Tax & Governance

United Nations as new global governance ?

By Jean-François Clocheau

Translated in English by author

(The original French version)

January 09, 2020 –

Modifications on February 17 & June 19, 2020

The indirect taxation as a new weapon of World governance?

Following the decision of United States, on June 18, 2020, to leave negotiations with the OECD on the digital taxation, United States must be careful that the rest of World comes not to apply what will be explained below.

How the United Nations Organisation could impose its decisions on States and cause for USA, in the first place, to lose leadership in the role of “World Policeman”. This model can be used by international regulatory or supervisory institutions in other easily conceivable circumstances.

The American example with the embargo on Iran only serves as a support for this document.

NOTE: This article which was written in December 2019 after the OECD Pillar 1 & 2 meetings and was to be published later. This publication has been brought forward following the death of Iranian General Qassem Soleimani and the eight guards of his protection killed in Iraq by American drones on January 03.

Political fiction? May be not!

New economic sanctions are announced by Donald Trump on January 8 following missiles fired in Iraq by the Iranian in response to this assassination and, with the local population, it’s still businesses around the World that will be victims another once!

All companies know that they risk various sanctions, mostly financial, if they trade with countries that are embargoed or boycotted by unilateral US decisions for various reasons.

Indeed, all means are good for the USA to put the companies of the World under the yoke of American laws, forcing them to apply restrictive industrial and commercial measures, going in the direction of an international policy at their convenience.

And well, maybe it’s finished! Certainly it is not for tomorrow, but it seems that nothing can stop a process now that will put an end to this situation. International tax environment which will probably be set up under the aegis of the OECD under Pillar 1 & 2 from 2021 and will lead us to a World Single Market explained in the complete proposal here.

But before going into details, you should know that resistance is organising and it is good to know some reactions from the World.

Seeing the States and businesses victims of these abuses of hegemony, to cite only the European Union through the Commission and the French Senate, these two entities have already studied solutions, voted for regulations and directives.

Extract from the French Senate report on the extra-territoriality of American sanctions:

« In Commission Delegated Regulation (EU) 2018/1100 of 6 June 2018 amending the annex to Council Regulation (EC) No 2271/96 protecting against the effects of the extraterritorial application of legislation adopted by a third country, and actions based thereon or arising there from. The American texts added are the 2012 laws providing for sanctions against Iran and Syria »

It is also specified:
« Any person, whose economic or financial interests are directly or indirectly affected by the laws and decisions of the United States, must inform the Commission within 30 days, either directly or through the competent authorities of his Member State. The informations thus communicated are confidential”.

But it seems, for the moment, that these directives are without the expected effects on the damage caused. These laws will still remain the legislative basis and the support for what will be the reaction action explained below, with a situation that is evolving in the good direction.

As in everything, it is important to have a bit of luck and this comes at just in time from across the Atlantic, by a decision of the US Supreme Court which will precipitate events.

The U.S. Supreme Court rendered a decision in June 2018 on a lawsuit between the State of South Dakota and the company Wayfair Inc., forcing online sales platforms wherever they are (out-off-state), to return sale taxes in the State of consumption, here in South Dakota, if the economic link is proven (an activity with a substantial nexus) with the foreign selling company. At the moment, a sale threshold associated with the decision is set at more than US $ 100,000 to customers located in South Dakota or carrying out more than 200 transactions there, currently limiting the scope of the law.

You will read in the following lines that this is probably the worst decision taken by the Supreme Court in the history of the USA but the best law for the World!

Let’s look at the first consequences of this decision.

 But, how to do to transmit sale taxes?

As often, what could resemble an American interstate problem will therefore also apply outside United States internationally because online marketplaces around the world will have to comply with the same American laws and transmit sale taxes in States of consumption in USA and elsewhere too. Similar systems with the facilities of e-invoicing will be probably applied by new laws and directives in the EU after 2025 and in France from 2023 following the mandatory e-invoicing. These returned sale taxes essential to finance the actual crisis in several domains.

The Court decision, in its text, did not specify how sale taxes should be returned and already major online marketplaces have offered to make the Good Samaritans, wanting to levy these taxes for the benefit of their customers’ countries.

It is likely that this solution will not be accepted by States, whether they are senders or receptionists, at any given time, of these sale taxes for two main reasons (other reasons in this article in DAGTVA response to the Pillar 1 of the OECD):

  • The buyer’s tax authority will never want to receive foreign sale taxes with amounts of which are uncontrollable, unjustified and paid by private companies located around the world, for the simple reason that the buyer’s tax authority will have no technical means, at the moment it receives a sale tax, to check whether the economic link (an activity with a substantial nexus) with the selling company is relevant, in view of fluctuations of the moment. This therefore poses the problem of real-time control of this economic link on the part of a responsible tax authority towards a foreign company over which it has no authority.
  • As a result, the buyer’ tax authority, in USA, will want to have as interlocutor only the seller’ tax authority, in order to be able to discuss as equals and this so that it guarantees him, from on the one hand, the merits of the economic link of the selling company at time ‘T’ which can only be done at this stage locally, following the digital declarations of the invoices and on the other hand, the amounts and the concatenation of the volume taxes from all the companies concerned, to be returned to the States where the consumption took place.

Comment: the two previous headings, essential, therefore impose by their provisions to oblige the seller online marketplace‘s tax authorities, to control and collect the sale taxes to be transferred to the State of consumption, without leaving this windfall to online sale platforms (see the text on the World Single Market). This will probably be confirmed by reading the report drawn up on 05 February by the ‘Multi Tax Commission Uniformity Committee’ and the ‘Wayfair Implementation and Marketplace Facilitator Work Group’ which shows differences in the application of the ‘Wayfair Tax’ within the different States in USA. There will be no other choice to standardize this law in USA than to ask the tax authority of the foreign market place, to validate and restore the ‘Wayfair Tax’ to the State of consumption. It is probable that the OECD will not be able to propose in 2021 a globalized system of indirect taxation, and it would be a fiasco vis-a-vis the G20, if it does not have the possibility of solving the problems exposed in this report, by the recourse to this solution described above, which would also have the quality of removing everywhere the tax threshold.

This obligation will completely overturn current tax systems.

B²B transactions: in cross-border B²B transactions on Internet (minority transactions), it will therefore be imperative to know which tax authority the seller will depend on so that it can justify the seller’s economic link with the State of consumption, when it comes to an operation made on an online marketplace?

To overcome this unknown, the only possible solution will be for the buyer’s tax authority in USA, to authorise the payment, all taxes included to comply with the laws on payments, toward the seller, only if the sale tax has been correctly credited beforehand in the State of consumption (see the slideshow B²B slide 18). The jurisdiction on which the seller depends, in B²B will then be easily identifiable, the payment generally taking place after a correct delivery. This last directive implicates the banking system which must block the payment before an authorisation from the tax authorities. This last obligation not easy for obtaining from the banking system, with an implementing probably never achieved. Therefore, this last solution will be probably impossible to apply! A very bad situation for the future!

C²B transactions: But the worst appends in transactions on Internet made by end consumers in C²B (see DAGTVA terminology), the majority of transactions, where payments on the Internet take place at the time of the order and the conditions of the previous B²B transaction are therefore impossible to combine. The seller abroad will be paid approximately in real time and the seller’s account credited before any shipment (see the slideshow C²B slide 13 ). The buyer’s tax authorities in USA will have no way of blocking this payment, including sale taxes, simply because, in the first place, they ignore the existence of the transaction. We can also wonder how to control the threshold of US $ 100,000 made by a foreign market place when we are not aware of the transactions? Nor will the US authorities be able to prohibit an American citizen from receiving the purchase he has just paid for on the Internet (See detailed DAGTVA responses related to circumstances sales in the context of OECD Pillar 1).

But what connection can we make with what has just been explained above and the extraterritoriality of American sanctions?

It is the fact that the withholding of a foreign sale taxes will always be done by the seller’s tax authorities and they are a representative State administration of a State outside USA. When these States realise the power they have just acquired, they will have an unstoppable tool against abuses of extraterritoriality. They will also think about predictable tax revenue and it is likely that they will not give up this power on the benefit of online marketplaces if they are in possession these sale taxes! (see the slideshow ).

As specified by EU regulations (above), the overall damage of each member state may be accounted for at European level.

As a result, a Member State in the EU will then be able to individually record the losses of all its companies and add its own tax losses linked to the loss of activity of its nationals in the boycotted country. These States are preparing the invoice!

For the application of retaliatory measures, we are there!

Everything will happen between the US’s tax authorities and the EU, taking the relay from those of each Member State.

We have seen that the information concerning the damages suffered is confidential and each EU State could, up to the amount of its own damages, respond to a resolution of the United Nations to sequestrate sale taxes, sanctions applicable by all the States having taxes intended for the USA and probably not only the EU.

With the agreement of the regulatory bodies, each State could add to it the amounts of anti-competitive damages in the event of excessive taxation of exports to the USA; examples: airplanes, steels, cheeses, wines, Champagnes, luxury, etc., for the case of France.

The European Union could also present a whole invoice to USA saying:

« Your embargo costs us X billion € per year in the Union. Over decision from the United Nations Organisation, we will keep sale taxes in the EU made by e-commerce in USA as long as an embargo is effective, each European Member State applying the decision to the extent of its own harm. « 

The US embargo will be the pretext of United Nations for applying the financial sanctions but may be too in response to another inappropriate behavior!

We can now say, it is not the same music!

Now, you will be punished !

As you can see, what is presented in this document consists in not putting foreign companies established in the USA in a tort situation, outside the laws of USA. The sequestration is made by the State where companies are established and not necessarily on the other side of the Atlantic in USA. Those who are there cannot therefore be held responsible and legally challenged by the fact that the consequences of the sequestration would have no correlation with their personal transactions in USA.

GAFAM, American companies for the most part, would then be almost the only ones to repay sale taxes on intra-USA transactions, the only ones that would not be impacted by this sequester. The financial damage for USA would be considerable. It should be noted that it is the tax authority of the company who physically owns the product purchased that will produce the export documents (see the slideshow slide 17) following the digital declaration of the sale invoices. This obligation will leave no chance for an online sales platform to transact from a low-tax State with shipment from a ‘delivery State’ and will, de facto, resolve local taxes and competition concerns related to consignment warehouses (call-off-stock).

(Note: Thanks to all the specialists who would like to tackle the calculation of the amount of damages, the results of their work will be added to this article with references.)

It is important to note that the sums sequestrated by the States would never be returned after the end of the extraterritorial sanctions has been observed, because what was effectively lost by the companies victims of the embargo, during it, the is definitely! Not only would the receivership be missing in the US, but since it would never be refunded, it would contribute to the economic development of the victims of the embargo. Companies could legitimately claim the share of the receiver for their damages and spend nothing for this. This is called killing two birds with one stone!

The UN resolution to abolish the sequestration of sale taxes would be done with the legislative guarantee of the United States that the extraterritorial sanctions on foreign companies could no longer be applied again. We see that the financial consequences for USA, following a unilateral embargo, would be financially irremediable.

We can even add that in the event of sequester with a majority of transactions in C²B, that USA would never know the real volume of the sums sequestered by the States and companies’ victim of the embargo. Only local statistics in USA could give estimates of losses.

It is important to insist on the fact that , we see in the slideshow that these sale taxes are paid by buyers in USA and at the end of the transaction, the selling company is not impacted by the process, the sale taxes which was taken from this seller’s account (slide 16) after payment including tax (slide 13), it is therefore a neutral operation for the marketplace on the seller side which has no consequence on its cash-flow, the credit having place before the levying! By consequences, applying the United Nations receivership resolution would cost nothing the States and businesses affected by the embargo. They could again tax their companies as today on these same transactions with the actual processes. There would be no double taxation! It’s magic!

Comments: In practice, the ‘Wayfair Tax’, in a normal situation, is prepaid to the State of consumption by the withholding and sending of a production tax on the sale which will be reimbursed in the payment. (Circuit of the ‘Wayfair Tax’ slide 21). In the case of e-commerce in C²B, it is much worse; the buyer on the Internet in the USA first pays the sale taxes in his online payment, before the purchase sent by the seller and it’s sale taxes debit and the reimbursement of sale taxes in the USA. It is this ultimate consumer in USA who advances the amount of this ‘Wayfair Tax’!

We can now say that the “Wayfair Tax” only serves to tax an ultimate buyer in USA on their foreign purchase made on Internet. It is precisely this indirect taxation, which does not exist today and was not the subject of the law which is content to request the refund of the sale taxes. Effectively, it was impossible for the Supreme Court to envisage this situation where a taxation could be recovered for sequestration by some victim States, but to add, this « Wayfair Tax » would in any case be paid by consumers in the USA! An unfortunate combination of circumstances!

Serendipity for whom? This is probably not exactly what American lawmakers had planned!

By consequences, one could say then that it will be the American ultimate consumers who will now pay the damages of an embargo made against States which are foreign to them.

Possible reactions:

To take this non-exhaustive example with USA, in front of a UN resolution aiming that USA no longer receive sale taxes from the States of the World victims of prejudices, and it is probable that all the States of the World traded with Iran before the embargo, USA could then decide to do the same, but how high?

USA could not take global action and get angry with the rest of the World!

In any case, with the tax differential, the United States would necessarily lose out in volumes and amounts of transactions in the face of the world economy.

If USA decided to claim the sequestrated taxes, knowing that there is only the prejudice of the State of the embargoed seller which is quantifiable in this situation and as I wrote previously, the State of consumption in USA will never has knowledge of the creation of the transaction in C²B therefore the amount of purchases and taxes allocated to this transaction. USA therefore does not know how much they could claim about this sequester. Untenable situation in front of an international court. USA would therefore have no interest to envenom a situation which could go on crescendo in over reactions by the States victims of the first situation which caused this sequester!

For USA, they would only have to inspect a considerable volume of C²B payments, when they are not inaccessible in an impenetrable banking system or tackle the aggregation of import documents on small packages, aggregation very difficult to do given the quantity and cost of the work to be done!

Unaware of the C²B transactions, they could not block the import of a parcel legitimately paid all taxes by an American citizen. Nor could they fix the price of a product in a marketplace elsewhere in the world and if USA wanted to arbitrarily tax an economic field or a product, as said above, the same process of injury commercial could again be invoked by a new sequestration resolution on the part of international regulatory bodies, damage which would then have to be added to the volume of the sequestration already applied.

So the US could not do much except remove the object of the UN sanction.


The ‘Wayfair Tax’ will most certainly be, for the USA, the worst decision taken by the Supreme Court in its History, but also the best law that we have ever had for the maintenance of peace in the World, with resulting considerable transnational financial sanctions for the States which would have inappropriate and hegemonic behaviors.

We will witness an effective international regulation made by a consensus of representative bodies like the OECD and the G20 which advocate an indirect taxation applied on the place of consumption going in the direction of this law and History, regulation which would be applied on the orders of the United Nations Organisation thus restored into its prerogatives.

Powers that the United Nations should never have lost if it’s really had the technical means to enforce them fully. It will be the case soon!

Jean-François Clocheau

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