Taxes
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As stated earlier, of the many precedents embodied in the existence of the ISA, the creation of an international bureaucracy with powers to tax, regulate, and enforce its will are perhaps the most dramatic and, in the long term, the most dangerous. The granting of what are essentially sovereign powers is unprecedented and unfortunately fits within a larger pattern of UN behavior-that being, to free itself from the political domination of the five permanent members of the Security Council as well as to insulate itself from the uncertainties and political limitations accompanying the traditional state-sponsored financing of UN operations.
Secretary General Boutros-Boutros Ghali recently proposed to establish a "world tax" on airline tickets and currency exchanges as an independent means of financing the UN. "Faced with $2.3 billion in arrears from member nations that failed to pay their assessments -- including $1.2 billion owed by the United States -- UN officials and others have long sought an independent means to raise money for the organization's annual budget of roughly $3 billion" (Barber 1996). Disclosure of this plan provoked an immediate negative response in the U.S. Senate when majority leader Bob Dole stated that, "the United Nations continues its out-of-control pursuit of power" and along with colleagues called for an immediate investigation (Barber 1996).
Unfortunately, the Law of the Sea Treaty goes far beyond the Ghali plan and may indeed be viewed as a harbinger of future UN efforts to spin-off or reformulate its activities in such a way as to insulate itself from, and possibly become ascendant to, the sovereign character of nation-states. Unless the United States is willing to insist on further renegotiation of the treaty to protect these and other vital interests, the Senate will have little alternative other than rejection and refusal to ratify. Rejection by the Senate appears to be the only action capable of serving as the catalyst to bring all parties back to the table.
[MYTH] The Convention gives the UN its first opportunity to levy taxes.
The Convention does not provide for or authorize taxation of individuals or corporations. There are revenue sharing provisions for oil/gas activities on the continental shelf beyond 200 miles and administrative fees for deep seabed mining operations. The amounts involved are modest in relation to the total economic benefits, and none of the revenues would go to the United Nations or be subject to its control. U.S. consent would be required for any expenditure of such revenues.
Problem #3: A step in the direction of international taxing authority. The Convention contains an ill-advised revenue-sharing provision that is applied to income derived from oil and gas production outside the EEZ. The general bias in the Convention, as I indicated earlier, is in favor of the redistribution of seabed resources. This bias is codified in the area of oil and gas revenues. The U.S. will be forced to pay a contribution to the International Sea-Bed Authority created by the treaty based on a percentage of its production in the applicable area beyond the 200-mile limit.
While he asserted the argument against this revenue-sharing provision was unconvincing, State Department Legal Advisor William H. Taft IV acknowledged it was an argument that could be made in the course of October 21, 2003 testimony before the Senate Foreign Relations Committee. Mr. Taft understates the problem. By any reasonable definition, this provision would for the first time allow a U.N.-affiliated international authority to impose a tax directly on the U.S. for economic activity. At least, I am unaware of any precedent for this kind of international taxing authority.
Shoring up the state system, as recommended by former Secretary of State Shultz, means that international institutions should be funded by the voluntary contributions of their member states. The extent to which these international institutions are allowed access to independent streams of revenue is the extent to which they will seek to obtain governing authority at the expense of the state system. While the revenue-sharing provision related to oil and gas production in the Convention is a relatively modest step in this direction, it is still a step in the wrong direction.
Myth: The Convention gives the UN its first opportunity to levy taxes.
Reality: Although the Convention was negotiated under UN auspices, it is separate from the UN and its institutions are not UN bodies. Further, there are no taxes of any kind on individuals or corporations or others. Concerning oil/gas production within 200 nautical miles of shore, the United States gets exclusive sovereign rights to seabed resources within the largest such area in the world. There are no finance-related requirements in the EEZ. Concerning oil/gas production beyond 200 nautical miles of shore, the United States is one of a group of countries potentially entitled to extensive continental shelf beyond its EEZ. Countries that benefit from an Extended Continental Shelf have no requirements for the first five years of production at a site; in the sixth year of production, they are to make payments equal to 1% of production, increasing by 1% a year until capped at 7% in the twelfth year of production. If the United States were to pay royalties, it would be because U.S. oil and gas companies are engaged in successful production
16 beyond 200 nautical miles. But if the United States does not become a party, U.S. companies will likely not be willing or able to engage in oil/gas activities in such areas, as I explained earlier.
Concerning mineral activities in the deep seabed, which is beyond U.S. jurisdiction, an interested company would pay an application fee for the administrative expenses of processing the application. Any amount that did not get used for processing the application would be returned to the applicant. The Convention does not set forth any royalty requirements for production; the United States would need to agree to establish any such requirements.
In no event would any payments go to the UN, but rather would be distributed to countries in accordance with a formula to which the United States would have to agree.
UNCLOS uniquely gives the United Nations the ability to impose a tax on nations by use of its royalties assessments on the exploitation of oil and gas reserves.
- UNCLOS would create taxing authority within UN for the first time, starting a dangerous precedent
- UNCLOS would establish new precedent for allowing United Nations to levy taxes that would lead to further abuses
- UNCLOS uniquely sets up an international taxing authority that is a step in the wrong direction
Opponents argue that by ratifying UNCLOS, the United Nations would be given the first opportunity to tax U.S. citizens. However, this is a misunderstanding of the royalties structure within UNCLOS. The International Seabed Authority requires royalty payments from all companies engaged in seabed mining in areas that do not belong to any country and are therefore under the management of the ISA. These payments are a small fraction of the revenue and similar to payments U.S. companies already pay around the world to governments for resource concessions.
- UNCLOS stipulates modest fees on resource extraction industries but does not represent new taxing authority
- UNCLOS does not impose a tax but a royalty scheme that comes with unprecedented U.S. control over administration
- UNCLOS does not establish tax on corporations or individuals, only a modest revenue sharing agreement for mineral/energy extraction in international waters
- Royalty payments in UNCLOS are neither unique nor burdensome which is why the oil and gas industry views them as a bargain and favors UNCLOS ratification
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