Transcript Brian J. Arnold - Tax Coop | CONFERENCE

TAX CO-OP CONFERENCE
November 3, 2015
Montreal
MORALITY AND TAXATION
Brian J. Arnold
Senior Adviser, Canadian Tax
Foundation, Toronto
Basic Concepts
• Where there is a legal obligation to pay tax,
whether there is a moral obligation to pay is
irrelevant
• Where there is no legal obligation to pay tax, is
there a moral obligation to pay?
– debatable, but doubtful
– even if there is a moral obligation, what are the
consequences?
• Is there a moral obligation not to try and avoid tax?
2
Basic Concepts
• Corporations are legal fictions
• therefore, it makes no sense to talk
about moral obligations of corporations
• It is appropriate to talk about the moral
obligations of directors, officers and
shareholders of corporations
3
Basic Concepts
• Taxpayers and their professional tax
advisers will act in their self-interest
– no sense appealing to their moral
obligation to pay their fair share
4
Fundamental Legal Principles
• Duke of Westminster principle – everyone has the
right to arrange his or her affairs to minimize tax – is
widely recognized
• Implications: no obligation to pay any more than than
the law requires or not to take actions that reduce tax
• Competing principle: everyone has an obligation to
pay their fair share (abuse of rights)
– implications: what is one’s fair share? who determines
what one’s fair share is?
• Impossible to base a tax system on such nebulous
standards
5
Fundamental Legal Principles
• Real question is: What actions can persons
take to avoid tax?
– is this a moral issue or just a legal issue?
– is the analysis the same for taxpayers and tax
advisers?
• If it’s a moral issue – no clear standard; up to
each individual
• If it’s a legal issue – standard varies from
country to country; result of tax rules and
case law
6
Fundamental Legal Principles
• Problems often occur where:
1) tax legislation is deficient
2) courts adopt benign approach to tax avoidance
•
•
emphasis on textual interpretive principle: if an
action isn’t prohibited, then it’s allowed
tax consequences are based on the legal form of
transactions
3) taxpayers and their professional advisers are
aggressive
7
Solutions
• Morality may be an effective basis for
public naming and shaming of MNEs by
journalists, NGOs and politicians
• The coverage of tax issues by the
general media is usually poor
• Criminal prosecutions for tax evasion
are not effective
8
Solutions
• Tougher legislation to alter the risk/reward analysis
for taxpayers and tax advisers
• Regulate the tax advisory profession
• Better courts:
“The ultimate question is whether the relevant
statutory provisions, construed purposively, were
intended to apply to the transaction, viewed
realistically.”
(Arrowtown Assets Ltd. [2004] 1 HKLRD 77 (HKCA))
• Better enforcement by CRA and Justice
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MNEs and BEPS
• Oxfam report refers to “rigged” and
uncoordinated international tax rules
that allow MNEs to “dodge” taxes
• Wealthy individuals exploit loopholes
and secrecy
10
NGO Solutions for BEPS
•
•
•
•
OECD/G20 solutions:
Reform process in which developing
countries participate equally
Country-by-country reporting
Make companies taxable based on their
real economic activity
Automatic exchange of information
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NGO Solutions for BEPS
•
•
•
•
Other solutions:
Taxes on wealth
Stop the use of tax havens with a
blacklist and sanctions
Worldwide formulary apportionment
Transparency for tax incentives
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Conclusion
• Taxpayers, especially wealthy
individuals and MNEs, should not be
able to easily avoid paying tax
• blame/responsibility rests squarely on
the tax authorities, the courts and the
legislature to deal more effectively with
tax avoidance
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