Assembly Bill A11073

                                BILL NUMBER:A11073

TITLE OF BILL:  An act to amend the tax law, in relation to providing
for a tax on paying agent services, fiscal agent services, or any
other similar services on debt evading foreign states

Purpose Or General Idea Of Bill:  This bill will amend the New York
Tax Law to impose a sales and compensating use tax on the provision of
paying agent services, fiscal agent services or other similar services
by a financial institution to (1) a foreign state that (i) has had one
or more final judgments in an aggregate amount exceeding $100,000,000
entered against it by any state or federal court located in new York,
including any final Judgment originally issued in a foreign court that
is filed or registered in new York; (ii) fails to satisfy any such
judgment for a period of more than 2 years after it becomes effective;
and (iii) is not a foreign state eligible for (a) financing through
the International Development Association (unless such state is
eligible for financing from the International Bank for Reconstruction
and Development), (b) debt relief under Enhanced HIPC Initiative (as
defined in section 1625 (e)(3) of the United States International
Financial Institutions Act), or (c) debt relief under the Multilateral
Debt Relief Initiative of the International Monetary Fund, or (2) a
political subdivision of such a foreign state (any such foreign state
or political subdivision, a "debt evading foreign state"). This tax
will recover a portion of the costs, in the form of capital losses,
lost interest, lost investment returns, and accompanying losses of tax
              

revenue, imposed on New York taxpayers by foreign states through their
evasion of valid judgments rendered against them.

Summary Of Specific Provisions:

Section 1 - The New York Tax Law is amended to add a new paragraph (e)
TO Section 1101 containing subsections numbered 1101 (e)(1 ) to 1101
(e)(7). Paragraph (e) defines the terms "agency or instrumentality of
a foreign state", "final judgment", "financial institution", "foreign
state", "debt evading foreign state", "state-owned corporation of a
debt evading foreign state", and "state". It defines debt-evading
foreign states ("REFS") as foreign sovereigns that have had judgments
rendered against them in New York, if the judgments in the aggregate
total $100 million and any of the judgments have been outstanding for
at least two years. The poorest developing countries are excluded from
this definition and would not be affected by this tax.

Section 2 - The New York Tax Law is amended by adding paragraph (g) to
Section 1105. Paragraph (g) imposes a new sales and compensating use
tax on the provision of a paying agent service, fiscal agent service,
or of any other similar service by a financial institution to a debt
evading foreign state. Foreign sovereigns that qualify as DEFS, and
their agents and instrumentalities, would be subject to a four percent
tax on the gross amount of any funds dispersed by a financial
institution in relation to the provision of such services.

Section 3 Provides that the act will take effect immediately.

Justification:


New York taxpayers have invested billions of dollars in debt issued by
foreign sovereigns. To facilitate the issuance of their debt to New
York citizens and other individuals through New York taxpayers have
invested billions of dollars in debt issued by foreign sovereigns. To
facilitate the issuance of their debt to New York citizens and other
individuals through New York's capital markets, any foreign sovereigns
designate New York as the place of payment and the venue where the
foreign sovereign waives sovereign immunity and consents to
jurisdiction to be sued in the case of a default. As a result, actions
to enforce defaulted debt are frequently brought in state and federal
courts located in New York, Although many foreign sovereigns pay their
debts responsibly, some 'foreign sovereigns that are capable of making
payments to their creditors instead choose to repudiate their debts
and to refuse to pay judgments rendered against them. Because of the
difficulties associated with enforcing judgments against foreign
sovereigns, New York taxpayers suffer significant losses, and have
little legal recourse, when foreign sovereigns choose not to pay their
debts. The losses incurred by taxpayers significantly affect New York
tax revenue, not only because New York cannot tax interest and other
gains that are not paid, but also because investors' losses can be
offset against other taxable gains.

The most egregious example of a foreign sovereign that is capable of
paying its debt, but that chooses not to, is the Republic of
Argentina. In 2001, Argentina defaulted on $81.2 billion of debt,
which is the largest sovereign debt default in history. Argentina
refused to negotiate with its bondholders until 2005, and then offered
the bondholders an exchange worth about 25-cents on the dollar n a
take-it-or-leave-it basis. Approximately 76 percent of bondholders
accepted the exchange offer, and Argentina repudiated the remaining
portion of its debt. Argentina has repudiated these debts while
claiming, in a recent filing with the Securities and Exchange
Commission, to have debt-to-gross product ratio of 493.1% - less than
the ratios of Canada, the United Kingdom, France, Germany, and a
variety of other European countries - and a budget surplus in each
year from 2004 to 2008.

Dozens of lawsuits have been filed in the United State District Court
for the Southern District of New York as a result of the Argentine
debt default. The two largest creditors alone have claims and
judgments of over $3 billion. Judge Thomas P. Griesa, the most senior
judge in the Southern District, has repeatedly observed that Argentina
has never offered to pay the judgments rendered against it and instead
focused all of its efforts on protecting its assets from creditors. in
May 2009, Judge Griesa held that Argentina was in civil contempt of
court for failing to comply with court orders and drew an adverse
influence that Argentina had removed assets from New York in violation
of court orders.

The economic impact of this debt repudiation has been substantial. The
direct net costs to new York holders of defaulted Argentine debt
currently total $902 million, including $452 million in capital
losses, $382 million in foregone interest payments, and $180 million
in foregone investment return, less nearly $112 million in tax
benefits created by the losses or forgone income.' From December 2001
to December 2008, the indirect costs of the Argentine debt default,
through lost tax revenue, total approximately $329 million.


This bill creates a tax to offset a portion of the adverse effect that
DEFS have on New York tax revenue. It does so by imposing a sales and
compensating use tax on the provision of paying agent services, fiscal
agent services or other similar services by a financial Institution to
a debt evading foreign state. The financial institution providing the
service must collect the amount of the tax from the debt evading
foreign state and remit the funds to New York.  This bill ensures that
the tax does not adversely effect the payees of the funds since the
tax is collected from the DEFS.

Prior Legislative History:  New bill.

Fiscal Implications For State And Local Governments:  At present, at
least one debt evading foreign state, the Republic of Argentina, is
using the Bank of New York as its paying agent.  Argentina deposits
funds with the Bank of New York to service currently outstanding debt
of Argentina and the Bank of New York disperses those funds to the
appropriate payees. This bill seeks to impose a tax on Argentina equal
to 4% of the gross amount of such funds deposited with and dispersed
by the Bank of New York for the financial institution providing such
paying agent or any other similar service. This bill would raise
revenue of at least $80 million per year.

Effective Date:  This act shall take effect immediately.