69 Pages Posted: 16 Feb 2017 Last revised: 21 Mar 2017
Date Written: February 15, 2017
Over the past decade, a number of well-publicized data leaks have revealed the secret offshore holdings of high-net-worth individuals and multinational taxpayers, leading to a sea change in cross-border tax enforcement. Spurred by leaked data, tax authorities have prosecuted offshore tax cheats, attempted to recoup lost revenues, enacted new laws, and signed international agreements that promote “sunshine” and exchange of financial information between countries.
The conventional wisdom is that data leaks enable tax authorities to detect and punish offshore tax evasion more effectively, and that leaks are therefore socially beneficial from an economic welfare perspective. This Article argues, however, that the conventional wisdom is too simplistic. In certain circumstances, leak-driven lawmaking may in fact produce negative social welfare outcomes. Agenda-setting behaviors of leakers and media organizations, inefficiencies in data transmission, suboptimally designed legislation, and unanticipated behavioral responses by enforcement-elastic taxpayers are all factors that may reduce social welfare in the aftermath of a tax leak.
This Article examines the potential welfare outcomes of leak-driven lawmaking and identifies predictable drivers that may affect those outcomes. It provides suggestions and cautions for making tax law, after a leak, in order to best tap into the benefits of leaks while managing their pitfalls.
Keywords: transparency, banks, secrecy, whistleblowers, Panama Papers, FATCA, ICIJ, journalists, intelligence, WikiLeaks, cyber, tax compliance, international tax, OECD, European Union, exchange of information, common reporting standard, social welfare, tax administration, offshore tax enforcement
JEL Classification: H20, H21, H22, H23, H24, H25, H26, H27, H29, K34
Suggested Citation: Suggested Citation
Oei, Shu-Yi and Ring, Diane M., Leak-Driven Law (February 15, 2017). UCLA Law Review, Vol. 65, 2018; Tulane Public Law Research Paper No. 17-1; Boston College Law School Legal Studies Research Paper No. 442. Available at SSRN: https://ssrn.com/abstract=2918550 or http://dx.doi.org/10.2139/ssrn.2918550