Complaint About Foreign Tax Violations Sunk Under SOX

On February 12, 2014, the Fifth Circuit in Villanueva v. U.S. Department of Labor held that an employee did not engage in protected activity under SOX when he reported alleged violations of Columbian tax laws to U.S. executives at his employer. Villanueva was a non-U.S. citizen working in Colombia for a Colombian subsidiary of a Netherlands company that was publicly traded in the U.S. He allegedly reported a transfer pricing scheme, pursuant to which his Colombian employer would be required to use a Dutch Antilles entity of the company for inspection services that his employer performed for non-Colombian clients. As part of the scheme, 10% of the contract revenues were paid to the Dutch Antilles company even though it did not procure the contracts or conduct the services. Villanueva alleged that his Colombian employer wrongfully claimed Value-Added-Tax exemptions on the work and, as a result, it was able to under-report its taxable revenue to Colombian authorities.