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Tax ruling may draw retaliation

New York can sue foreign governments over back taxes owed.

June 17, 2007|Matthew Lee | Associated Press

WASHINGTON — Think you have a tax problem? A recent Supreme Court ruling could leave Uncle Sam, and American taxpayers, liable for millions on U.S. diplomatic properties abroad.

While New York City celebrates the decision allowing it to sue foreign governments for more than $100 million in back property taxes, the State Department is bracing for retaliation overseas.

The fear is that governments will take similar measures against the United States, which maintains the world's largest diplomatic presence with more than 3,500 buildings. Many of them could be subject to taxation by local authorities and lawsuits to recover money owed.

More broadly, the finding could also jeopardize traditional rights and privileges that date back to ancient Greece and are enshrined in international treaties, notably the Vienna Convention, which grants immunity from most civil and criminal prosecutions to diplomats on foreign soil.

The court's 7-2 ruling last week chipped away at some of those immunities by finding that New York has jurisdiction to sue the governments of India and Mongolia for nearly $20 million, more than $41 million with interest, in property taxes that local authorities say are owed on residences at the countries' U.N. diplomatic missions in Manhattan.

Officials in New York say they will use the decision to go after other governments they accuse of refusing to pay property taxes -- and millions more in unpaid parking tickets.

The Bush administration had sided with India and Mongolia, citing the potential for damage to the conduct of foreign affairs if the justices upheld a lower court ruling in favor of New York.

The State Department declined to comment Friday on the ramifications of the decision, stressing that the ruling means only that New York can take India and Mongolia to court.

"This is not a decision on the merits of the case," said department spokesman Kurtis Cooper.

Privately, one senior department official said it could open a "Pandora's box" of ills for the United States abroad.

Such concerns were expressed in a legal brief filed with the Supreme Court on behalf of India and Mongolia by the State and Justice departments.

A ruling for New York "is likely to have adverse consequences for the nation's foreign policy, including retaliatory measures taken against the United States," it said, noting that a ruling for New York would create the perception that the U.S. was not upholding its international obligations.

A spokesman for the Indian diplomatic mission in New York said India had not decided how to respond. The Mongolian mission did not return calls for comment.

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