Austaxpolicy blog

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The integrity of the tax system after BEPS: a shared responsibility
by Hans Gribnau, 26 February 2018

International tax law has become a hotly disputed topic in recent years. There is public outcry over the aggressive tax planning practices of multinational enterprises, and over the lack of cooperation between states to counter these practices with fair and effective rules. This evidences deep concerns about the integrity of the international tax system. Rebuilding public trust in its integrity has thus become an urgent matter. Yet, who is to be held responsible for the erosion of the tax system? Multinationals or states? This question is ultimately a moral one, for taxation is a moral phenomenon. As Thomas Piketty (2014, p. 493) states, ‘without taxes, society has no common destiny, and collective action is impossible’. Indeed, the tax system reflects and protects important values such as liberty, reciprocity, solidarity and distributive justice. Taxes are the main funding for society and for individual liberty to flourish. Moreover, they are an important means to enhance distributive justice. Why is tax compliance a question of moral responsibility? Multinationals and states make choices that impact the tax system. Both multinationals and states as actors in the tax system enjoy a certain freedom of choice with regard to the design, interpretation, application and use of tax rules. States can devise tax systems in different ways. Corporate (and other) taxpayers can comply with the rules and they can also structure their tax affairs to minimize their tax liability. The choices by these actors may affect, enhance or undermine the integrity of the tax system. The integrity of the tax system has been hollowed out by both multinational corporations and states. On the one hand, many multinationals are gaming the system. By minimising their tax liability, they erode the integrity of international tax law. They do not pay their share in a system where everyone, both citizens and companies, are expected to contribute to the financing of public expenditure which everyone benefits from. On the other hand, the rules of the game are set by countries competing for multinationals’ investment, by lowering tax rates and introducing tax incentives which lower effective tax rates. Both multinationals and states compete at an international level.

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