Law Commons^™

Pennsylvania's Sales And Use Tax: Has Nearly $1 Billion Been 'Zapped' Away In Fraud?, Richard Thompson Ainsworth

Faculty Scholarship

The Sales and Use Tax is an essential part of Pennsylvania’s revenue profile. Not only is it the State’s second largest revenue source, it has historically played a critical role in reducing the volatility of Pennsylvania’s overall tax collections. The sales tax is also critical to the city of Philadelphia, and Allegheny County. During the current economic downturn both the revenue and structural attributes of this levy should be pushing it to the front of the tax policy line.

The two topics that should rest atop Pennsylvania’s tax policy agenda should be: (1) joining the Streamlined Sales Tax initiative and …

Vat Fraud - Technological Solutions, Richard Thompson Ainsworth

Faculty Scholarship

Every VAT/GST allows missing trader fraud. The fraud is simple, and can be simply prevented (with technology). The fraud arises when a business makes a purchase without paying VAT, collects VAT on an onward sale, and then “disappears” without remitting the tax. Missing trader fraud is common in high-value/low-volume goods sold across borders – computer chips and cell phones are the classic examples. But the fraud easily migrates when pursued. It operates well with goods as wide ranging as xenon bulbs, automobiles, and earth moving equipment.

The recent appearance of MTIC fraud in tradable CO2 permits and VoIP is a …

Did Sarbanes-Oxley Lead To Better Financial Reporting?, Dennis Chambers, Dana R. Hermanson, Jeff L. Payne

Faculty and Research Publications

The article describes and summarizes five studies that examined whether the landmark Sarbanes-Oxley Act of 2002 (SOX) was beneficial or not to financial reporting. The U.S. Congress is stated to have passed the legislation on July 25, 2002 in reaction to a series of financial accounting scandals involving such companies as Enron and WorldCom, as well as the demise of the accounting firm Arthur Andersen LLP. The author asserts that all five of the studies provide evidence of a significant improvement in the financial reporting environment since SOX.

Transfer Pricing In Business Restructurings – Reasoning From Implausible Assumptions Issue Note 2 – (Oecd, Discussion Draft), Richard Thompson Ainsworth, Andrew Shact

Faculty Scholarship

The OECD’s Center for Tax Policy and Administration roundtable on business restructurings in January 2005 led to a Joint Working Group project later that year on permanent establishments and business restructurings. One of the results was the Discussion Draft on Transfer Pricing Aspects of Business Restructurings that was available for public comment between September 19, 2008 and February 19, 2009.

This paper concerns Issue Note No. 2 in the Discussion Draft – Arm’s Length Compensation for the Restructuring Itself.

Issue Note No. 2 is deeply flawed. It relies on an unproved correlation between structure and performance (profit/loss potential). The Discussion …

Voip Mtic - The Italian Job (Operazione 'Phuncards-Broker'), Richard Thompson Ainsworth

Faculty Scholarship

On February 8, 2010 a speculative paper on the likelihood that fraudsters proficient in missing trader intra-community (MTIC) fraud might move into voice over internet protocol (VoIP) was submitted to the Boston University School of Law Working Paper Series.

Prior to that paper there was very little (if any) public discussion of VoIP MTIC. There were no assessments, no arrests, and not a hint of litigation. Fifteen days later, and before final publication the financial press exploded with coverage of a massive VoIP MTIC fraud (the Operazione “phuncards-broker” investigation). The Wall Street Journal reported: An [Italian] judge…ordered the arrest of …

A Tale Of Two Standards: An Exploration Of Us Gaap And Ifrs, Allyson Lagasse

Honors Projects in Accounting

The research in this paper has two objectives. Beginning with an examination of the historical development of how financial reporting standards are set in the United States and around the world, the Financial Accounting Standards Board and the International Accounting Standards Board will be studied. Setting financial reporting standards in the United States is currently a responsibility of the Financial Accounting Standards Board, while many countries abroad utilize International Financial Reporting Standards, maintained by the International Accounting Standards Board. After detailing the historical development of each of the two boards and the sets of standards they maintain, the paper continues …

Mtic (Vat Fraud) In Voip - Market Size $3.3b, Richard Thompson Ainsworth

Faculty Scholarship

In the beginning, the VAT fraud known as missing trader intra-community (MTIC) fraud appeared to be a UK problem concentrated in the cell phone and computer chip markets. MTIC has mutated (to other commodities) and migrated (to other Member States). This paper describes how this fraud operates in the VoIP market, and how in this mutation it is no longer confined to the EU, but can infiltrate any VAT/GST anywhere.

Canada, Botswana, Japan, Iceland and Jamaica (to mention a few jurisdictions) have consumption taxes that are just as vulnerable as is the EU VAT to VoIP missing trader fraud. It …

Virtual Intermediaries: Consumption Tax Problems In Japan, Europe, And The United States - The Case Of The Virtual Travel Agent, Richard Thompson Ainsworth

Faculty Scholarship

Marketplace technology is (inadvertently) chipping away at the effectiveness of consumption taxes – the Japanese Consumption Tax (CT), the European value added tax (VAT), and the American sales tax (ST) are all affected. Frequently a technology-patch or a law change can repair the tax-damage, but sometimes even though a patch or a change is known the design of the levy (or the politics behind the design) impedes application. This paper assesses these consumption taxes by considering the impact that virtual travel agents have had on revenue yields. The paper draws specific conclusions for the Japanese CT, because this consumption tax …

Placebo Ethics, Usha Rodrigues, Mike Stegemoller

Scholarly Works

While there are innumerable theories on the best remedy for the current financial crisis, there is agreement on one point, at least: increased transparency is good. We look at a provision from the last round of financial regulation, the Sarbanes Oxley Act of 2002 (SOX), which imposed disclosure requirements tailored to prevent some of the kinds of abuses that led to the downfall of Enron. In response to Enron's self-dealing transactions, Section 406 of SOX required a public company to disclose its code of ethics and to disclose immediately any waivers from that code the company grants to its top …

Zappers - Retail Vat Fraud, Richard Thompson Ainsworth

Faculty Scholarship

Zappers skim cash sales at retail. Zappers are add-on programs used by merchants with electronic cash registers (ECRs) or point-of-sale (POS) systems. Zappers are smart and selective. They do not skim all sales, and they never skim credit card transactions.

Although they are present in every jurisdiction, Zappers appear to be most widely used in developed economies that combine high levels of cash sales with high rates of consumption tax. Sweden, for example, has a cash-intensive economy, one of the world’s highest VAT rates (25%), and also reports that 70% of the ECRs in the country are either “… constructed …

Court Of Federal Claims Upholds Additional Sui Credit, Danny A. Pannese

WCBT Faculty Publications

The article discusses the decision in a tax court case that plaintiffs in consolidated tax refund cases were entitled to an additional state unemployment insurance (SUI) credit against their Federal Unemployment Tax Act (FUTA) tax liabilities for years 1991-1996. The dispute in the tax court case of E.P. Talent Services LP was addressed in a year 2004 Court of Federal Claims decision. It was ruled that the SUI credit is capped at over five percent of the taxpayer's total FUTA wage base.

Quebec's Sales Recording Module (Srm): Fighting The Zapper, Phantomware, And Tax Fraud With Technology, Richard Thompson Ainsworth

Faculty Scholarship

No abstract provided.

Lawyers Keep Out: Why Attorneys Should Not Participate In Negotiating Critical Financial Numbers Reported By Public Company Clients, William O. Fisher

Law Faculty Publications

In response to the financial scandals at the turn of the century, Sarbanes-Oxley and related reforms radically changed the relationship between accountants and the companies they audit. As a result, auditors exert greater power in the negotiations with management that produce critical numbers in company financial statements. That power provides auditors with newfound ability to resist pressure to certify financial statements that are overly favorable to company stock prices. With the best of intentions, some now urge that company attorneys should expand their efforts to police clients’ financial statements. But the introduction of lawyers into the bargaining between management and …

A Proposal For An Elective Tax Benefits Transfer System, Ronald W. Blasi

Faculty Publications By Year

This article proposes an elective tax benefit transfer system to be available to lessors of property they use in their trade or business. It describes why the current linkage of tax benefits to property ownership is economically inefficient, causing it to have several significant disadvantages to the parties and to the economy, as a whole. The article discusses how the current system reduces a firm’s cash flow and reported earnings, diminishes the intended effect of tax incentive legislation, distorts competition and decision making, and inhibits investment in efficient business assets. It is submitted that the proposed system corrects all of …

Backdated Stock Options Ownership Impact On The Corporation, Management, & Shareholders, Karen Cascini, Alan Delfavero

WCBT Faculty Publications

In the post-Sarbanes-Oxley Act (SOx) world, there has been an unprecedented crackdown on fraudulent activity occurring within corporate America. During recent years, many companies have granted stock options to their executives and employees as part of compensation packages. While the issuance of stock options as a component of compensation is considered to be a legal practice, corruption has taken this corporate resource to unlawful heights. Recently, numerous corporations have been in the news for potentially backdating stock options. Accordingly, the purpose of this paper is to distinguish between legal and illegal aspects of backdating stock options, and to examine the …

Heedless Globalism: The Sec's Roadmap To Accounting Convergence, William W. Bratton

All Faculty Scholarship

The Securities Exchange Commission (SEC) has introduced a "Roadmap" that describes a process leading to mandatory use of International Financial Reporting Standards (IFRS) by domestic issuers by 2014. The SEC justifies this initiative on the grounds that global standardization yields cost savings and an ultimate gain in comparability, facilitating the search for global opportunities by u.s. investors and making u.s. capital markets more attractive to foreign issuers. This Article shows that the offered justification is inadequate. The SEC frames the matter as a choice between two institutional frameworks for standard setting, holding out high quality sets of standards, asking which …

Tax Fraud In The Sales Tax: Zappers -- What Are They? How Can Puerto Rico Block Them?, Richard Thompson Ainsworth

Faculty Scholarship

The Sales and Use Tax is an essential part of Puerto Rico’s revenue profile. Effective only recently (November 15, 2006) the Impuesto a las Ventas y Uso (IVU) was expected to raise between $2.3 and $1.05 billion annually, and has already become the Commonwealth’s fourth largest revenue source. Actual revenue results for 2007-2008 came in at $1.1 billion, which admittedly is closer to the low end than the high end of what is possible, but now that the tax is in place the next pressing question is how can its performance be improved?

This paper generally proposes that Puerto Rico …