Tax Planning that Violates Foreign Law

Generally, the U.S. will not assist in the collection of taxes of a foreign jurisdiction, under a long standing common law principle. This principle was brought into play earlier this year when the U.S. Supreme Court considered the issue whether a crime occurs in the U.S. under U.S. wire fraud statutes when activities are undertaken in the U.S. that result in the defrauding of non-U.S. (Canadian) tax authorities. In Pasquantino v. U.S., 96 AFTR 2d 2005-5392, (S Ct), 04/26/2005, the Supreme Court held the common law principle did not provide insulation against a U.S. wire fraud prosecution.

The Supreme Court’s interpretation of the wire fraud statute was also interesting. 18 U. S. C. §1343 prohibits the use of interstate wires to effect "any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses." By holding that Canada's right to receive tax revenue was "money or property," the use of U.S.interstate wires to effect such a scheme was found to be a violation of the statute.

The obligations of tax planners to consider whether their planning results in a violation of foreign law has long been debated. Pasquantino is a warning to practitioners that there are limits out there that may require them to address foreign tax law in their planning, but where those limits are is still an uncertain area.