting documentation must state (1) the authority requesting and (2) name, address and other particulars for identification of the taxpayer.  For an information request, the document should include in what form the information should be delivered.  For a tax collection assistance request, (1) the tax must be evidenced by documentation in the form of the instrumentality establishing that the tax is determined, that it is due and that it is without further recourse to contest, (2) the nature and components of the tax claim, and (3) assets of which the Requesting State is aware of from which the claim may be recovered. 

This Multilateral Convention’s limitations follow the 1981 and 2003 OECD Model, but further provide for a non-discrimination clause.  The non-discrimination clause limits providing assistance if such assistance would lead to discrimination between a requested State’s national and requesting State’s nationals in the same circumstances.

2001 EU Directive on the Mutual Assistance for the Recovery of Claims relating to Certain Levies, Duties, Taxes and Other Measures

The OECD is not alone in its quest to improve tax information exchanges.  On June 15, 2001 the EU Commission issued a Directive that amended a previous 1976 Directive which substantially changed the impact of that 1976 Directive (on mutual assistance for the recovery of claims resulting from operations forming part of the system of financing the European Agricultural Guidance and Guarantee Fund, and of agricultural levies and customs duties and in respect of value added tax and certain excise duties).

The 2001 Directive provided that Member States enact regulations that provide for the implementation of a number of EU Directives on mutual assistance between Member States of the Community on the provision of information in respect of, and the recovery in the State of, claims made by Other Member States in respect of debts due to the Member State in question from:

  • Import & Export Duties
  • Value Added Tax
  • Excise duties on manufactured tobacco, alcohol and alcoholic beverages and mineral oils
  • Taxes on income and capital
  • Taxes on insurance premiums
  • Interest, administrative penalties and fines, and costs incidental to these claims (with the exclusion of any sanction in respect of which the act or commission giving rise to the sanction if committed in the State would be criminal in nature)
  • Refunds, interventions and other measures forming part of the system of financing the European Agricultural Guidance and Guarantee Fund
  • Levies and other duties provided for under the common organization of the market of the market for the sugar section

In summary, the Directive provides for one Member State’s competent authority at the request of another Member State’s competent authority to disclose to the requester’s competent authority any information in relation to a claim which is required to be disclosed by virtue of the Directive.
On receipt of a request, the Revenue Commissioners can decline a request to provide information in the following circumstances:

– if the information would, in the opinion of the Competent Authority, be liable to prejudice the security of the State or be contrary to public policy;

– if the Competent Authority would not be able to obtain the information requested for the purpose of recovering a similar claim, or

– if the information, in the opinion of the Competent Authority, would be materially detrimental to any commercial, industrial or professional secrets.

Any information provided to a competent authority under the enacting regulations pursuant to the Directive can only be used for the purposes of the recovery of a claim or to facilitate legal proceedings to the recovery of such a claim.

Under the Directive, the collecting Member State is obliged to collect the amount of a claim specified in any request received from a competent authority in another Member State and remit the amount collected to that competent authority.

In the Tax Treaties course, Prof. Marshall Langer will be undertaking an in-depth analysis of these instruments and issues raised above regarding the IRS efforts to collect tax via assistance from foreign states.  For further tax treaty course information, please contact me at William Byrnes (wbyrnes@tjsl.edu).

Posted in Compliance, Financial Crimes, information exchange, Legal History, OECD, Taxation | Tagged: , , , , , , | 1 Comment »

Historical Anecdotes of Tax Information Exchange (continued)

Posted by William Byrnes on October 22, 2009


This week I continue in my historical anecdotes leading back up to the subject of cross-border tax (financial) information exchange and cross-border tax collection.  In this blogticle I turn to the FATF, Edwards and KPMG reports, OECD and Offshore Group of Bank Supervisors.  In our live webinars, Marshall Langer will continue to address these issues indepthly.

1990 – 2001 Financial Action Task Force (FATF)

In 1990, the FATF established forty recommendations as an initiative to combat the misuse of financial systems by persons laundering drug money. In 1996, the FATF revised its forty recommendations to address “evolving money laundering typologies”.  The 1996 forty recommendations developed into the international anti-money laundering standard, having been endorsed by more than 130 countries.  In 2001, because of 9/11, the FATF issued eight terrorist financing special recommendations to combat the funding of terrorist acts and terrorist organizations.  Regarding the micro-economies, the activities of the Offshore Group of Banking Supervisors (OGBS) have lead to agreement with the FATF on ways to evaluate the effectiveness of the money-laundering laws and policies of its members. The difficulty is that only about a half of offshore banking centers are members of OGBS.

See the FATF Methods and Trends page for detailed typologies.

1999 Review Of Financial Regulation In The Crown Dependencies (Edwards Report)

In 1999 and 2000, the UK government in association with the governments of its Crown Dependencies and Overseas Territories assessed the territories financial regulations against international standards and good practice, as well as make recommendations for improvement where any territory fell beneath the standards.  In general the reports concluded that the regulatory regimes were good, given limited resources, but that significant further resources had to be employed.  The primary conclusions of the reports included:

(1) employment of more regulatory resources,

(2) establish an independent regulatory body in each jurisdiction,

(3) maintain records of bearer share ownership,

(4) allow disclosure of beneficial owners’ names to regulators for possible onward transmittal to other jurisdiction’s regulators, and

(5) expand company disclosure with regard to the directors.

2000 KPMG Review Of Financial Regulation in The Caribbean Overseas Territories and Bermuda

In 2000, the UK government in association with the governments of the Caribbean Overseas Territories and Bermuda commissioned the London office of KPMG to assess the territories financial regulations against international standards and good practice, as well as make recommendations for improvement where any territory fell beneath the standards.  A brief example summary for Anguilla and British Virgin Islands (BVI) is below.

Anguilla

KPMG commented that while Anguilla’s offshore regulatory operations are “well-run by skilled officers”, KPMG critiqued that the regulatory operations were not fully in accordance with international standards.  KPMG’s principal recommendations for regulatory refinement were: 

  • Shift responsibility for offshore financial services from the Governor back to the Minister of Finance, specifically the Director of the Financial Services Department.
  • Fight money laundering and other fraud by keeping records of bearer share ownership, allowing, where necessary the disclosure of the owners’ names to Anguilla’s regulators for possible onward transmittal to other jurisdiction’s regulators.
  • Expand the IBC disclosure by including director’s names in the Articles of Incorporation as well as empowering the Registrar of Companies to apply for a Court appointed inspector.
  • Require partnerships to maintain financial records.
  • Enact a new insurance law.
  • Amend the 1994 Fraudulent Dispositions and 1994 Trust Act’s disclosure requirements to prevent insertion in trust documents of clauses hampering legitimate creditors or restricting official investigations.

 The KPMG Report concluded that Anguilla’s ACORN electronic company registration system “enhanced” the regulatory environment.

British Virgin Islands

KPMG commented that while BVI’s offshore regulatory operations are well run, KPMG pointed out that the regulatory operations were not fully in accordance with international standards.  KPMG’s principal recommendations for regulatory refinement were: 

  • Consolidating control of offshore financial services in an independent Financial Services Department (which was renamed the Financial Services Commission), which at the time functioned as the regulatory authority. This required devolving powers of licensing, regulation and supervision from the Governor in Council, composed of the Governor, Attorney General, Chief Minister, and four Ministers.  KPMG urged the FSD to give up its marketing activities.  In 2002 this activity was hived off and reposed in a newly established BVI International Financial Centre.
  • Grant the Registrar of Companies power to initiate an investigation of a company and petition the courts to wind up an IBC.
  • Establish standards, based upon the International Organisation of Securities Commissions, for supervision of mutual funds, drafting a regulatory code affecting all securities and investment ventures, and increasing the Registrar of Mutual Funds’ enforcement powers.
  • Enact enforceable codes of practice for company and trust service providers and increase the supervisor’s regulatory powers.

Influenced by international reports concerning combating money laundering, the BVI passed legislation restricting the anonymity and mobility of bearer shares through requiring them to be held by a licensed financial institution. The anonymity of directors was reduced by requiring information about them to be filed preferably in the Company Registry in the jurisdiction.

2000 Improving Access To Bank Information For Tax Purposes (OECD)

In 2000, the OECD issued Improving Access to Bank Information for Tax Purposes.  The 2000 OECD Report acknowledged that banking secrecy is “widely recognised as playing a legitimate role in protecting the confidentiality of the financial affairs of individuals and legal entities”.  This Report focused on improving exchange of information pursuant to a specific request for information related to a particular taxpayer.  In this regard, it noted that pursuant to its 1998 Report, 32 jurisdictions had already made political commitments to engage in effective exchange of information for criminal tax matters for tax periods starting from 1 January 2004 and for civil tax matters for tax periods starting from 2006.  We have already covered the corresponding TIEAs established in light of this report in a previous blogticle hereunder.   Black/White and Grey lists will be covered in a future blogticle.

2002 Offshore Group Of Banking Supervisors Statement Of Best Practices

In 2002, the OGBS formed a working group to establish a statement of best practices for company and trust service providers. The working group included representatives from the micro-economies of Bahamas, Bermuda, B.V.I., Cayman Islands, Cyprus, Guernsey, Gibraltar, Isle of Man an Jersey and from the OECD members   France, Italy, the Netherlands, the U.K., as well as the relevant NGOs of the FATF, IMF, and OECD.  The terms of reference of the working groups was to “To produce a recommended statement of minimum standards/guidance for Trust and Company Service Providers; and to consider and make recommendations to the Offshore Group of Banking Supervisors for transmission to all relevant international organisations/authorities on how best to ensure that the recommended minimum standards/guidance are adopted as an international standard and implemented on a global basis”.

The Working Group concluded: “There should be proper provision for holding, having access to and sharing of information, including ensuring that – 

       (i)  information  on the ultimate beneficial owner and/or controllers of companies, partnerships and other legal entities, and the trustees, settlor, protector/beneficiaries of trusts is known to the service provider and is properly recorded;

       (ii) any change of client control/ownership is promptly monitored (e.g. in particular where a service provider is administering a corporate vehicle in the form of a “shelf” company or where bearer shares or nominee share holdings are involved); 

       (iii) there is an adequate, effective and appropriate mechanism in place for information to be made available to all the relevant authorities (i.e. law enforcement authorities, regulatory bodies, FIU’s); 

       (iv) there should be no barrier to the appropriate flow of information to the authorities referred to in 3 (iii) above; 

       (v) KYC and transactions information  regarding the clients of the Service Provider is maintained in the jurisdiction in which the Service Provider is located; 

       (vi) there should be no legal or administrative barrier to the flow of information/documentation necessary for the recipient of business from a Service Provider who is an acceptable introducer to satisfy itself that adequate customer due diligence has been undertaken in accordance with the arrangements set out in the Basel Customer Due Diligence paper.

Please contact me with any comments or follow up research materials.  Prof. William Byrnes wbyrnes@tjsl.edu

Posted in information exchange, Legal History, OECD | Tagged: , , , , , , | 2 Comments »

Caribbean Historical Anecdotes of its Financial Centers

Posted by William Byrnes on September 26, 2009


I continue in my historical anecdotes leading back up to the subject of cross-border tax (financial) information exchange and cross-border tax collection.  This week, we start with the United Nations Declaration Regarding Non-Self Governing Territories, which is in the UN Charter, then turn the a few UK Reports about her territories, and the UN and OECS Human Development Indices.

Marshall Langer will be addressing these much more in-depthly during his lectures in October and November.

Chapter XI

Declaration Regarding Non-Self-Governing Territories

Article 73 

Members of the United Nations which have or assume responsibilities for the administration of territories whose peoples have not yet attained a full measure of self-government recognize the principle that the interests of the inhabitants of these territories are paramount, and accept as a sacred trust the obligation to promote to the utmost, within the system of international peace and security established by the present Charter, the well-being of the inhabitants of these territories, and, to this end:

     a. to ensure, with due respect for the culture of the peoples concerned, their political, economic, social, and educational advancement, their just treatment, and their protection against abuses;

     b. to develop self-government, to take due account of the political aspirations of the peoples, and to assist them in the progressive development of their free political institutions, according to the particular circumstances of each territory and its peoples and their varying stages of advancement;

     c. to further international peace and security;

      d. to promote constructive measures of development, to encourage research, and to co-operate with one another and, when and where appropriate, with specialized international bodies with a view to the practical achievement of the social, economic, and scientific purposes set forth in this Article; and

     e. to transmit regularly to the Secretary- General for information purposes, subject to such limitation as security and constitutional considerations may require, statistical and other information of a technical nature relating to economic, social, and educational conditions in the territories for which they are respectively responsible other than those territories to which Chapters XII and XIII apply.

 Article 74 

Members of the United Nations also agree that their policy in respect of the territories to which this Chapter applies, no less than in respect of their metropolitan areas, must be based on the general principle of good-neighbourliness, due account being taken of the interests and well-being of the rest of the world, in social, economic, and commercial matters.

 1999 Partnership For Progress And Prosperity: Britain And Her Overseas Territories 

In 1999, Robin Cook presented to Parliament a White Paper Partnership for Progress and Prosperity: Britain and the Overseas Territories (the “White Paper”).  The White Paper’s primary conclusion was that the Overseas Territories had successfully diversified their economies through developing global market positions in the offshore financial services industry but that the Overseas Territories required reputation maintenance through regulatory enhancement in order to maintain their global market position within this industry.  The White Paper noted that the Caribbean Overseas Territories were potentially susceptible to money laundering and fraud because of their proximity to drug producing and consuming countries, inadequate regulation and strict confidentiality rules. 

 Also, the White Paper proposed that Britain grant full citizenship, i.e. with right of abode, to the Overseas Territories citizens.  But this right of citizenship was not in exchange for implementing the more extensive regulatory regimes in alignment with the OECD Report.  In 2002, the UK enacted the British Overseas Territories Bill[1] in order to fulfil the Government’s commitment, announced in the White Paper, to extend full British citizenship to those who were British Dependent Territories citizens. 

Free Movement of Persons 

Note that the nationals of the US, Netherlands, French, Portugal and Spanish territories have full parent State nationality with rights of abode.  The non-colony status jurisdictions charged further discriminatory treatment, that they did not have the same rights of free movement and abode as the colonial nationals. 

 In its Report, the OECD members targeted trade in capital and services with the stick of sanctions, but did not offer a carrot, much less a lifeline, to the independent micro-economies.  Some Island states’ pundits allege that the OECD drive against tax competition is a geo-political move for re-(economic) colonization.  These commentators propose that the inevitable declining human development impact of the OECD’s drive against tax competition will be a brain drain to the OECD countries via legal and illegal immigration.     

The United Nations Human Development Report for 2009, to be released within a few weeks in October, will address the international issue of the movement of persons. 

The OECS Human Development Report 2002 

Because the UN Human Development Annual Report does not include all the Caribbean Islands, such as the non self-governing former colonies, the OECS Human Development Report is critical for the quantitative measuring and qualitative analysis of social and economic indicators for Eastern Caribbean territories, and to then be able to contrast these to other UN members captured by the UN Report.

It should be noted that the OECS Report noted that the Caribbean financial centers held approximately US$2 trillion in assets from international financial center activities.  The OECS stated that these international financial services contributed foreign exchange to its members’ economies, revenue to its governments, and that the sector created employment while developing human resources and contributing to the growth of technology.  The OECS concluded that the most important impact to the economies from international financial services was economic diversification.[2] 

1990 Gallagher Report 

In 1989, HMG commissioned the Gallagher Report (Survey of Offshore Finance Sectors of the Caribbean Dependent Territories) with the intent to review whether its territories’ offshore financial services sectors regulations met international standards.  Overall, the Gallagher Report presented proposals to extend the range and scope of offshore financial services in the COTs through the introduction of new measures designed to improve the regulatory framework especially with relation to banks, trusts, insurance and company management.  The Gallagher Report made specific recommendations to several jurisdictions.

By example, with regard to the British Virgin Islands, the Gallagher Report presented proposals to extend the range and scope of offshore financial services through the introduction of new measures designed to improve the regulatory framework as it relates especially to banks, trusts, insurance and company management.  Following the Gallagher Report’s proposals, the BVI government revised in 1990 the 1984 IBC Act, enacted a modern Banks & Trust Companies Act to replace the 1972 legislation; and passed the Company Management Act requiring companies providing registration and managerial services to be licensed.  In 1993, BVI enacted a Trustee (Amendment) Act in order to modernise the 1961 Trust Ordinance and the following year passed the 1994 Insurance Act.

With regard to Anguilla, Gallagher’s Report criticised the lack of up-to-date legislation, inadequate supervision of its financial sectors, and a confidentiality statute that encouraged “the type of business best avoided”.  Gallagher’s Report recommended the enactment of three draft laws, as well as the repeal of the Confidential Relationships Ordinance 1981.[3]  Following Gallagher’s Report, in 1992 the British Government aid agency engaged the consultancy firm of Mokoro to advise the Government of Anguilla on its economic strategy for the 21st century.  The Mokoro Report concluded that the development of additional economic activity in Anguilla principally required the development of the financial sector.  The 1993 Report stated that the financial sector’s socio-economic impact would be: 

  • Substantial additional government revenue.
  • Sizeable increase in the contribution of professional services to the GDP (Gross Domestic Product).
  • Range of new employment opportunities for young people.
  • Increase in professional trading.
  • Inward migration of Anguillans living overseas.
  • Increase in the number of visitors and a decrease in their seasonability.

As a result of the Report, Anguilla received a three-year 10.5 million English pound grant from the Minister for Overseas Development to research and to develop a Country Policy Plan.  In 1994, Anguilla updated its international financial center through enacting a package of twelve statutes.

Please contact me for further information or research that you would like to share on these topics at http://www.llmprogram.org.


[1] Bill 40 of 2001-2002 was enacted to fulfil the Government’s commitment, announced in March 1999 in its White Paper, to extend full British citizenship to those who were British Dependent Territories citizens.

[2] 2002 OECS Report p.23.

[3] The Confidential Relationships Ordinance, 1981, made it illegal to give other Governments information, including information regarding tax offences.

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Tax Information Exchange (TIEA): an Opportunity for Latin America and Switzerland to Clawback the Capital Flight to America?

Posted by William Byrnes on September 3, 2009


Tax Information Exchange (TIEA): an Opportunity for Latin American to Clawback Its Capital Flight Back from America?  Perhaps even Switzerland?

This blogticle is a short note regarding the potential risk management exposure of US financial institutions’ exposure to a UBS style strategy being employed by foreign revenue departments, such as that of Brazil, and Switzerland.  Of course, such foreign government strategies can only be productive if US financial institutions are the recipient of substantial funds that are unreported by foreign nationals to their respective national revenue departments and national reserve banks, constituting tax and currency/exchange control violations in many foreign countries. 

The important issue of Cross Border Assistance with Tax Collection takes on more relevance when foreign governments begin seeking such assistance from the USA Treasury in collecting and levying against the hundred thousand plus properties purchased with unreported funds, and whose asset value may not have been declared to foreign tax authorities where such reporting is required in either the past, or the current, tax years.  

In the 15 week online International Tax courses starting September 14, we will be undertaking an in-depth analysis of the topics covered in this blog during the 10 online interactive webinars each week.

Tax Elasticity Of Deposits

In the 2002 article International Tax Co-operation and Capital Mobility, prepared for an ECLAC report, from analysing data from the Bank for International Settlements (“BIS”) on international bank deposits, Valpy Fitzgerald found “that non-bank depositors are very sensitive to domestic wealth taxes and interest reporting, as well as to interest rates, which implies that tax evasion is a determinant of such deposits….”[1]  Non-bank depositors are persons that instead invest in alternative international portfolios and financial instruments. 

Estimating How Much Latin American Tax Evasion are US Banks Involved With?

Within two weeks I will post a short blogticle that I am preparing regarding an estimated low figure of $300B capital outflow that has begun / will occur from the USA pursuant to its signing of a TIEA with Brazil.  Some South Florida real estate moguls have speculated that this TIEA has played a substantial role in the withdrawal of Brazilian interest in its real estate market, which has partly led to the sudden crash in purchases of newly contrasted condominium projects.  

Three historical benchmarks regarding the imposition of withholding tax on interest illustrate the immediate and substantial correlation that an increase in tax on interest has on capital flight.  The benchmarks are (1) the 1964 US imposition of withholding tax on interest that immediately led to the creation of the London Euro-dollar market;[2] (2) the 1984 US exemption of withholding tax on portfolio interest that immediately led to the capital flight from Latin America of US$300 billion to US banks;[3] and (3) the 1989 German imposition of withholding tax that led to immediate capital flight to Luxembourg and other jurisdictions with banking secrecy[4].  The effect was so substantial that the tax was repealed only four months after imposition.

The Establishment of London as an International Financial Center

The 1999 IMF Report on Offshore Banking concluded that the US experienced immediate and significant capital outflows in 1964 and 1965 resulting from the imposition of a withholding tax on interest.  Literature identifies the establishment of London as a global financial centre as a result of the capital flight from the US because of its imposition of Interest Equalisation Tax (IET) of 1964.[5]  The take off of the embryonic London eurodollar market resulted from the imposition of the IET.[6]  IET made it unattractive for foreign firms to issue bonds in the US.  Syndicated bonds issued outside the US rose from US$135 million in 1963 to US$696 million in 1964.[7]    In 1964-65, the imposition of withholding tax in Germany, France, and The Netherlands, created the euromark, eurofranc and euroguilder markets respectively.[8]  

The Establishment of Miami as an International Financial Center

Conversely, when in 1984 the US enacted an exemption for portfolio interest from withholding tax, Latin America experienced a capital flight of $300 billion to the US.[9]  A substantial portion of these funds were derived from Brazil.  In fact, some pundits have suggested that Miami as a financial center resulted not from the billions generated from the laundering of drug proceeds which had a tendency to flow outward, but from the hundreds of billions generated from Latin inward capital, nearly all unreported to the governments of origination.

The Establishment of Luxembourg as an International Financial Center

In January of 1989, West Germany imposed a 10% withholding tax on savings and investments.  In April it was repealed, effective July 1st, because the immediate cost to German Banks had already reached DM1.1 billion.[10]  The capital flight was so substantial that it caused a decrease in the value of the Deutsche mark, thereby increasing inflation and forcing up interest rates.  According to the Financial Times, uncertainty about application of the tax, coupled with the stock crash in 1987, had caused a number of foreign investment houses to slow down or postpone their investment plans in Germany.  A substantial amount of capital went to Luxembourg, as well as Switzerland and Lichtenstein.

Switzerland’s Fisc May Come Out Ahead

Perhaps ironically given the nature of the UBS situation currently unfolding, a Trade Based Money Laundering study by three prominent economists and AML experts focused also on measuring tax evasion uncovered that overvalued Swiss imports and undervalued Swiss exports resulted in capital outflows from Switzerland to the United States in the amount of $31 billion within a five year time span of 1995-2000.[11]  That is, pursuant to this transfer pricing study, the Swiss federal and cantonal revenue authorities are a substantial loser to capital flight to the USA.  The comparable impact of the lost tax revenue to the much smaller nation of Switzerland upon this transfer pricing tax avoidance (and perhaps trade-based money laundering) may be significantly greater than that of the USA from its lost revenue on UBS account holders.  Certainly, both competent authorities will have plenty of work on their hands addressing the vast amount of information that needs to be exchanged to stop the bleeding from both countries’ fiscs.

Let me know if you are interested in further developments or analysis in this area.  Prof. William Byrnes (www.llmprogram.org)


[1] International Tax Cooperation and Capital Mobility, Valpy Fitzgerald, 77 CEPAL Review 67 (August 2002) p.72.

[2] See Charles Batchelor, European Issues Go from Strength to Strength: It began with Autostrade’s International Bond in 1963, The Financial Times (September 25, 2003) p.33; An E.U. Withholding Tax?

[3] Globalisation, Tax Competition, and the Fiscal Crisis of the Welfare State, Reuven Avi-Yonah, 113 HVLR 1573, 1631 (May 2000).

[4] Abolition of Withholding Tax Agreed in Bonn Five-Month-Old Interest Withholding To Be Repealed, 89 TNI 19-17.

[5] See Charles Batchelor, European Issues Go from Strength to Strength: It began with Autostrade’s International Bond in 1963, The Financial Times (September 25, 2003) p.33; An E.U. Withholding Tax?

[6] 1999 IMF Offshore Banking Report  p.16.

[7] 1999 IMF Offshore Banking Report  p.16-17.

[8] 1999 IMF Offshore Banking Report  p.17.

[9] Globalisation, Tax Competition, and the Fiscal Crisis of the Welfare State, Reuven Avi-Yonah, 113 HVLR 1573, 1631 (May 2000).

[10] Abolition of Withholding Tax Agreed in Bonn Five-Month-Old Interest Withholding To Be Repealed, 89 TNI 19-17.

[11] Maria E. de Boyrie, Simon J. Pak and John S. Zdanowicz The Impact Of Switzerland’s Money Laundering Law On Capital Flows Through Abnormal Pricing In International Trade Applied 15 Financial Economics 217–230 (Rutledge 2005).

Posted in Compliance, Financial Crimes, information exchange, Legal History, OECD, Taxation, Uncategorized | Tagged: , , , , , , | 1 Comment »

Early American Distrust and Gradual Acceptance of Charitable Institutions

Posted by William Byrnes on August 9, 2009


This week I again turn my blogticle to expiscate the eristic historical context of the tax advantaged treatment enjoyed by charitable institutions.  In the previous blogticle on the Common Law history of charity law, we examined English history from the period 1536-1739.  Now I turn my attention to the period of the United States’ colonial period until 1860. 

Colonial Period 

The Colonies inherited the English common law and its history discussed in my previous blogticle on this subject, but without the 1736 Mortmain Act.  In addition to the common law, the colonialists also inherited the English distrust of perpetual land restriction, the power exercised by the Catholic Church because of its substantial land holdings, and the distrust of the Anglican Church because it was an organ of the English government.[1] 

During the early period after the War of Independence, some states legislatures and courts exercised this inherited distrust by voiding the establishment of charitable trusts, denying the grant of charters for charitable corporations, and constricting transfers to both.[2]  Seven states, being Maryland, Michigan, Minnesota, New York, Virginia, West Virginia, and Wisconsin, voided charitable trusts.[3]  In contrast, many states, in their constitutions and well as by statute, borrowed from Elizabeth I’s 1597 statute to protect incorporation for charitable purposes.[4]  Charitable incorporations included churches, charities, educational institutions, library companies, and fire companies.[5]  The policy behind the charitable statutes included promotion of freedom of religion, easing legislative workloads, and easing of incorporation procedures.[6] 

But not all states had charitable incorporation statutes.  Some states, such as Virginia, denied granting charters to charitable corporations for several years.[7]  Of the states with charitable incorporation statutes, all contained restrictions regarding maximum income, expenditure for charitable purpose, as well as reporting rules to guard against the accumulation of property.[8]

Post Colonial: Universal Property Taxes Crystallize the Tax Exemption Debate

By the middle of the century, the Supreme Court of the United States, by examination of the Statute of Charitable Uses and common law applicable in the U.S., derived a broad definition for charity.[9]  The Court upheld contributions to “charitable” institutions based upon the factors of the institutions’ public purpose and freedom from private gain.  In 1860, upholding a devise and bequest for establishing two education institutions, the Court stated

         “a charity is a gift to a general public use, which extends to the rich, as well as to the poor” and that “[a]ll property held for public purposes is held as a charitable use, in the legal sense of the term charity.”[10] 

In 1877, upholding a devise to an orphan’s hospital, the Court presented that:

        “A charitable use, where neither law nor public policy forbids, may be applied to almost any thing that tends to promote the well-doing and well-being of social man . . . . ‘Whatever is given for the love of God, or the love of your neighbor, in the catholic and universal sense, — given from these motives and to these ends, free from the stain or taint of every consideration that is personal, private, or selfish.’ ”[11]

Until the mid 1850s, many state statutes allowed incorporation for charitable purposes but did not necessarily exempt these corporations from state tax.[12]  Before the 1830s, the states did not have a universal tax system and thus, while tax exemption expressed government favoritism, it was not practically significant.[13]  However, the 1830s enactment of universal property tax regimes brought the issue of exemption to the fore.[14]  During the remainder of the century, several states enacted limited tax exemption for churches and educational institutions.[15]  By example, many states exempted from property tax the land upon which a church stood, but taxed the church’s income, including ministerial, rental, and endowment.[16]  The Massachusetts statutory tax exemption for religious, educational, and charitable organizations, applying to Harvard University, did not include an exemption for real estate or businesses held for purposes of revenue.[17]

Tax Policy Debate

Supporters and critics of exemption debated three primary policies concerning the granting of limited tax exemption for churches.  From a public policy perspective, the general community felt that the church served as the communal epicenter.[18]  Church supporters also put forward that churches provide the benefits of encouragement of personal morality, public spiritedness, and democratic values.[19]  Critics countered that from an equity standpoint, exemption inequitably expressed state favoritism for religious groups over non-religious property owners.[20]  Also, exemption critic James Madison warned that the accumulation of exempt Church property would eventually result in religion influencing the political process.[21]

Supporters provided a tax policy justification that the limited exemptions applied only to the charitable institution’s property that produced insignificant income, such as cemeteries, the church, the school, thus the exemption’s revenue effect would be slight.[22]  Critics responded that whereas both exempt and non-exempt persons used the state’s services, only non-exempt persons paid for them with resultant increased burdens upon them.[23]  Supporters retorted to this argument of an inequitable burden with a government benefit argument that the churches provided public services, such as orphanages and soup kitchens, not performed by non-exempt payers.[24]

From an economic policy justification, supporters forwarded that because many of these exempt institutions did not produce much revenue, the tax could not be collected, leading to unpopular land seizure.[25]  Critics responded that the exemption primarily benefited wealthy churches with valuable property and significant income rather than the humble ones with low land value and de minimis income.[26]  Again employing the subsidy argument, supporters argued that all church income, regardless of church size, went to provide charitable services, such as religious activity and caring for the poor.[27]

Prof William Byrenes (www.llmprogram.org)


[1]After the revolution, the colonialists felt the same distrust for the Church of England as that for Rome.  See James J. Fishman, The Development of Nonprofit Corporation Law and an Agenda for Reform, 34 Emory L.J. 617, 624 (1985) (commenting on the ongoing anti-charity-anti-clerical atmosphere of the post-colonial period); Note, The Enforcement of Charitable Trusts in America: A History of Evolving Social Attitudes, 54 Va. L. Rev. 436, 443-44 (1968) (same).  This distrust of the Catholic Church reached into the late nineteenth century, creating opponents of tax exemption for religious institutions.  See Stephen Diamond, “Of Budgets and Benevolence: Philanthropic Tax Exemptions in Nineteenth Century America”, 17 (Oct., 1991) (Address at the N.Y.U. School of Law, Program on Philanthropy, Conference on Rationales for Federal Income Tax Exemption, Oct. 1991), http://www.law.nyu.edu/ncpl/abtframe.html (last visited Jul. 9, 2003); see also Erika King, Tax Exemptions and the Establishment Clause, 49 Syracuse. L. Rev. 971, 1037 n.8 (1999) (quoting James Madison’s statement that “[t]here is an evil which ought to be guarded [against] in the indefinite accumulation of property from the capacity of holding it in perpetuity by ecclesiastical corporations.”)

[2] See Evelyn Brody, Charitable Endowments and the Democratization of Dynasty, 39 Ariz. L. Rev. 873, 906-10 (1997); Fishman, supra at 623-25; John Witte, Jr., Tax Exemption of Church Property: Historical Anomaly or Valid Constitutional Practice?, 64 S. Cal. L. Rev. 363, 384-85 (1991).

[3] 4 Austin Wakeman Scott, The Law of Trusts § 348.3 (3d ed. 1967).  Some states, such as Virginia in 1792, repealed the pre-independence English statutes, including the Statute of Charitable Uses.  The lack of the Statute of Charitable Uses consequence, as argued by the States and agreed by the Supreme Court in Trustees of Philadelphia Baptist Ass’n v. Hart’s Executors, 17 U.S. 1, 30-31 (1819), was that charitable trusts without stated beneficiaries were void because of the lack of common law precedent for establishing a trust without a beneficiary.  Nina J. Crimm, An Explanation of the Federal Income Tax Exemption for Charitable Organizations: A Theory of Risk Compensation, 50 Fla. L. Rev. 419, 427 (1998) (noting that this decision and ones following it led to the establishment of charitable corporations instead of trusts to receive donations).

[4] Fishman, supra at 623 (noting that Massachusetts, Pennsylvania, Vermont, and New Hampshire constitutionally protected charities). 

[5] Fishman, supra at 631-32; see also Christine Roemhildt Moore, Comment, Religious Tax Exemption and The “Charitable Scrutiny” Test, 15 Reg. U. L. Rev. 295, 299 (2002-2003) (noting that most new states had an established state church, which took over the former role of the Church of England as an organ of the state, and that, after disestablishment from the state, tax exemption continued as a matter of course).

[6] See Fishman, supra at 632-33.

[7] See Witte, supra at 385; Brody, supra at 906-07; Nina J. Crimm, A Case Study of a Private Foundation’s Governance and Self-Interested Fiduciaries Calls for Further Regulation, 50 Emory L.J. 1093, 1099 (2001); Fishman, at 631 n.70 (noting that corporate charters were granted to only 355 businesses during the eighteenth century).

[8] See Fishman, supra at 634; see also Brody, at 909 (noting that a few state statutes still constrict the ability to devise to, or the holdings of, charitable corporations).

[9] See Lars G. Gustafsson, The Definition of “Charitable” for Federal Income Tax Purposes: Defrocking the Old and Suggesting Some New Fundamental Assumptions, 33 Hous. L. Rev. 587, 609-610 (1996).

[10] Perin v. Carey, 65 U.S. 465, 494, 506 (1860).

[11] See Gustaffson, supra, at 610.

[12] For a historical summary of nineteenth century American policy regarding the ad hoc to infrequent granting of tax exemption for charitable institutions, see Diamond, supra at 12. For a description of colonial church exemptions and taxation of certain income producing properties, see Witte, supra at 372-74.

[13] See Diamond, supra at 8-9.

[14] See Id. at page 10; Witte., supra at 385-86.

[15] See Diamond, supra at 12.

[16] Id

[17] Chas. W. Eliot, The Exemption from Taxation of Church Property, and the Property of Educational, Literary and Charitable Institutions, Appendix to the Report of The Commissioners Appointed to Inquire into the Expediency of Revising or Amending the Laws Related to Taxation and Exemption Therefrom 367, 386 (1875) (stating that Harvard paid tax on its various business holdings in Boston, save one specifically exempted from tax in its Charter).

[18] See Witte, supra at 374-75.  The underpinnings of this public policy to exempt the church drew from the historical exemption justified by two causes.  Most states had an official church established by government as an organ of the state government, continuing the English tradition.  Id.   Second, the Churches acted as the community services center of most townships, thus providing the local government services that otherwise it should undertake.  See id. at 375.  This second justification foreshadowed the government benefit analysis employed by Dr. Eliot.  See infra Part VI(C).

[19] John W. Whitehead, Church/State Symposium Tax Exemption and Churches: A Historical And Constitutional Analysis, 22 Cumb. L. Rev. 521, 539-40 (1991-1992).

[20] Witte, supra at 381.

[21] Id. at 382.  This criticism of exemption, reiterated by President Ulysses Grant, most influenced the Walsh Commission’s perspective on industrialists’ foundations as well as that of the Reece Commission.  See infra Parts VIII, IX(D).

[22] See Diamond, supra at 14.  In 1873, James Parton countered this justification, alleging examples of such charitable institutions producing extraordinary income.  See infra Part VI.

[23] See Witte, supra at 381.

[24] Whitehead, supra at 540.  Dr. Eliot further enunciated the government benefit, also known as the tax subsidy, argument that the state ought to grant exemption for the charitable provision of public service.

[25] See Diamond, supra at 14.  In 1873, James Parton proffered a liberal argument of land distribution efficiency that could only be achieved through such unproductive property being seized and auctioned back into commerce.

[26] See Witte, supra at 382.

[27] See Whitehead, supra at 539-40.

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England’s Historical Legislative Treatment of Charitable Institutions

Posted by William Byrnes on August 7, 2009


When asked to comment upon the various versions of health care reform bills that will soon be voted upon by Congress, I recalled quote by Russell Long, then Chair of the Finance Committee[1]:

         “When the Finance Committee began public hearings on the Tax Reform Act of 1969 I referred to the bill as ‘368 pages of bewildering complexity.’  It is now 585 pages  . . . .”

 This week I turn my blogticle to expiscate the eristic historical context of the tax advantaged treatment enjoyed by charitable institutions.  Why charitable institutions?  In the United States, charitable institutions are known as tax exempt ‘non-profits’ though some are profitable in the accounting sense.  By example, many hospitals, though profitable and even lucripetous, are granted by the federal and state revenue authorities tax exempt status as charities.  However, Congress has pretermitted any issues, and thus leverage, associated with the tax exempt status of health care providers in the various health care reform bills.

 England’s Historical Legislative Treatment of Charitable Institutions

In order to finance his reign, Henry VIII seized the Catholic Church’s and universities’ lands and with parliament enacted The Statute of Uses in 1536 and The Chantries Act in 1545.[2]  The Statute of Uses, in enacting the rule against perpetuities, terminated the situation that most English land, in order to escape feudal dues, was held from family generation to generation in dynastical, perpetual trusts owned by the Church.[3]  The Chantries Act provided for escheat of colleges’ possessions.[4]  The government established as an organ of itself with tax-exempt status by its sovereign nature the Church of England, replacing the Catholic Church.[5]

See-sawing in favor of charitable institutions, under Elizabeth I in 1597, parliament enacted a charitable corporation act that exempted specified institutions from government charges and the requirement of government consent when formed for the following purposes:

        to erect, found, and establish, one or more hospitals, maison de Dieu, abiding places, or houses of correction, . . . as well as for the finding, sustentation, and relief of the maimed, poor, needy or impotent people, as to set the poor to work, to have continuance forever, and from time to time place therein such head and members, and such number of poor as to him, his heirs and assigns should seem convenient.[6]

Furthering Elizabeth I’s charitable incorporation statute by suppressing the application of Henry’s Statute of Uses and its rule against perpetuities, four years later Parliament enacted the Statute of Charitable Uses, 1601, allowing real property transfers to perpetual charitable trusts.[7]  The Statute provided for exemption from the Statute of Uses for a transfer to a charity that provided:

        relief of aged, impotent and poor people, . . . maintenance of sick and maimed soldiers, schools of learning, free schools, and scholars in universities, . . . repair of bridges, ports, havens, causeways, churches, sea-banks and highways, . . . education and preferment of orphans, . . . relief, stock or maintenance of houses of correction, . . . marriages of poor maids, . . . aid and help of young tradesman, handicraftsman and persons decayed, relief of prisoners, . . . aid of any poor inhabitants.[8]

However, during the late sixteenth century and seventeenth century, the Crown often piecemeal interfered with religious charitable trusts, either voiding the trust or employing cy pres to divert the trust assets to the Crown’s favored religion.[9]  Charitable institutions once again falling out of the Crown’s blanket favor, two hundred years after and in the same vein as the Statute of Uses, Parliament revived a specific anti-charity statute, The Mortmain Act, in 1736.[10]  The Mortmain Act of 1736 invalidated real property transfers to any charity mortis causa as well as inter vivos transfers made one year or less before death.[11]  Though this statute limiting the funding of charities remained English law until The Charities Act, 1960, Parliament modified it in 1891 to allow for exceptions for devised property not to be used for investment, thus endowment, purposes.[12]

Prof. William Byrnes (http://www.llmprogram.org


[1] 115 Cong. Rec. S14,944 (1969) (statement of The Hon. Russell B. Long), reprinted in 1969 U.S.C.C.A.N. 2391, 2490.

[2] Evelyn Brody, Charitable Endowments and the Democratization of Dynasty, 39 Ariz. L. Rev. 873, 901, 909-10, 911-13 (1997) Henry VIII was by no means the first king to dissolve monasteries. 

[3] Brody at 901.

[4] Brody at 912-13.

[5] See Christine Roemhildt Moore, Comment, Religious Tax Exemption and The “Charitable Scrutiny” Test, 15 Reg. U. L. Rev. 295, 298-99 (2002-2003).

[6] See James J. Fishman, The Development of Nonprofit Corporation Law and an Agenda for Reform, 34 Emory L.J. 617, n.65 (1985).

[7] Lars G. Gustafsson, The Definition of “Charitable” for Federal Income Tax Purposes: Defrocking the Old and Suggesting Some New Fundamental Assumptions, 33 Hous. L. Rev. 587, 605 (1996) (citing An Act to redress the Mis-employment of Lands, Goods, and Stocks of Money heretofore given to Charitable Uses, 1601, 43 Eliz., ch. 4 (Eng.)).

[8] Oliver A. Houck, With Charity For All, 93 Yale L.J. 1415, 1422 (1984) (quoting Charitable Uses Act, 1601, 43 Eliz., ch. 4).

[9] See Norman Alvey, From Charity to Oxfam: A Short History of Charity Legislation 10-11 (1995).

[10] See Gustafsson at 606, 649 n.62 (noting that Mortmain statutes had previously been enacted in England but the Statute of Charitable Uses substantively repealed them); see also Brody, at 903 (noting that Parliament’s sentiments for legislating the statute are uncertain, but may have been due to anticlerical feelings).

[11] Alvey at 11.

[12] Brody at 905 n.147 (noting that the statute was modified in 1891 to allow either the court or the Charity Commissioners to grant exception for a mortis causa real property transfer to charity as long as the property was to be used for charitable activity rather than for investment purposes).

Posted in Legal History, Tax Exempt Orgs, Taxation | Tagged: , , , , , | 1 Comment »

 
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