IT’S LEGAL, BUT IS IT
MORAL?: TAX
MORALITY AND ITS
LIMITS
Alison Holder, Inequality and Tax Policy Manager, Oxfam
November 2015
TAX AND MORALITY
IS TAX A MORAL ISSUE – YES AND
NO!
• There are moral considerations when it comes to
taxation
• But the need to rely on moral judgement in matters of
taxation is ultimately a reflection of our broken tax
system
• Appealing to large corporations to be moral in matters of
taxation wreaks of desperation
• However, the framing of tax as a moral issue is a sign
that norms are changing
• Trying to avoid paying your fair of tax is immoral but taxation it is too important to be left to morals
alone
Page 3
TAX AS AN ISSUE OF FAIRNESS
AND JUSTICE
• The general public finds tax avoidance to be unfair
• 85% of British adults say tax avoidance is ‘morally wrong, even if
it is legal’
• Complaints from experts that tax issues are
oversimplified in public debate
• But also deliberate attempts to stifle debate with a focus
on technicalities
• Tax is complex in many ways, but it is also quite simple!
• Basic injustice that the richest individuals and companies have access
to advisers and tax planners and the use of offshore tax havens to help
them minimise their tax bill
• Corporations benefit from public goods (like roads, ports, and healthy
and educated workers and consumers) so why should they
get away
Page 4
with not paying their fair share?
TAX AS A MEASURE OF SOCIETAL
EFFECTIVENESS
• A good tax system generates sufficient revenue to sustain the
institutions and activities of the state
• A broad tax base is needed – with contributions from individual
citizens and companies – to maintain healthy public finances
• Link between good tax systems and good governance – states that
are over-reliant on other sources of income tend to have less
accountable and responsive governance
“Though tax records are generally looked upon as a nuisance, the day may
come when historians will realize that tax records tell the real story behind
civilized life. How people were taxed, who was taxed, and what was taxed
tell more about a society than anything else. Tax habits could be to
civilization what sex habits are to personality. They are basic clues to the
way a society behaves.”
Charles Adams, Tax Attorney and Professor, Author of The Rise and Fall of
Civilization According to Tax Collection Page 5
TAX AS A HUMAN RIGHTS ISSUE
• Tax is at the core of the social contract between citizens and
state and between businesses and the state
• Abuse of the tax system and/or use of power to shape tax
policies → Undermining of social contract and robbing
governments of the revenues they need to fulfil human rights
obligations
• Tax justice is increasingly being framed as a human rights
issue
• Malawi, the poorest country in the world, → lost out on US$43 million in
revenue over the last six years from the Australian mining company
Paladin.
• New research (out next week) → Taxes lost because of profit shifting by
US companies in just one year could have paid for the salaries of
millions of nurses worldwide. Not one million, not two million but
several million nurses
Page 6
EXTREME INEQUALITY
EXTREME INEQUALITY IS THE ISSUE
OF OUR TIME
Page 8
THE GROWING GAP BETWEEN
RICH AND POOR
Page 9
INEQUALITY THREATENS SOCIETY
AND IS BAD FOR US ALL
• Economic inequality is associated with a range of health and
social problems, like mental illness and violent crime.
• Homicide rates are almost four times higher in countries with
extreme economic inequality than in more equal nations.
• Latin America – the most unequal and insecure region in the
world –has 41 of the world’s 50 most dangerous cities, and saw
a million murders take place between 2000 and 2010
Page 10
WHY NOW?
“The combined trends of increased
inequality and decreasing mobility
pose a fundamental threat to the
American Dream, our way of life, and
what we stand for around the globe”
(2013)
“In far too many countries
the benefits of growth are
being enjoyed by far too
few people. This is not a
recipe for stability and
sustainability” (2014)
President Obama
Christine Lagarde, IMF
“There’s been class
warfare going on for the
last 20 years and my
class has won” (2011)
Warren Buffet
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THE LINKS BETWEEN INEQUALITY
AND TAX
• Broad agreement that extreme inequality is
•
•
•
•
Immoral
Unfair and unjust
Ineffective – that is, not good for anyone whether rich or poor
A breach of human rights
• Strong links between inequality and tax
• When the tax system is unfair, inequality rises.
• Tax revenues are needed to tackle the problem of inequality – for e.g.,
investing in public services that disproportionately benefit the poor
• And the tax system is a key tool for redistributing wealth
• Fixing our broken tax system is necessary for
•
•
•
•
Morality
Justice
Effectiveness
The realisation of human rights
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TAX AS A CORPORATE
RESPONSIBILITY ISSUE
TAX AS A CORPORATE
RESPONSIBILITY ISSUE
• The idea of tax as a corporate responsibility issue is not new
• There is a growing movement to have tax seen as a core part
of a company’s corporate social responsibility (CSR) agenda
– and not just part of, but the most important part
• Fair Tax Mark
• A growing number of companies (particularly in the UK, but the Fair Tax
Mark is expanding) are seeing the value in meeting the rigorous criteria
to achieve Fair Tax Mark status.
• The UN Global Compact
• There is a growing recognition that the UN Global Compact should add
an 11th Principle to its “Guiding Principles for Responsible Business”
around the payment of fair taxes
Page 14
NEW REPORT ON RESPONSIBLE
TAX BEHAVIOUR (OUT SOON!)
• New report → “Getting to Good – Towards Responsible
Corporate Tax Behaviour”
• “Responsibility beyond legal compliance”
• 8 areas of the corporate tax agenda:
• 1. Tax planning practices
• 2. Public transparency and reporting
• 3. Non-public disclosure
• 4. Relationships with tax authorities
• 5. Tax function management and governance
• 6. Impact evaluation of tax policy and practice
• 7. Tax lobbying/advocacy
• 8. Tax incentives
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“SECOND GENERATION”
TAX REFORM
PROBLEMS WITH THE CURRENT
TAX SYSTEM
• The current international tax system is broken
• Many companies not paying a fair share of tax in the countries
where their real business activity is taking place – that is the
countries where they have assets, employees and sales
• Tax evasion and tax avoidance is fuelling inequality –
because it contributes to a trickle up of income and wealth
• The G20 and OECD recognises this, and the Base Erosion
and Profit Shifting (BEPS) process was designed to begin to
fill the gaps in the current system
• Diagnosis of the problems = Agreement
Page 17
ICRICT: THE INDEPENDENT
COMMISSION FOR THE REFORM OF
INTERNATIONAL CORPORATE
TAXATION
1. Tax multinationals as single firms
2. Curb tax competition
3. Strengthen enforcement
4. Increase transparency
5. Reform tax treaties
6. Build inclusivity into international tax cooperation
“ICRICT unanimously agreed that the
current system is broken, and that
minor tweaks will not fix it. “
Joseph Stiglitz
Page 18
BEYOND BEPS: WHERE DO WE GO
FROM HERE?
• Base Erosion and Profit Shifting (BEPS) → a welcome step
but with several key weaknesses
• Oxfam’s proposal is a second generation of tax reforms –
driven by a more inclusive governance structure, where all
countries have an equal say and influence on the design and
implementation of reforms
• The second generation of tax reforms must include:
• Ending harmful tax competition and the race to the bottom
• Reallocating taxing rights between countries so source and
residence countries benefit fairly from corporate tax revenues
• Addressing the avoidance of capital gains tax
• Taxing companies as single entities for tax purposes
• Ultimately → Democratic and inclusive global tax body
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CONCLUSION
CONCLUSION
• Tax is a moral issue – but it is more
• Our current tax system is not just immoral but
• Unjust
• Ineffective
• A violation of human rights
• Tax is also a corporate responsibility issue
• There are meaningful and immediate steps that companies can
take to improve the impact of its tax behaviour on the societies, and
particularly the developing countries, where they do business
• Fixing the problems in our tax system require greatly
improved international cooperation on tax, much more
ambitious government-led reforms, and binding rules
• Fully inclusive and democratic global tax body
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ALISON HOLDER
OXFAM
[email protected]
@alieholder