IT’S LEGAL, BUT IS IT MORAL?: TAX MORALITY AND ITS LIMITSAlison Holder, Inequality and Tax Policy Manager, Oxfam

November 2015

TAX AND MORALITY

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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

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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 with not paying their fair share?

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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

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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

EXTREME INEQUALITY

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EXTREME INEQUALITY IS THE ISSUE OF OUR TIME

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THE GROWING GAP BETWEEN RICH AND POOR

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• 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

INEQUALITY THREATENS SOCIETY AND IS BAD FOR US ALL

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WHY NOW?

“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)

“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)

“There’s been class warfare going on for the

last 20 years and my class has won” (2011)

President Obama

Christine Lagarde, IMF

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

TAX AS A CORPORATE RESPONSIBILITY ISSUE

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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

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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

“SECOND GENERATION” TAX REFORM

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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

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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

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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

CONCLUSION

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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

ALISON HOLDER

OXFAMaholder1@oxfam.org.uk@alieholder