extraterritoriality of u.s. economic legislation & u.s. multinationals. --- corporate corruption...

Extraterritoriality of U.S. Economic Legislation & U.S. Multinationals.

--- Corporate Corruption and Governance (Export Controls & Taxation) --

Stuart S. Malawer, J.D., Ph.D.

(2012)

Extraterritoriality of U.S. Legislation (2012) 1

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U.S. EU

Transnational Transactions & Multi-jurisdictional World.

– Private Transactions & Transnational Regulation -

Third Country - ISSUE -

Global transactions occur in many countries, but each country has own rules, e.g., antitrust, export controls, sanctions , taxation , corruption ….. Not much global regulation.


Basic Problems Concerning Extraterritoriality

• Actors are foreign and the transactions are outside of the U.S.

• Most important, the actions may be lawful under foreign law.

• Raises the issue of “judicial imperialism” as well as the “clash of competing national laws” in a “horizontal legal system.”


U.S. EU

When does U.S. law apply?

“Clash of competing legislation” as to foreign actors and foreign actions and foreign legality.

• Potential Regulation by Two Governments – Often unlawful under U.S. Law & lawful under foreign Law.

• Presumption of Territoriality under U.S. law unless Congress intends otherwise – need domestic impact of foreign act in U.S.

Extraterritoriality: Basic Dilemma.


Global Antitrust (2011) 5

Extraterritoriality: “Clash of Competing Antitrust Laws ”

U.S. EU

European antitrust rules U.S. antitrust rules

Applies to mergers, price fixing, abuse of dominant position.

EU Regulation

Both U.S. and foreign antitrust laws apply to same transactions. Often applied to activities outside of their borders as long as there is an impact or effect is within their jurisiictions.

Corporation

(Separate Entity / Depends on Incorporation)

[Provides limited liability of shareholders -- Liability only on the corporation.

Fosters capital formation.]

Parent Corporation

(As a shareholder limited liability -- no liability for subsidiary)

Corporate Structure & Corporate Groups.

Shareholders(Equity Owners)

Subsidiary Corporation

(Parent is shareholder / control of corporation)

Note – In a General Partnership all partners are individually liable for partnership debts -- no limited liability. Different from corporate organization.


Foreign Branch & Foreign Subsidiary: Extraterritorial Application of U.S. Law.

U.S. Parent Corporation

U.S. Corporation

Foreign Subsidiary

Foreign Branch

Equity Ownership.

Separate corporate entity. Incorporated in foreign country.

Part of corporation. No separate ownership or entity.

U.S. Law.

Yes. Maybe.

U.S. Law.


Antiboycott & Corrupt Practices: Extraterritorial Application – Foreign Subsidiaries.

U.S. Parent Corp. U.S. Parent

Corp.

Foreign Subsidiary

Foreign

Subsidiary (Branch) ?

Antiboycott Law Corrupt Practices Law

U.S. Law.

Yes Maybe

• Applicable to branch.


U.S.

EU

Russia

SubsidiaryFor. Co.

Export

Reexport

Export controls govern both goods & technology

‘U.S. origin’

E.g., Chinese Satellite / Missile Technology

‘Foreign Origin’

Export & “Reexport” Controls.


U.S. Corporate Taxation: Multinational Global Corporations -- Worldwide System & Tax Deferral

[Extraterritoriality & Related Problems.]

U.S. Parent

For. Subsidiary

No U.S. income tax on foreign subsidiary’s income until repatriated back to U.S.

U.S. WORLDWIDE TAX SYSTEM

EXPORT TAX DEFERRAL & EXPORT SUBSIDY

U.S. Firm

No U.S. income tax (deferral) on foreign sales / export income of U.S. firm. Problem of the DISC and FSC legislation. WTO decisions against this.

Foreign income

Export sales income

* Obama proposals to change tax deferral on foreign income / transfer pricing. Considering temporary reduction of repatriation of overseas income to help spur domestic growth and employment. In addition to this cross-border tax evasion and tax havens are major concerns. The new policy for greater information exchange via OECD provisions is supported by the G-20 to limit tax evasion that utilizes bank secrecy laws. The OECD produces both model conventions and proposals for national standards – a dual approach --- creating international obligations & “harmonizing” national legislation.

General Rule -- U.S. taxes foreign income of corporations. This involves issues of double taxation, foreign tax credits, tax treaties and tax havens . Also involves issue of transfer-pricing as to where to take corporate profits.

U.S. Firm For. Buyer

U.S. taxes foreign source income for services or sales performed abroad.



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extraterritoriality of u.s. economic legislation & u.s. multinationals. --- corporate corruption...

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