بازدارندگی و رفع مالیات تحریم های مالی و هزینه های شکایت های قانونی
|کد مقاله||سال انتشار||مقاله انگلیسی||ترجمه فارسی||تعداد کلمات|
|17844||2009||7 صفحه PDF||سفارش دهید||محاسبه نشده|
Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : International Review of Law and Economics, Volume 29, Issue 1, March 2009, Pages 1–7
The tax treatment of monetary sanctions and litigation expenditures varies across legal jurisdictions and time. The effects of these different tax regimes – particularly, on crime deterrence – have not been fully explored. Instead, legal intuitions in court decisions and legislative reforms are found. This paper explores the effects of these tax regimes. It shows that our common intuitions are sometimes misguided, since we tend to ignore cross-effects between crime and litigation. For example, contrary to commonly held views, it is shown that non-deductibility of monetary sanctions may increase the level of crime, if litigation expenses are deductible. In addition, if deductibility of legal expenses depends only on a successful trial outcome, this may also increase amounts spent on litigation and time allocated to crime. As this paper shows, however, a complete deductibility regime, under which both monetary sanctions and litigation expenditures are deductible, maintains the pre-tax levels of crime and litigation expenditures for risk-neutral offenders. The paper further explores the effects of different tax reforms.
The tax treatment of crime-related activities and consequences may affect crime enforcement. Indeed, income derived from legal and criminal activities is generally taxed. For example, the income associated with offenses committed in the course of running an otherwise legitimate business, such as speeding taxi drivers, double-parked messenger services, or overloading by trucking companies, is regularly reported and taxed. Similarly, many offenders committing white-collar crimes, such as those violating anti-trust laws, committing fraud, or trading on insider information, are also likely to report and pay taxes on their illicit gains. Indeed, as a general principle, tax laws are not concerned with the legality of the source of income when it comes to taxing it. On the other hand, the tax treatment of crime-related costs, particularly monetary sanctions and litigation expenses, is different in different jurisdictions and is also non-coherent within jurisdictions. For example, in Canada, both monetary sanctions and litigation expenditures are generally deductible for tax purposes if they arise from business operation. On the other hand, in the United States, the United Kingdom, and Australia monetary sanctions are non-deductible for tax purposes, because deductibility is considered to reduce the “sting” of punishment and to frustrate “sharply defined public policy”. However, litigation expenditures incurred in defending against criminal charges arising from a trade or business are generally deductible in these jurisdictions, because it is deemed to manifest a constitutional right. In Israel, both monetary sanctions and litigation expenditures are generally non-deductible for tax purposes, because deductibility would be contrary to public policy. These regimes are only mentioned to serve as examples and certainly do not exhaust the variety of tax rules that can be found worldwide.2 This paper explores the positive effects of different tax deduction regimes. It aims to evaluate (1) the effects of the tax rules governing monetary sanctions and litigation expenditures on crime (i.e. deterrence) and litigation; and (2) the legal perceptions and intuitions according to which deductibility of crime-related expenses violates sharply defined “public policy” principles. For example, in the landmark decision of Tellier (1966), the taxpayer, a securities dealer, was prosecuted and convicted for fraud and was sentenced to pay an $18,000 fine and serve four and a half years in prison. He also incurred and paid approximately $30,000 in legal expenses. How would the tax treatment of these crime-related costs affect similar behavior? This paper shows that simple intuitions may take us astray. The key insight of the analysis is based on the observation that crime and litigation are complements in the sense that the more offenders-taxpayers engage in crime, the more they are willing to spend on litigation, and the more they spend on litigation, the more they are willing to engage in crime. This complementarity effect produces interesting, counter-intuitive results, because taxation may affect not only the relative expected returns from legal and criminal activity, but also the costs and benefits associated with litigation. For example, contrary to commonly held views, this paper shows that disallowing deductions for monetary sanctions while allowing deduction for litigation expenditures may actually encourage crime or discourage litigation (though not both). In addition, the paper shows that allowing the deduction of both monetary sanctions and litigation expenditures does not encourage crime or litigation, but rather maintains their pre-tax levels for risk-neutral offenders. The paper also demonstrates that simple intuition works well only for a tax regime that disallows deductions for both monetary sanctions and litigation expenditures. In this case, both crime and litigation are discouraged, as would be expected. Understanding the behavioral effects of different tax deduction rules on crime and litigation is important not only for its own sake, but also for normative analysis, since policy makers such as courts and legislators base their legal decisions on their perceptions of these effects. For example, following the Supreme Court decision in Canada allowing deductions for monetary sanctions, the Canadian government reacted recently in a proposed legislation prohibiting explicitly such deductions. Moreover, if tax rates are even moderately high, the tax rules governing monetary sanctions and litigation expenditures are likely to have tremendous effects. For example, if the tax rate is 25%, the difference between allowing or disallowing deductions for monetary sanctions is equivalent to increasing the magnitudes of fines by 33%.3 Similarly, the difference between allowing and disallowing deductions for litigation expenditures is equivalent to penalizing/taxing the costs of litigation by 33%. This clearly should have a large impact on the incentives to engage in crime and spend on litigation, particularly since offenders spend a great amount on the latter. For example, the Rigas family who controlled Adelphia Communications Corp. spent $25,000,000 on their criminal defense. The estimated cost of defending Barnes & Noble and Borders in a Robinson-Patman Act suit brought by the American Booksellers Association was $68,000,000.4 The existing literature on the effects of taxation on crime is limited. The very few works in this area have focused on the tax treatment of fines and similar penalties. The pioneering papers of Png and Zolt (1989) and Zolt (1989) and the paper of Tabbach (2003) show that a tax regime, under which both legal and criminal income are taxable and fines are deductible, maintains the pre-tax level of crime as long as risk-neutral offenders are considered. They also show that disallowing deductions for fines discourages crime, compared to allowing deductions or to a world with no taxation at all. Polinsky and Shavell (1998) derive a similar result with respect to the tax treatment of punitive damages. Tabbach, 2003 and Tabbach, 2005 also examines the effects of the tax treatment of monetary sanctions on crime if offenders are risk averse or if leisure time is variable. Hillman and Katz (1984) and Tabbach (2003) explore the consequences of taxing legal activity while exempting criminal activity from taxation altogether.5 All these works completely ignore the decision of offenders/taxpayers to spend resources on litigation to defend against criminal charges, and the tax treatment of such spending. This paper is the first to evaluate the joint effects of the tax rules governing monetary sanctions and litigation expenditures on crime. This is important not only because of the significant magnitude of criminal litigation costs, but because the effects of the tax treatment of monetary sanctions crucially depend on the tax rule governing the deductibility of litigation expenditures and vice versa. By examining the joint effects of different tax deduction rules, this paper qualifies some of the results derived by Png and Zolt (1989), Zolt (1989), and Tabbach (2003) and generalizes others. Therefore, it offers a more complete and comprehensive analysis, which is essential for policy makers. The paper is organized as follows. Section 2 provides legal background. Section 3 develops the general model of taxation and crime when offenders can spend resources on litigation. The model is applied in Section 4 to examine the effects of different tax regimes, including: complete deductibility, no deductibility, partial deductibility, and contingent deductibility regimes. Section 5 applies the model to examine tax reforms—i.e. a change in tax rules. Section 6 provides concluding remarks.
نتیجه گیری انگلیسی
The tax treatment of crime and litigation expenditures may obviously affect deterrence and, therefore, is important. However, the resulting effects are not straightforward. This paper explores these effects on crime deterrence and litigation effort generated by alternative tax deductibility regimes, given a crime enforcement scheme. It shows that our common intuitions are often misleading. For example, contrary to commonly held views, a partial deductibility regime – such as the US, UK, or Australian tax regime – may dilute, rather than strengthen, crime deterrence. This is true for increasing tax rates or in comparison to a complete deductibility regime. Similarly, a Canadian-like complete deductibility regime does not induce crime or litigation, as commonly believed, but rather maintains their pre-tax levels. This paper provides a positive framework for potential tax reforms, such as the one recently contemplated by the Canadian legislators. The model and analysis suggested in this paper can also assist in evaluating the effect of alternative criminal sanctions such as monetary vs. non-monetary sanctions. The qualitative results of this paper, particularly those associated with a complete deductibility regime, are generally robust to certain refinements of the model, specifically those concerning different assumptions about the probability of apprehension, conviction or punishment.32 However, the results may be sensitive to the risk attitudes of offenders and to the variability of leisure time. For example, if offenders are risk averse, rather than risk neutral, then a complete deductibility regime no longer maintains the pre-tax levels of crime and litigation. This is true for two reasons: first, the direct effect of such a regime on crime is ambiguous due to conflicting risk effects, as shown by Tabbach (2003)33; second, it can easily be shown that the direct effect of such a regime on litigation is also unclear, since taxation may change both the marginal costs and benefits of litigation.34 Similarly, if leisure time can vary, one can expect at least two additional, well-known tax effects to enter the analysis. On the one hand, taxation reduces time allocated to both legal and criminal activities, because it makes leisure relatively cheaper than market activities (substitution effect). On the other hand, to the extent that taxation reduces wealth, it increases time allocated to market activities as long as leisure is a normal good (income effect). These two additional effects work in opposite directions and make the analysis more complex and the results ambiguous.35