tag:theconversation.com,2011:/au/topics/tax-avoidance-5044/articlesTax avoidance – The Conversation2023-07-03T20:05:51Ztag:theconversation.com,2011:article/2069872023-07-03T20:05:51Z2023-07-03T20:05:51ZWhat are we teaching our children when we use them as taxpayers of convenience?<figure><img src="https://images.theconversation.com/files/535407/original/file-20230703-274753-mwpfji.png?ixlib=rb-1.1.0&rect=311%2C325%2C2676%2C1487&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>The start of the Australian tax year is an opportunity to reflect on the way in which children - some of them very young - are being used to minimise their parents and grandparents’ tax, and the message that will send them.</p>
<p>Children are mainly used as taxpayers of convenience by controllers of discretionary trusts (often called “family trusts”), although there are other means as well.</p>
<p>The way in which it is done is to take advantage of childrens’ tax-free thresholds.</p>
<p>Each Australian resident gets a tax-free threshold of <a href="https://www.ato.gov.au/Rates/Individual-income-tax-rates/#Residents">A$18,200</a> meaning the first $18,200 earned is untaxed. The <a href="https://www.superguide.com.au/how-super-works/low-income-tax-offset-lito">Low Income Tax Offset</a> boosts this threshold further for low income earners ensuring some can earn up to $21,884 tax-free.</p>
<p>Unused tax-free thresholds are valuable for taxpayers who want to avoid tax. They can divert income to the holder of an unused threshold thereby turning what would otherwise be a high marginal tax rate into a marginal tax rate of zero.</p>
<h2>Some taxpayers accumulate tax-free thresholds</h2>
<p>Probably the most high-profile example of using the tax-free thresholds of others was a case over three decades ago in 1989 known as <a href="https://jade.io/article/211725">East Finchley Pty Ltd</a> versus the Commissioner of Taxation.</p>
<p>It made use of the tax-free thresholds of foreigners who at the time were allowed to receive $585 tax-free.</p>
<p>What happened was that the trustee allocated the trust’s taxable income to 126 non-residents in India who were relatives of the people behind the trust.</p>
<p>Each non-resident was allocated $585, which was the exact amount of his or her tax-free threshold.</p>
<p>The court heard a director of the trustee company travelled to India to request that each beneficiary loan back the income they had received.</p>
<h2>Children are a source of tax-free thresholds</h2>
<p>It works much the same way for children.</p>
<p>Young people over the age of 18 get the full tax-free threshold, meaning that if they have no other income, a trust can purport to hand them up to $21,884 on which zero tax will be paid.</p>
<p>While young people under the age of 18 get the same tax-free threshold for income from <a href="https://www.ato.gov.au/Individuals/Income-deductions-offsets-and-records/Income-you-must-declare/Your-income-if-you-are-under-18-years-old/?anchor=Workoutifyoureceiveexceptedincome#Workoutifyoureceiveexceptedincome">employment and some other sources</a>, their tax-free threshold for distributions from trusts is limited to <a href="https://www.ato.gov.au/rates/Tax-rates-if-you-re-under-18-years-old/">$416</a> per year in an attempt to curtail their use as taxpayers of convenience.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/535220/original/file-20230703-213719-uix25f.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/535220/original/file-20230703-213719-uix25f.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/535220/original/file-20230703-213719-uix25f.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=964&fit=crop&dpr=1 600w, https://images.theconversation.com/files/535220/original/file-20230703-213719-uix25f.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=964&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/535220/original/file-20230703-213719-uix25f.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=964&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/535220/original/file-20230703-213719-uix25f.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1212&fit=crop&dpr=1 754w, https://images.theconversation.com/files/535220/original/file-20230703-213719-uix25f.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1212&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/535220/original/file-20230703-213719-uix25f.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1212&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Babies get distributions from trusts.</span>
</figcaption>
</figure>
<p>Yet Australia’s law reports are replete with examples of $416 per year being allocated to children under 18, some from when they are a few months old.</p>
<p>And there are exceptions that allow for children under 18 to receive up to $21,884 per year tax-free, including from a trust created by a grandparent’s will.</p>
<p>In many of these cases, the child never gets the money - it is used by the parents.</p>
<p>In many of these, the child doesn’t know they have been allocated the money.</p>
<p>The parents treat it as their own, with the “payment” to children being viewed as “just for tax purposes”.</p>
<p>When, and if, these children find out, it is likely to colour their views about the extent to which it is important to be truthful when complying with the tax law.</p>
<p>As it happens, it isn’t clear these parents are complying with the law.</p>
<h2>Some of the arrangements artificial and contrived</h2>
<p>Section <a href="https://www.ato.gov.au/General/Trusts/In-detail/Trust-reimbursement-agreements/Trust-taxation---reimbursement-agreement/">100A</a> of the Tax Act applies specifically to trusts.</p>
<p>It says where a beneficiary is allocated income but the benefit actually goes to someone else, the beneficiary is not taxed but a penalty rate of tax (45%) is imposed on the trustee.</p>
<p>There is an exception for an “ordinary family dealing”, but it does not extend to dealings that are “<a href="https://www.ato.gov.au/General/Trusts/In-detail/Trust-reimbursement-agreements/Trust-taxation---reimbursement-agreement/">artificial, contrived, or overly complex</a>”.</p>
<p>Some parents are testing the “ordinary family dealing” exception. Among the claims being made by parents is that children need not get the benefit of money allocated to them because they need to reimburse their parents for the costs of their upbringing. Yes, <a href="https://www.ato.gov.au/law/view/pdf/tpa/ta2022-001.pdf">you read that correctly</a>.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/testamentary-trusts-are-one-of-the-last-outrageous-means-of-avoiding-tax-142035">Testamentary trusts are one of the last outrageous means of avoiding tax</a>
</strong>
</em>
</p>
<hr>
<p>A strong case can be made that the Australian Tax Office hasn’t been tough enough in using Section 100A against taxpayer-of-convenience arrangements.</p>
<p>A strong case can also be made that if young adults aren’t able to meet their own expenses because they don’t earn their own income, they should be viewed as a dependant. And in turn, the $21,884 tax-free threshold should not be available to them.</p>
<p>And a case can even be made that treating children as taxpayers of convenience breaches their rights and child welfare laws. It certainly isn’t good for them if it encourages them to adopt the ethics of their parents.</p>
<p>The best approach would be to review and strengthen tax laws in order to remove the temptation for parents to even think about using their children in this way.</p><img src="https://counter.theconversation.com/content/206987/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Dale Boccabella does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Purporting to distribute money to children to take advantage of their tax-free thresholds sends
a message about how important it is to be truthful when complying with the tax law.Dale Boccabella, Associate Professor of Taxation Law, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2055602023-05-17T06:01:55Z2023-05-17T06:01:55ZPwC scandal shows consultants, like church officials, are best kept out of state affairs<figure><img src="https://images.theconversation.com/files/526395/original/file-20230516-15-1f2ucl.jpg?ixlib=rb-1.1.0&rect=0%2C901%2C5463%2C2736&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption"></span> </figcaption></figure><p>Australia’s Treasurer Jim Chalmers called it “<a href="https://www.theguardian.com/business/2023/jan/25/jim-chalmers-furious-after-former-pwc-tax-adviser-found-to-have-shared-confidential-government-briefings-with-staff">an appalling breach of trust</a>”. But the scandal involving the local arm of PricewaterhouseCoopers (PwC), the world’s second-largest professional services firm, is much worse than that. </p>
<p>PwC Australia’s chief executive <a href="https://www.afr.com/companies/professional-services/pwc-partners-to-attend-emergency-meeting-over-tax-leak-20230505-p5d5vx">Tom Seymour</a> and two other board members, <a href="https://www.afr.com/companies/professional-services/two-more-pwc-leaders-step-down-amid-tax-leaks-scandal-20230510-p5d7gj">Pete Calleja and Sean Gregory</a>, last week finally resigned their leadership positions over the use of confidential information about Australian tax policy to help PwC clients avoid paying tax. </p>
<p>In January, it was revealed the Tax Practitioners Board had (in late 2022) terminated the registration of PwC Australia’s former head of international tax, <a href="https://www.afr.com/companies/financial-services/pwc-partner-leaked-government-tax-plans-to-clients-20230120-p5ceaz">Peter-John Collins,</a> for sharing information he gained at confidential Treasury consultations. Collins left PwC last October.</p>
<p>In March, the Senate <a href="https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Finance_and_Public_Administration/Consultingservices">announced an inquiry</a> into the integrity of consulting services. Seymour downplayed the leak as a “<a href="https://www.afr.com/companies/professional-services/pwc-has-a-perception-problem-over-tax-leak-ceo-20230308-p5cqh5">perception issue</a>”. </p>
<p>Things only substantially changed after the inquiry this month published internal PwC emails showing that (in the words of the <a href="https://www.afr.com/companies/professional-services/the-inside-story-of-pwc-s-tax-scandal-20230504-p5d5k5">Australian Financial Review</a>) “for years, dozens of PwC operatives used confidential updates on government tax plans obtained by Collins to drum up new tax clients”. </p>
<p>Up to eight partners shared the information about plans to tackle multinational tax avoidance. As many as 40 of PwC’s <a href="https://www.pwc.com.au/media/2022/pwc-new-partners-Jan-2023.html">900 partners</a> received emails discussing using the information. This included Seymour. (For context, PwC Australia has about 900 partners and 8,000 staff.) </p>
<p>It wasn’t until the emails were made public that Seymour announced an “independent” review of the firm’s <a href="https://www.afr.com/companies/professional-services/pwc-partners-to-attend-emergency-meeting-over-tax-leak-20230505-p5d5vx">governance, culture and accountability</a> (to be done by former Telstra chief executive Ziggy Switkowski), with the partners who received the emails being put through PwC’s “<a href="https://www.afr.com/companies/professional-services/two-more-pwc-leaders-step-down-amid-tax-leaks-scandal-20230510-p5d7gj">consequence management framework</a>”. </p>
<h2>Values in conflict</h2>
<p>PwC made at least A$2.5 million from the leaked information, using it to drum up <a href="https://www.abc.net.au/news/2023-05-09/pwc-australia-ceo-steps-down-after-tax-documents-leak-scandal/102323102">new business</a> for the company’s tax services. In terms of PwC Australia’s total revenues of <a href="https://www.pwc.com.au/about-us/firmwide-transparency-report.html#:%7E:text=In%20the%20year%20ending%2030,and%20profit%20growth%20of%2021%25.">$2.6 billion last year</a>, it’s not much. But the fact it happened, and the response of PwC’s leadership since, is telling.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/putting-a-dollar-value-on-how-much-employees-are-willing-to-put-their-own-interests-first-74543">Putting a dollar value on how much employees are willing to put their own interests first</a>
</strong>
</em>
</p>
<hr>
<p>The whole fiasco stands in stark contrast to PwC’s stated <a href="https://www.pwc.com.au/about-us/purpose-values.html">corporate values</a> that “celebrate doing the right thing”. </p>
<p>The firm describes itself as “<a href="https://www.pwc.com/us/en/about-us/purpose-and-values.html">purpose-led and values-driven</a>”. In 2019 its global chairman, <a href="https://www.pwc.com/gx/en/contacts/b/bob-moritz.html">Bob Moritz</a>, was among 181 business leaders who signed a declaration redefining the <a href="https://www.businessroundtable.org/business-roundtable-redefines-the-purpose-of-a-corporation-to-promote-an-economy-that-serves-all-americans">purpose of the corporation</a> as being about delivering value to all stakeholders. </p>
<p>These are warm sentiments, but the proof is in the pudding, and a key social responsibility of any business is to pay taxes that fund schools, roads, hospitals and protection of the vulnerable. It’s hard to reconcile the statements about values with the apparent laxity around the Collins case. </p>
<figure class="align-center ">
<img alt="PwC has about 8,000 staff in Australia, and another 320,000 globally" src="https://images.theconversation.com/files/526364/original/file-20230516-31204-zmbmq1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/526364/original/file-20230516-31204-zmbmq1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/526364/original/file-20230516-31204-zmbmq1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/526364/original/file-20230516-31204-zmbmq1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/526364/original/file-20230516-31204-zmbmq1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/526364/original/file-20230516-31204-zmbmq1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/526364/original/file-20230516-31204-zmbmq1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">PwC has about 8,000 staff in Australia, and another 320,000 globally.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
</figcaption>
</figure>
<h2>Bigger than one company</h2>
<p>The fundamental conflict that underlies the scandal is what makes it bigger than just PwC.</p>
<p>In any area where governments make decisions affecting business profitability, there are incentives for vested interests to influence the process. There are, however, few areas where the government has so blatantly left its processes open to abuse as through its reliance on external consultants. </p>
<p>Federal spending on consultancy-related contracts rose from $352 million to $888 million a year between 2012–13 and 2021–22, according to the <a href="https://www.anao.gov.au/work/information/australian-government-procurement-contract-reporting-2022-update#popper-master-2">Australian National Audit Office</a> says. PwC’s share over the decade was <a href="https://www.themandarin.com.au/211113-how-much-the-government-spent-on-big-four-contracts-per-anao/">more than $420 million</a>. </p>
<p>Reversing this trend, and separating corporate and public interests, is now as crucial as separating church and state.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/big-four-accounting-firms-avoid-scrutiny-in-multinational-tax-avoidance-54879">Big four accounting firms avoid scrutiny in multinational tax avoidance</a>
</strong>
</em>
</p>
<hr>
<h2>The high priests of consulting</h2>
<p>As the coronation of King Charles reminds us, the <a href="https://www.independent.co.uk/voices/head-of-state-king-charles-church-religion-monarchy-b2174460.html">separation of church of and state is unfinished business</a> in the political institutions inherited from Britain. Nonetheless, since the Enlightenment it has been broadly accepted that keeping church and state broadly distinct is necessary for good democracy. </p>
<p>One of the reasons the church got powerful in the first place is that for hundreds of years it was the only institution more or less based on meritocracy. It was a source of advisers who could read, write and add up numbers – useful skills for any monarch.</p>
<p>Clerical advisers such as <a href="https://www.britannica.com/biography/Alcuin">Alcuin of York</a> in the court of Charlemagne, or Cardinal Richelieu, the chief minister to King Louis XIII, were a bit like modern corporate consultants. </p>
<p>They belonged to a multinational organisation with a vast global network. Secular leaders looked to them as the experts on many matters. The lack of separation, however, between their allegiances came with significant downsides, both for religious freedom and state political independence. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/consulting-firms-are-the-shadow-public-service-managing-the-response-to-covid-19-170436">Consulting firms are the 'shadow public service' managing the response to COVID-19</a>
</strong>
</em>
</p>
<hr>
<p>The power of the modern consultants to influence government is akin to the influence Church officials once wielded. The danger of particular private interests taking precedence over public ones is striking, as the tax scandal illustrates. </p>
<h2>Much more needs to be done</h2>
<p>The PwC scandal raises serious doubt about the value that consultants are making to government efforts to stamp out tax avoidance by multinational companies, with estimated <a href="https://www.oxfamamerica.org/explore/stories/do-the-rich-pay-their-fair-share/">US$1 trillion of profits per year</a> funnelled through tax havens globally. The cost to Australian taxpayers (through lost revenue from Australian companies using tax havens) is estimated to be about <a href="https://electionwatch.unimelb.edu.au/australia-2016/articles/the-massive-social-cost-of-multinational-tax-dodging2">A$6 billion a year</a> (US$5 billion). </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/1-trillion-in-the-shade-the-annual-profits-multinational-corporations-shift-to-tax-havens-continues-to-climb-and-climb-200034">$1 trillion in the shade – the annual profits multinational corporations shift to tax havens continues to climb and climb</a>
</strong>
</em>
</p>
<hr>
<p>Seymour has announced he will <a href="https://www.reuters.com/business/finance/former-pwc-australia-ceo-retire-partner-after-tax-documents-leak-scandal-2023-05-15/">retire later in the year</a>. More retirement announcements are expected. The federal government is considering how to impose a <a href="https://www.afr.com/companies/professional-services/pwc-s-tom-seymour-to-exit-switkowski-to-run-tax-leaks-inquiry-20230515-p5d8i4">financial penalty</a> on the firm.</p>
<p>But these are are minor punishments that will leave the systemic problem untouched. Much more needs to be done to prevent the system of democratic government being abused for private gain. </p>
<hr>
<p><em>Update: On <a href="https://treasury.gov.au/media-release/referral-australian-federal-police-pwc-collins-matter">Wednesday May 25</a> Treasury Secretary Steven Kennedy referred the conduct of PwC Australia’s former head of international tax, Peter Collins to the Australian Federal Police to consider commencement of a criminal investigation.</em></p><img src="https://counter.theconversation.com/content/205560/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Carl Rhodes does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The scandal of PwC consultants using confidential government information to benefit private clients highlights a problem far bigger than one firm.Carl Rhodes, Professor of Organization Studies, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1985542023-01-26T15:11:26Z2023-01-26T15:11:26ZNadhim Zahawi tax penalty: accounting expert on what it means when HMRC fines you for being ‘careless’<p>Although the news that Tory party chairman Nadhim Zahawi had paid a penalty for failing to file his taxes properly <a href="https://www.theguardian.com/uk-news/2022/jul/18/labour-challenges-nadhim-zahawi-over-tax-and-26m-business-loan">first surfaced</a> during his short tenure as chancellor from July to September 2022, his past tax affairs have come under scrutiny again more recently. </p>
<p>In July 2022, <a href="https://www.independent.co.uk/news/uk/politics/chancellor-nadhim-zahawi-tax-investigation-hmrc-b2119590.html">the Independent reported</a> that Zahawi’s tax affairs were under investigation by HMRC. More recently, <a href="https://www.thesun.co.uk/news/21046397/chancellor-nadhim-zahawi-tax/">the Sun reported</a> that the ex-chancellor, now Tory party chairman, had paid “several million” to “settle a dispute with HMRC” about whether he had used an offshore company called Balshore Investments to hold shares in YouGov. This the polling company he co-founded with help from his father <a href="https://corporate.yougov.com/about/timeline/">in 2000 and retired from in 2010</a>. Balshore is registered in Gibraltar and has been linked to Zahawi’s family, but Zahawi denies setting it up or using it.</p>
<p>Although the exact details have not been made public yet, Zahawi came to a settlement with HMRC after it found he was “careless” with his tax return. HMRC defines this as “<a href="https://www.gov.uk/hmrc-internal-manuals/compliance-handbook/ch53400">a failure to take reasonable care in relation to your tax affairs</a>”. </p>
<p>On the subject of care and carelessness, <a href="https://www.gov.uk/hmrc-internal-manuals/compliance-handbook/ch81140">HMRC’s internal manual Compliance Handbook</a> says:</p>
<blockquote>
<p>People do make mistakes. We do not expect perfection. We are simply seeking to establish whether the person has taken the care and attention that could be expected from a reasonable person taking reasonable care in similar circumstances, taking into account the ability and circumstances of the person in question at the time the irregularity was submitted to HMRC.</p>
</blockquote>
<p>The principle of carelessness is similar to that of “<a href="https://uk.practicallaw.thomsonreuters.com/9-107-6848?transitionType=Default&contextData=(sc.Default)&firstPage=true#:%7E:text=to%20its%20truth.-,Negligent%20misrepresentation,-%3A%20a%20representation%20made">negligent misrepresentation</a>” in a legally binding contract. This is when a person makes a false statement that they believe is true, but they don’t have reasonable grounds for believing that it is true.</p>
<p><a href="https://www.gov.uk/hmrc-internal-manuals/compliance-handbook/ch53500">Examples of carelessness cited by HMRC</a> include haphazard record keeping, insufficient reading or understanding of HMRC guidelines and, most relevant in the Zahawi case, carelessness on the part of <a href="https://www.theguardian.com/uk-news/2023/jan/20/nadhim-zahawi-agreed-on-penalty-to-settle-tax-bill-worth-millions#:%7E:text=Zahawi%E2%80%99s%20representative">representatives</a> employed by the taxpayer in question. </p>
<p>HMRC will consider many factors when deciding what constitutes careless behaviour and the appropriate level of penalty when a self-assessment return is submitted. For example:</p>
<ul>
<li>Was the tax issue something that the person or business would be expected to have reasonable knowledge of? </li>
<li>What evidence exists that they took the time and care to look at the guidance when making a judgment on their return? </li>
<li>If an agent or tax representative was appointed to assist and complete the return, did the taxpayer thoroughly check the work, and advise and correct where necessary? </li>
<li>Importantly, did the person make HMRC aware of any errors or misdemeanors in their return if they were discovered later? </li>
</ul>
<p>The severity of any penalty can be reduced if someone is co-operative and confesses before HMRC discovers a problem.</p>
<p>To settle the issue with HMRC, Zahawi paid the additional amount owed, plus 30% of that amount as a penalty – <a href="https://www.theguardian.com/uk-news/2023/jan/20/nadhim-zahawi-agreed-on-penalty-to-settle-tax-bill-worth-millions#:%7E:text=Zahawi%E2%80%99s%20representative">reportedly millions</a>. This is the maximum percentage that can be imposed on a person for a lack of reasonable care. HMRC perhaps took the view that a person in Zahawi’s position has sufficient resources and support to get his returns correct. </p>
<p>More serious offences, such as fraudulent misrepresentation – when a person makes a statement that they know is not true – can carry a penalty of <a href="https://www.gov.uk/guidance/penalties-an-overview-for-agents-and-advisers">up to 100% of the tax due</a>). These penalties imposed by HMRC are for cases of tax evasion, that is when someone has clearly under-declared a tax liability (deliberately or not).</p>
<h2>Independent ethics investigation</h2>
<p>So what now for Zahawi? No government wants any indication of careless financial behaviour, much less tax avoidance, hanging around any of its representatives. And so prime minister Rishi Sunak has tasked the <a href="https://www.independent.co.uk/news/uk/home-news/laurie-magnus-ethics-adviser-rishi-sunak-b2267520.html">independent ethics adviser</a> Laurie Magnus to look into Zahawi’s recent interaction with HMRC. </p>
<p>Magnus will be looking for any possible breaches of the <a href="https://www.gov.uk/government/publications/ministerial-code">Ministerial Code</a>. This covers a wide range of transgressions but among the most relevant for this situation are: </p>
<ul>
<li><p>1.1: Ministers of the Crown are expected to maintain high standards of behaviour and to behave in a way that upholds the highest standards of propriety</p></li>
<li><p>7.7: Ministers must scrupulously avoid any danger of an actual or perceived conflict of interest between their Ministerial position and their private financial interests.</p></li>
</ul>
<p>But it is more difficult to understand what exactly Magnus can do. The government is unlikely to go over HMRC’s head and examine the tax position and penalty in detail. So this leaves the issue of investigating <a href="https://www.independent.co.uk/news/uk/politics/nadhim-zahawi-tax-row-timeline-b2268818.html">what and when</a> Zahawi has commented on the matter, and whether that includes any potential inconsistencies or contradictions.</p>
<figure class="align-center ">
<img alt="UK prime minister Rishi Sunak outside 10 Downing Street, London." src="https://images.theconversation.com/files/506491/original/file-20230125-14850-a5widk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/506491/original/file-20230125-14850-a5widk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=387&fit=crop&dpr=1 600w, https://images.theconversation.com/files/506491/original/file-20230125-14850-a5widk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=387&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/506491/original/file-20230125-14850-a5widk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=387&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/506491/original/file-20230125-14850-a5widk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=486&fit=crop&dpr=1 754w, https://images.theconversation.com/files/506491/original/file-20230125-14850-a5widk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=486&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/506491/original/file-20230125-14850-a5widk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=486&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">UK prime minister Rishi Sunak has tasked an ethic advisor with looking into Zahawi’s tax affairs.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/london-united-kingdom-october-25-2022-2219757061">I T S/Shutterstock</a></span>
</figcaption>
</figure>
<p>Whether Magnus will look at Sunak’s own involvement and how much he knew (or didn’t know) about this matter at certain points in the timeline is another key question. And this also highlights the shortcomings of the ethics adviser role when looking into issues such as tax discrepancies. The adviser cannot independently launch their own inquiries into ministerial matters but must wait for the prime minister to request any investigation. </p>
<p>Just one month after Magnus’s appointment, this ongoing story threatens to expose the weaknesses in the government’s ethical scrutiny, and more importantly for Sunak, affects his ability to present a stable style of premiership following <a href="https://theconversation.com/uk/topics/mini-budget-127482">the economic turmoil</a> of 2022.</p><img src="https://counter.theconversation.com/content/198554/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gavin Midgley does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>What is ‘careless behaviour’ in relation to UK tax and in what other ways can people fall foul of HMRC?Gavin Midgley, Senior Teaching Fellow in Accounting, University of SurreyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1969792022-12-21T18:42:24Z2022-12-21T18:42:24ZIs Donald Trump’s tax avoidance ethical or honorable? 4 essential reads<figure><img src="https://images.theconversation.com/files/502426/original/file-20221221-21-hy5n39.jpg?ixlib=rb-1.1.0&rect=535%2C329%2C5453%2C4239&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Is trying to pay zero taxes ok?</span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/TrumpLegalTroubles/fffd6b35020448f0b19210b32b7a961f/photo?Query=trump%20tax&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=2949&currentItemNo=84">AP Photo/José Luis Villegas, Pool</a></span></figcaption></figure><p><em>The tax records of Donald Trump, <a href="https://www.reuters.com/world/us/trump-paid-no-income-tax-2020-reported-losses-office-records-show-2022-12-21/">details of which were released on Dec. 21, 2022</a>, show the former president <a href="https://www.bloomberg.com/news/articles/2022-12-21/jet-costs-sketchy-deductions-among-red-flags-in-trump-taxes?srnd=premium&sref=Hjm5biAW">used the same aggressive measures</a> to avoid paying high taxes while in office as he did during his business career. Indeed, he paid zero tax in 2020 – the last full year of his presidency – according to figures released by the House Ways and Means Committee in one of its last moves under Democratic control. The panel plans to release redacted versions of six years’ worth of tax returns soon.</em></p>
<p><em>The Conversation <a href="https://theconversation.com/us/search?q=trump+taxes&sort=relevancy&language=en&date=all&date_from=&date_to=">has been covering Trump’s taxes</a> since he <a href="https://www.politico.com/magazine/story/2019/06/14/donald-trump-campaign-announcement-tower-escalator-oral-history-227148/">began his run for the presidency in 2015</a>. These articles from our archive, all published in the run-up to the 2020 election, explore tax-paying ethics, problems with the U.S. tax code and why the working poor are audited almost as much as the rich.</em></p>
<h2>1. The honor of paying taxes</h2>
<p>Many wealthy Americans, including Trump, take great pains and spend a lot of money on accountants to minimize their tax bill, often by mining the tax code for loopholes or even filing fake tax returns. For some, <a href="https://www.ipi.org/ipi_issues/detail/tax-avoidance-is-patriotic">tax avoidance – which is different from illegal tax evasion – is even considered patriotic</a>, and rich people often boast paying little to no taxes. In contrast, ancient Athenians <a href="https://theconversation.com/only-the-richest-ancient-athenians-paid-taxes-and-they-bragged-about-it-147249">bragged about paying their taxes</a>, <a href="https://www.holycross.edu/academics/programs/classics/thomas-r-martin">Thomas Martin</a>, a professor of the classics at College of the Holy Cross, wrote in 2020. </p>
<p>“In ancient Athens, only the very wealthiest people paid direct taxes, and these went to fund the city-state’s most important national expenses – the navy and honors for the gods,” he explained. “While today it might sound astonishing, most of these top taxpayers not only paid happily, but also boasted about how much they paid.”</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/only-the-richest-ancient-athenians-paid-taxes-and-they-bragged-about-it-147249">Only the richest ancient Athenians paid taxes – and they bragged about it</a>
</strong>
</em>
</p>
<hr>
<h2>2. The ethics of paying taxes</h2>
<p>Perhaps the well-to-do of Athens relished the prospect of paying their dues, but is it unethical to go out of your way to avoid them? </p>
<p><a href="https://scholar.google.com/citations?user=9wyT114AAAAJ&hl=en&oi=ao">Erin Bass</a>, who studies business ethics at the University of Nebraska, Omaha, <a href="https://theconversation.com/is-tax-avoidance-ethical-asking-for-a-friend-147967">addressed this question</a> from a philosophical perspective, exploring how different ethical thinkers would approach the topic. Deontologists like Immanuel Kant, utilitarians like John Stuart Mill and virtue ethicists like Aristotle all reach different conclusions about whether tax avoidance is ethical, Bass explained. </p>
<p>But she added: </p>
<blockquote>
<p>“When it comes to Trump and other public figures, there is an additional ethical concern at play here. Public leaders are evaluated not just on their own personal morality, but also by what influence their behaviors could have on others,” she wrote. “If a public leader avoids taxes, it might signal to the public to do the same, which could have greater consequences.”</p>
</blockquote>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/is-tax-avoidance-ethical-asking-for-a-friend-147967">Is tax avoidance ethical? Asking for a friend</a>
</strong>
</em>
</p>
<hr>
<h2>3. What’s wrong with the US tax code?</h2>
<p>While some say that Trump and others are smart for minimizing their taxes, critics say they’re amoral tax cheats.</p>
<p>To <a href="https://scholar.google.com/citations?hl=en&user=rmtYVssAAAAJ">Gary Winslett</a>, an assistant professor of political science at Middlebury, “it reveals just how much is wrong with the U.S. tax code, which Congress treats as a sort of policy Swiss Army knife to deal with innumerable desired social and economic policy goals, from homeownership to protecting the Maine blueberry industry.”</p>
<p>This has <a href="https://theconversation.com/trumps-ultra-low-tax-bills-are-what-happens-when-government-tries-to-make-policy-through-the-tax-code-147342">made the U.S. income tax system very complicated</a> for regular taxpayers. It led to the many loopholes and other means by which the wealthy can reduce their tax payments to levels others find unfair.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/trumps-ultra-low-tax-bills-are-what-happens-when-government-tries-to-make-policy-through-the-tax-code-147342">Trump's ultra-low tax bills are what happens when government tries to make policy through the tax code</a>
</strong>
</em>
</p>
<hr>
<h2>4. Auditing the working poor</h2>
<p>Another finding of the House panel is that the IRS didn’t audit Trump’s tax returns during the first two years of his presidency, even though it was required to do so. </p>
<p>This raises an important point: Although audits are often seen as mainly targeting the rich, the reality is the <a href="https://theconversation.com/trumps-decade-old-audit-illustrates-why-the-irs-targets-the-working-poor-as-much-as-the-rich-147313">working poor are audited at rates almost as high</a>, explained <a href="https://law.richmond.edu/faculty/hholdern/">Hayes Holderness</a>, an assistant professor of law at the University of Richmond. </p>
<p>“The IRS’s limited resources mean that auditors end up focusing their attention on cases with more straightforward issues and more accessible information,” he wrote. “That’s why lower-income individuals receiving the earned income tax credit were audited at a 1.2% rate in 2016, the most current year of mostly complete data, comparable to the audit rate of roughly 1.5% for individuals earning over $500,000.”</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/trumps-decade-old-audit-illustrates-why-the-irs-targets-the-working-poor-as-much-as-the-rich-147313">Trump's decade-old audit illustrates why the IRS targets the working poor as much as the rich</a>
</strong>
</em>
</p>
<hr>
<img src="https://counter.theconversation.com/content/196979/count.gif" alt="The Conversation" width="1" height="1" />
A House committee released details of Trump’s tax returns from his time in office – and they show he paid zilch in 2020.Bryan Keogh, Managing EditorLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1948262022-12-02T13:03:04Z2022-12-02T13:03:04ZCorruption in South Africa: new book lifts the lid on who profits - and their corporate enablers<figure><img src="https://images.theconversation.com/files/496463/original/file-20221121-26-3p10v6.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Wikimedia Commons</span></span></figcaption></figure><p>The new <a href="https://jacana.co.za/product/the-unaccountables/">book</a> The Unaccountables: The Powerful Politicians and Corporations who Profit from Impunity is welcome for the way it contextualises corruption. It shows how politicians and bureaucrats could not implement corruption without their corporate and professional enablers – the accountants, auditors and advocates who make it all possible.</p>
<p>The book is the result of a decade of research by <a href="https://www.opensecrets.org.za/">Open Secrets</a> and other NGOs. It is edited by Michael Marchant, Mamello Mosiana, Ra’eesa Pather and Hennie van Vuuren (a blend of investigative journalists and activists) and has 11 named contributors. Analytically, it covers four overlapping issues:</p>
<ul>
<li><p>crimes such as stealing public funds and evading tax </p></li>
<li><p>culpable negligence by professionals such as auditors </p></li>
<li><p>serial failure by regulatory authorities </p></li>
<li><p>moral and political issues such as inequality and corporate tax avoidance.</p></li>
</ul>
<h2>Corporate corruption</h2>
<p>Readers who are diligent in taking in the daily media will remember most of the high profile cases summarised in this book. But not all. It reveals that the <a href="https://theconversation.com/the-deaths-of-144-mentally-ill-patients-and-south-africas-constitutional-democracy-91433">Life Esidemeni tragedy</a>, in which 144 patients died after being placed in inadequate facilities run by NGOs in 2015, had one apartheid precedent. During the 1960s the <a href="https://www.britannica.com/topic/National-Party-political-party-South-Africa">National Party</a> regime outsourced the psychiatric care of 11,000 patients (9,000 of them black) to the British company Intrinsic Investments: 207 died (p.50). </p>
<p>The book fills some gaps in media reports. These tend to focus on those who are despised by the plutocratic, wealthy establishment – the ruling African National Congress politicians and their cronies. The media are comparatively reluctant to cover crimes committed by fellow denizens of their plutocratic stratosphere, such as auditors, accountants and advocates. For example, global media coverage of Hong Kong focuses on Chinese repression of freedom of expression – but overlooks its role as a tax shelter and corporate secrecy hideout for front companies and money laundering:</p>
<blockquote>
<p>a long-running failure to hold the powerful and wealthy to account for the crimes that they profit from. Economic crimes and corruption are committed by a small band of the powerful, but they pose fundamental threats to democracy and social justice. They result in the looting of public funds, the destruction of democratic institutions, and ultimately … the human rights of millions of people. (p.12)</p>
</blockquote>
<p>Fear of those with money to bring defamation litigation, or who decide on corporate advertising spending in the media, aggravates this situation.</p>
<p>This book is structured around apartheid profiteers, war profiteers, state capture profiteers, welfare profiteers, failing auditors, conspiring consultants, and bad lawyers.</p>
<p>The authors note how over 500 global corporations negotiated, thanks to their tax accountants, with Luxembourg, a tax haven, paying only 1% tax on their profits (p.254). They seem to have missed the case of Ireland, where such tax is one thousandth of 1% on profits. Such tax shelters pervade the west, especially <a href="https://thecommonwealth.org/our-member-countries">Commonwealth countries</a>.</p>
<p>The book calls for action to end such tax avoidance. But it does not spell out what it would entail. It would require the South African government to negotiate an international coalition to campaign through the United Nations, the Organisation for Economic Cooperation and Development and the African Union, to find enough allies to mitigate such a global power structure – class power in its purest form.</p>
<p>US president Joe Biden’s proposal that globally, corporate tax should have <a href="https://www.reuters.com/business/biden-offers-drop-corporate-tax-hike-proposal-source-2021-06-03/">a floor of 15%</a> provides a good start for such campaigns.</p>
<h2>Regulation failure</h2>
<p>This book gives welcome attention to a long-neglected problem in South Africa. That is the serial failure of regulatory authorities to hold companies or professionals to account. One instance too recent for this book to cover is that the minerals and energy minister, Gwede Mantashe, has fired from the National Nuclear Regulator a civil society representative, on the grounds that he is <a href="https://www.news24.com/fin24/economy/eskom/mantashe-fires-anti-nuclear-activist-from-regulatory-board-20220225">anti-nuclear</a>. </p>
<figure class="align-left ">
<img alt="Book cover with the words 'The Unaccountable' over images of several punidentifiable men walking." src="https://images.theconversation.com/files/496457/original/file-20221121-19-rl2eao.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/496457/original/file-20221121-19-rl2eao.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=929&fit=crop&dpr=1 600w, https://images.theconversation.com/files/496457/original/file-20221121-19-rl2eao.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=929&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/496457/original/file-20221121-19-rl2eao.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=929&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/496457/original/file-20221121-19-rl2eao.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1167&fit=crop&dpr=1 754w, https://images.theconversation.com/files/496457/original/file-20221121-19-rl2eao.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1167&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/496457/original/file-20221121-19-rl2eao.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1167&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption"></span>
</figcaption>
</figure>
<p>Since the minister’s portfolio and performance contract require him to promote nuclear power, it is a conflict of interests for him to interfere in the regulator of nuclear safety. The regulator should fall under the environmental affairs department, as in other countries. This is a topical example of the abuse of power, and defanging a regulatory authority.</p>
<p>The book underscores that the Independent Regulatory Board of Auditors (IRBA) refuses to name and shame. It abuses secrecy to protect the names and reputations of auditors guilty of conspiring with their corporate clients to conceal the truth (p.272):</p>
<blockquote>
<p>the IRBA’s desire to protect its members overshadows its responsibility. </p>
</blockquote>
<p>Since at least the first world war, pacifists have denounced the military-industrial complex as the merchants of death. The <a href="https://www.gov.za/national-conventional-arms-control-committee-ncacc-statement-south-african-arms-sales-regulation">National Conventional Arms Control Committee</a> is supposed to oversee South African exports of armaments and munitions. This is to ensure the country does not violate international treaties. It is not known to have refused any permits to export armaments to countries at war, even when they indiscriminately bomb civilians, as in Yemen.</p>
<p>The authors call for its statutory framework to be drastically toughened up.</p>
<h2>Apartheid profiteers</h2>
<p>The historical chapter of the book, on apartheid profiteers, holds no surprises. Of course, <a href="https://www.sanlam.co.za/Pages/default.aspx?gclid=Cj0KCQiA4OybBhCzARIsAIcfn9m5OBZxhgPlZPIjzU68Z0C7CSAqA8Eqkui60NBY7q8qkcX4Hw3vu_UaAlITEALw_wcB&gclsrc=aw.ds">Sanlam</a>, the insurance giant, and <a href="https://www.naspers.com/">Naspers</a>, the media behemoth, were always part of the Afrikaner nationalist movement, led by the secretive <a href="https://www.britannica.com/topic/Afrikaner-Broederbond">Broederbond</a>. Of course, individual Afrikaner businessmen donated to the <a href="https://www.sahistory.org.za/article/national-party-np">Nasionale Party</a>, which formalised apartheid in 1948, as did the military-industrial complex. All those companies manufacturing armaments had only one monopoly buyer – the South African Defence Force:</p>
<blockquote>
<p>a significant portion of the business elite kept the taps open to the party at the height of domestic repression and foreign wars (p.25). </p>
</blockquote>
<p>The authors do a thorough job of exposing all the Swiss, Belgian and Luxembourg bankers who comprised the sanction-busting front companies. It exposes the late <a href="https://www.britannica.com/biography/Mobutu-Sese-Seko">Mobutu Sese Seko</a> of Zaire (now the Democratic Republic of Congo) for providing false end user certificates to enable <a href="https://www.armscor.co.za/">Armscor</a>, the apartheid-era state arms procurement company, to smuggle in weaponry (p.42).</p>
<p>The book revisits the controversial <a href="https://www.corruptionwatch.org.za/the-arms-deal-what-you-need-to-know-2/">1999 arms deal</a>. It explains how bribes were described in corporate paperwork as consultancy fees. The arms deal was the first opportunity of the post-apartheid military to buy big-ticket weapons after a quarter-century of arms sanctions, which the post-apartheid military lacked the budget to maintain in service. </p>
<p>Since then, the amount wasted in the arms deal has been dwarfed by the billions spent by <a href="https://www.transnet.net/Pages/Home.aspx">Transnet</a>, the rail, ports and pipelines parastatal, on corrupt locomotive contracts. The same for <a href="https://www.prasa.com/">Prasa</a>, the passenger rail parastatal, and <a href="https://www.eskom.co.za/">Eskom</a>, the power utility, contracts.</p>
<p>Overall, it is a book that should be on the bookshelf of every thinking South African.</p>
<p><em>Updated to clear confusion created by the absence of an index in the advance proof sent to the author.</em></p><img src="https://counter.theconversation.com/content/194826/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Keith Gottschalk is an ANC member, but writes this review in his professional capacity as a political scientist.</span></em></p>The new book is structured around apartheid profiteers, war profiteers, state capture profiteers, welfare profiteers, failing auditors, conspiring consultants and bad lawyers.Keith Gottschalk, Political Scientist, University of the Western CapeLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1846412022-06-10T04:40:37Z2022-06-10T04:40:37ZDoes paying for tax advice save money? Only if you’re wealthy<figure><img src="https://images.theconversation.com/files/467652/original/file-20220608-24-8q96d0.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C5738%2C2895&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>If you use a tax adviser to complete your income tax return you’re not alone. Australians use tax advisers more than any other nation <a href="https://www.aph.gov.au/%7E/media/02%20Parliamentary%20Business/24%20Committees/243%20Reps%20Committees/TaxRev/Tax%20Engagement%20Inquiry/Taxpayer%20Engagement%20-%20Final%20Report.pdf?la=en">apart from Italy</a>.</p>
<p>It’s easier, less stressful, gives you confidence the job is being done right and saves time.</p>
<p>But does it save you money? Our research says no – unless you’re one of Australia’s wealthiest individuals.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/how-global-tax-dodging-costs-lives-new-research-shows-a-direct-link-to-increased-death-rates-152275">How global tax dodging costs lives: new research shows a direct link to increased death rates</a>
</strong>
</em>
</p>
<hr>
<p>If you’re a typical wage earner, paying a tax adviser is likely to increase your final tax liabilities, even after you claim a tax deduction for the adviser’s fees.</p>
<p>In fact, after analysing 5 million individual tax returns over a four-year period, we’ve found tax advisers are more likely to act as “tax exploiters” for wealthy clients but “tax enforcers” for the rest of us.</p>
<p>For clients with annual taxable income more than A$180,000, whose financial affairs make tax rules complex or uncertain, tax advisers can help identify ways to save money. But for everyday wage earners they mostly ensure compliance with the tax rules.</p>
<h2>Greater benefit for the wealthy</h2>
<p>Our research is the first to explore this topic using the Australian Taxation Office’s <a href="https://alife-research.app/info/overview">ALife dataset</a>. This comprises a randomly selected (and anonymised) sample of 10% of all Australian taxpayers (about 1.4 million observations each year).</p>
<p>Analysing this data shows professional tax advice is very useful for the very wealthy to reduce their tax liabilities. Plus they get a tax deduction on paying for that advice.</p>
<figure class="align-center ">
<img alt="alt text" src="https://images.theconversation.com/files/467630/original/file-20220608-18-poa97m.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/467630/original/file-20220608-18-poa97m.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/467630/original/file-20220608-18-poa97m.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/467630/original/file-20220608-18-poa97m.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/467630/original/file-20220608-18-poa97m.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/467630/original/file-20220608-18-poa97m.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/467630/original/file-20220608-18-poa97m.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Tax advisers save time and stress for ordinary wage earners, but not money.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
</figcaption>
</figure>
<p>Those on the highest levels of supplementary income – that is, business income, rental income, personal services income and income from partnerships and trusts – undertake more aggressive tax avoidance than individuals on lower incomes. </p>
<p>The more spent on tax professional services – and thus the higher the deduction – the more likely aggressive tax-avoiding behaviour.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/explainer-the-difference-between-tax-avoidance-and-evasion-39777">Explainer: the difference between tax avoidance and evasion</a>
</strong>
</em>
</p>
<hr>
<p>In effect, the tax deduction disproportionally helps the wealthy minimise their tax. </p>
<h2>Should the deduction remain?</h2>
<p>This raises an important question. Should the tax system provide generous tax deductions that only really benefit wealthy taxpayers in their efforts to pay as little tax as possible?</p>
<p>One solution would be do away with such tax deductibility altogether. </p>
<p>We propose, instead, a $3,000 cap on the amount that can be deducted for paying tax advisers. Currently there is no limit.</p>
<p>The Labor Party <a href="https://australiainstitute.org.au/wp-content/uploads/2020/12/P411-Cost-of-managing-tax-affairs-FINAL.pdf">proposed such a reform</a> in 2017, under Anthony Albanese’s predecessor Bill Shorten. </p>
<p>The Australia Institute supported this <a href="https://australiainstitute.org.au/wp-content/uploads/2020/12/P411-Cost-of-managing-tax-affairs-FINAL.pdf">with research</a> showing only those with incomes higher than $500,000 were likely to be affected by the $3,000 cap. The average (mean) deduction for tax advice was $378, and the median deduction just $165. </p>
<p>Prior to the 2019 election the Parliamentary Budget Office <a href="https://www.aph.gov.au/-/media/E8016D9FAFC6486AA95C8E90CC5F34A2.ashx">estimated the cap</a> would save about $120 million a year, rising to $130 million a year in 2022-23. After Shorten’s election loss, however, the policy was dropped.</p>
<h2>Maintaining integrity</h2>
<p>Of course, there is always a danger with such reforms that taxpayers and their advisers will look for ways around the new rules. </p>
<p>Our <a href="https://theconversation.com/yes-some-millionaires-pay-no-tax-but-crimping-deductions-mightnt-help-139279">previous research</a> indicates tax advisers may look to get around the deductions cap by shifting the expense to other line items in an income tax return. </p>
<p>For example, instead of claiming tax advisory fees on a wealthy taxpayer’s personal tax return, they might allocate the fees to a related entity, such as a trust or company controlled by that individual. </p>
<p>But this is not an insurmountable issue. There are ways to prevent such manipulation through so-called “ring-fencing” rules.</p>
<p>Nothing needs to change for those of us who use a tax adviser for the convenience and certainty.</p><img src="https://counter.theconversation.com/content/184641/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Tax advisers are more likely to act as “tax exploiters” for wealthy clients but “tax enforcers” for the rest of us.Youngdeok Lim, Senior Lecturer, Accounting, UNSW SydneyAnn Kayis-Kumar, Associate Professor, UNSW SydneyChris Evans, Professor, School of Taxation & Business Law, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1809282022-04-08T14:46:30Z2022-04-08T14:46:30ZWhat is a non-dom? An expert answers our questions about the tax status claimed by Rishi Sunak’s wife and other wealthy people<p><em>It has <a href="https://www.independent.co.uk/news/uk/politics/rishi-sunak-akshata-murthy-non-dom-wife-tax-b2052251.html">emerged</a> that Chancellor Rishi Sunak’s wife, Akshata Murty, claims non-domicile (or “non-dom”) tax status, meaning that she does not have to pay UK taxes on income earned elsewhere. This revelation has drawn criticism, especially in light of Sunak raising taxes for working households.</em> </p>
<p><em>An expert answers our questions.</em></p>
<h2>What does non-dom status mean, and how do you claim it?</h2>
<p>Non-domicile, or non-dom, is a British tax status that has been available since the French revolution – yes, that long. It allows a person who was born in another country, or if their parent is from another country, to pay tax in the UK only on their UK income. The system has allowed wealthy foreign immigrants to enjoy all the benefits of living in the UK, while paying very little in UK taxes because they make the bulk, if not all, of their income abroad. </p>
<p>The regime can be used, or sometimes abused, by foreigners, or British citizens, to avoid paying tax altogether. While in principle they are required to pay tax in the countries where income is earned, the fact that they live (and are tax residents) in the UK makes it easier to arrange their affairs and end up paying little or no tax at all. </p>
<p>The result is that many of the wealthiest families living in the UK are not contributing to direct taxation in the UK. The claim is that the system is still useful because these people tend to contribute indirectly, maintaining a small army of servants and service providers, who themselves pay income tax. Non-doms may also pay VAT on expensive goods and services in the UK.</p>
<p>The system was <a href="https://www.withersworldwide.com/en-gb/the-future-of-non-doms">reformed in 2015</a> and became more complicated. Non-dom is now restricted to 15 years. The reforms effectively shrunk the number of people claiming non-dom status. Now, only the very wealthy tend to do so. Many move out of the UK after 15 years for five years, and then return and claim another 15 years of non-dom. </p>
<h2>Why do people claim non-dom status?</h2>
<p>The only reason I can see for people claiming non-dom status as opposed to being an ordinary British tax resident is if they calculate that they will end up paying less tax on their worldwide income. Either because taxation in their country of origin (or where income is earned) is so much less than in the UK, or because they can avoid paying taxes at all.</p>
<p>Murty reportedly <a href="https://www.theguardian.com/politics/2022/apr/07/rishi-sunaks-wife-says-its-not-relevant-to-say-where-she-pays-tax-overseas">earns £11.5 million</a> in annual dividends from her stake in her father’s IT business, which is based in India. Her non-dom status means she does not have to pay UK taxes on these earnings.</p>
<p>Someone without non-dom status earning this much in the UK would have, in the last year, paid close to £5 million in income tax in the UK, plus another £250,000 in national insurance contribution. Indeed, her husband’s rise in national insurance would have cost his household an additional £150,000 or so in taxation had she not declared herself non-dom.</p>
<h2>Does your nationality or citizenship determine your non-dom status?</h2>
<p><a href="https://www.independent.co.uk/news/uk/politics/rishi-sunak-akshata-murthy-non-dom-wife-tax-b2052251.html">A statement</a> from Murty’s spokesperson suggests that being an Indian citizen is what results in her non-dom status:</p>
<blockquote>
<p>Akshata Murty is a citizen of India, the country of her birth and parents’ home. India does not allow its citizens to hold the citizenship of another country simultaneously. So, according to British law, Ms Murty is treated as non-domiciled for UK tax purposes. She has always and will continue to pay UK taxes on all her UK income.</p>
</blockquote>
<figure class="align-center ">
<img alt="An envelope from HM Revenue and Customs on a table surrounded by pound coins" src="https://images.theconversation.com/files/456964/original/file-20220407-14-fu80ph.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/456964/original/file-20220407-14-fu80ph.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/456964/original/file-20220407-14-fu80ph.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/456964/original/file-20220407-14-fu80ph.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/456964/original/file-20220407-14-fu80ph.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/456964/original/file-20220407-14-fu80ph.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/456964/original/file-20220407-14-fu80ph.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Claiming non-dom status is a choice, not an obligation.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/london-uk-jan-24th-2019-hmrc-1293744643">Ink Drop / Shutterstock</a></span>
</figcaption>
</figure>
<p>If Murty lives in the UK, she is a tax resident in the UK. The fact that she is an Indian citizen is not relevant – non-dom status is a choice. The mention of her Indian citizenship provides some justification for claiming non-dom status, maybe by suggesting that she genuinely wishes to return to India at some point in the future.</p>
<h2>So, non-dom status is effectively a declaration that you intend to move (or move back) to where you are domiciled?</h2>
<p>While it is not a binding commitment, claiming non-dom status can be seen as effectively an indication that you are planning at some point in the future to return to where you are domiciled. Of course, the taxpayer may change their plans, and can only claim non-dom status for so long. </p>
<p>After someone has been in the UK for seven of the last nine tax years, they must pay a fee of £30,000 to maintain non-dom status <a href="https://www.bbc.co.uk/news/uk-politics-61027058">(as Murty does)</a>. After 12 of the last 14 tax years, the fee is £60,000. And once someone has lived in the UK for 15 years, they become automatically domiciled. Murty is understood to have moved to the UK in 2015.</p>
<p>Sunak <a href="https://www.thesun.co.uk/news/18201906/rishi-sunak-defends-wife-tax-status/">supported this</a> state of affairs in comments to The Sun, saying: “That’s where her family is … that’s where she, you know, ultimately will want to go and look after her parents as they get older.”</p>
<h2>Can HMRC challenge someone’s non-dom status?</h2>
<p>Her Majesty’s Revenue and Customs (HMRC) cannot do anything about it, only parliament can. Just as George Osborne, when he was chancellor, reformed the system in 2015, the one person who can change the system is the current chancellor of the exchequer.</p>
<p>From a tax perspective, this story is fairly simple. The issue is not tax per se, but the implication of taking advantage of this archaic (albeit reformed) rule originally understanding that you will or might be “returning home” at some point. </p>
<p>When a feature like this is taken advantage of by none other than the spouse of the chancellor, it contributes to the view that the UK’s tax haven-esque features are intentional government policy. It doesn’t look good, and gives the impression that in Sunak’s case, the UK has appointed a cat to take care of the milk.</p><img src="https://counter.theconversation.com/content/180928/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ronen Palan receives funding from the European Research Council Advanced Grant. He is a senior advisor to the Tax Justice Network.</span></em></p>Non-dom status and what it means for the very wealthy, explained.Ronen Palan, Professor of International Politics, City, University of LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1704352021-10-31T11:56:33Z2021-10-31T11:56:33ZThe Pandora Papers: How punishing tax cheats can serve as a deterrent<figure><img src="https://images.theconversation.com/files/429186/original/file-20211028-15-gg3tme.jpg?ixlib=rb-1.1.0&rect=0%2C31%2C5192%2C2958&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Enforcing punishments on proven tax cheats could provide benefits beyond improving compliance to tax laws. Once offenders pay up, billions lost to offshore scandals could be recouped and the tax burden more fairly shared among taxpayers.</span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><p>Law-abiding taxpayers look on with disappointment and disdain as details about the illicit financial arrangements of the ultra-wealthy surface — again. The latest leak of nearly 12 million offshore financial records — the so-called <a href="https://www.icij.org/investigations/pandora-papers/about-pandora-papers-leak-dataset/">Pandora Papers</a> — provides clues as to <a href="https://www.cbc.ca/news/jacques-villeneuve-pandora-papers-offshore-accounts-1.6226467">how the rich avoid paying their fair share of taxes</a>. </p>
<p>Sports stars Jacques Villeneuve, a former Formula One racer, and figure skating legend Elvis Stojko <a href="https://www.cbc.ca/news/pandora-papers-offshore-tax-avoidance-1.6197303">are among the Canadians who have been named in the Pandora Papers</a>. </p>
<p>This is not the first time the public has learned about how the wealthy evade taxes and shield their riches. The <a href="https://www.cbc.ca/news/world/panama-leak-offshore-records-putin-messi-money-1.3518951">Panama Papers</a>, <a href="https://globalnews.ca/news/3845716/the-paradise-papers-canada/">Paradise Papers</a> and <a href="https://www.cbc.ca/news/business/leaked-luxembourg-files-expose-global-companies-secret-deals-to-avoid-tax-1.2825627">Luxembourg Leaks</a> uncovered <a href="https://www.canada.ca/en/revenue-agency/corporate/about-canada-revenue-agency-cra/tax-alert/aggressive-tax-planning.html">aggressive tax planning</a> and <a href="https://www.taxfairness.ca/en/news/tax-avoidance-or-tax-evasion-whats-difference-0">tax evasion</a> undertaken by the global elite.</p>
<p>When the rich, famous and infamous don’t pay their fair share of taxes, the public looks to authorities to enforce tax laws and punish the offenders. Punishment creates a sense of <a href="https://www.britannica.com/topic/retributive-justice">retributive justice</a> and serves as a reminder that tax compliance laws should be obeyed for the collective good of society. However, authorities often <a href="https://www.cbc.ca/news/business/cra-kmpg-settlement-taxes-1.5154610">fail to deliver</a>, perpetuating the cycle of injustice. </p>
<h2>Does punishment deter tax evasion?</h2>
<p>What we don’t know for sure is whether punishing the offenders involved in global tax scandals benefits the reported income compliance of observers and deters tax cheats. My <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3826736">preliminary research</a> suggests that the answer is “yes,” but only if observers perceive that the tax offender is fully blameworthy or responsible. </p>
<p>If the punishment of blameworthy offenders can improve compliance, it would seem logical for tax authorities to actively prosecute all suspected offenders. But this is hardly the case. </p>
<p>With <a href="https://www.cbc.ca/news/politics/offshore-tax-avoidance-evasion-1.6017316">limited resources</a> and the risk of losing costly legal battles, <a href="https://www.cbc.ca/news/politics/kpmg-isle-of-man-taxes-house-commons-finance-committee-1.6047111">not everyone</a> who evades taxes and shields wealth gets punished. Even worse, if prosecutors’ cases don’t stand up in court, it can encourage aggressive tax planning or tax evasion because a precedent is set that undermines tax authorities.</p>
<figure class="align-right ">
<img alt="A Canadian tax form" src="https://images.theconversation.com/files/429358/original/file-20211029-27-1o7j5be.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/429358/original/file-20211029-27-1o7j5be.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/429358/original/file-20211029-27-1o7j5be.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/429358/original/file-20211029-27-1o7j5be.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/429358/original/file-20211029-27-1o7j5be.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/429358/original/file-20211029-27-1o7j5be.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/429358/original/file-20211029-27-1o7j5be.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Does punishing tax evaders serve as a deterrent?</span>
<span class="attribution"><span class="source">(Shutterstock)</span></span>
</figcaption>
</figure>
<p>Why does compliance increase when tax cheats are punished? My research findings reveal that compliance improves when wrongdoers appear more deserving of prosecution and are ultimately punished. Observers experience satisfaction when authorities uphold justice, especially for the wealthy. </p>
<p>When justice is applied equally, authorities reinforce their requirement to be obeyed, which signals both their competence and that tax evaders will be found and held accountable. </p>
<h2>Pointing the finger at advisers</h2>
<p>Being perceived as guilty increases perceptions of an offender deserving a punishment. As such, a strategic course of action for those exposed in global tax scandals is to deny responsibility. Ultra-wealthy individuals named in the Pandora Papers and other tax scandals often blame lawyers or advisers. </p>
<figure class="align-left ">
<img alt="Elvis Stojko shoots T-shirts into a crowd from a plastic tube." src="https://images.theconversation.com/files/429354/original/file-20211029-25-ascu4b.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/429354/original/file-20211029-25-ascu4b.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=439&fit=crop&dpr=1 600w, https://images.theconversation.com/files/429354/original/file-20211029-25-ascu4b.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=439&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/429354/original/file-20211029-25-ascu4b.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=439&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/429354/original/file-20211029-25-ascu4b.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=552&fit=crop&dpr=1 754w, https://images.theconversation.com/files/429354/original/file-20211029-25-ascu4b.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=552&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/429354/original/file-20211029-25-ascu4b.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=552&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Canadian figure skating legend Elvis Stojko shoots T-shirts into the crowd during a break at the 2019 National Skating Championships at Harbour Station in Saint John, N.B., in 2019.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Andrew Vaughan</span></span>
</figcaption>
</figure>
<p>Stojko <a href="https://www.cbc.ca/news/canada/elvis-stojko-offshore-trust-belize-anthony-malcolm-1.6199821">has denied responsibility</a> and said he trusted his lawyer to manage his financial details.</p>
<p>Similarly, <a href="https://www.timescolonist.com/local-news/victoria-family-cited-in-cra-crackdown-on-tax-evasion-4626724">the wealthy Cooper family of British Columbia</a> — named in the Panama Papers — denied responsibility. Marshall Cooper, who grew up in South Africa, <a href="https://www.cbc.ca/news/business/kpmg-offshore-sham-deceived-tax-authorities-cra-alleges-1.3209838">stated that he was unaware of Canadian tax laws</a> and simply hired the best advisers to manage the family’s finances. </p>
<p>With blame being tossed back and forth, perhaps authorities should <a href="https://theconversation.com/pandora-papers-its-time-to-pursue-lawyers-and-accountants-who-enable-tax-evasion-offshore-tax-expert-qanda-169192">pursue the lawyers and advisers</a> of the wealthy rather than simply punishing tax evaders. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/paid-millions-to-hide-trillions-pandora-papers-expose-financial-crime-enablers-too-169326">Paid millions to hide trillions: Pandora Papers expose financial crime enablers, too</a>
</strong>
</em>
</p>
<hr>
<p>The media may <a href="https://www.cbc.ca/news/pandora-papers-offshore-tax-avoidance-1.6197303">shame the wealthy,</a> but lawyers, accountants and other advisers act as enablers who facilitate aggressive tax planning, and likely in some cases tax evasion. If enablers share responsibility, they too should be punished. It’s possible that punishing enablers could also compel taxpayers to comply with tax laws.</p>
<h2>Billions recouped?</h2>
<p>Enforcing punishments on proven tax cheats could provide added benefits beyond improving compliance to tax laws. Once offenders pay up, <a href="https://www.cbc.ca/news/business/cra-tax-gap-foreign-holdings-1.4726983">billions lost to offshore scandals</a> could be recouped and the tax burden more fairly shared among taxpayers. </p>
<p>Still, in the aftermath of the Pandora Papers, taxpayers are likely wondering what the authorities will do this time and whether tax offenders will get the punishments they deserve. <a href="https://www.oecd.org/tax/crime/oecd-calls-on-countries-to-crack-down-on-the-professionals-enabling-tax-and-white-collar-crimes.htm">Global tax transparency efforts</a> are ratcheting up, possibly offering a glimmer of hope that justice will prevail. But even with this silver lining, <a href="https://theconversation.com/the-next-pandora-papers-expose-is-inevitable-unless-governments-do-more-on-two-key-reforms-169357">some remain pessimistic</a>. </p>
<p>With evidence that punishment can re-establish a sense of justice, authorities should use their resources to ensure culpable offenders are held accountable. Upholding justice, especially for the wealthy and privileged, serves the collective good of society.</p><img src="https://counter.theconversation.com/content/170435/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tisha King does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Research suggests punishing tax cheats can re-establish a sense of justice among the general public, so authorities should use their resources to ensure culpable offenders are held accountable.Tisha King, Assistant Professor, Accounting, Dalhousie UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1693532021-10-10T19:08:56Z2021-10-10T19:08:56ZThe Pandora Papers show the line between tax avoidance and tax evasion has become so blurred we need to act against both<figure><img src="https://images.theconversation.com/files/425400/original/file-20211008-15-qg06rl.jpg?ixlib=rb-1.1.0&rect=221%2C329%2C3215%2C1628&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Aekawit Rammaket/Shutterstock</span></span></figcaption></figure><p>What’s the difference between tax avoidance and tax evasion? </p>
<p>The difference used to matter. Evasion was illegal. It meant not paying tax that was due. Avoidance meant arranging your affairs so tax wasn’t due.</p>
<p>Australian media mogul Kerry Packer used the distinction as a complete defence when he told a <a href="https://youtu.be/LnwYoOeWZGA?t=312">parliamentary committee</a> in 1991 he was</p>
<blockquote>
<p>not evading tax in any way, shape or form. Of course, I am minimising my tax. Anybody in this country who does not minimise his tax wants his head read.</p>
</blockquote>
<p>The Pandora Papers — the biggest-ever leak of records showing how the rich and powerful use the financial system to maximise their wealth — shows the distinction has lost its meaning.</p>
<p>The dump of almost <a href="https://www.icij.org/investigations/pandora-papers/">12 million documents</a> lays bare the ways in which 35 current or former leaders and 300 high-level public officials in more than 90 countries have used offshore companies and accounts to protect their wealth.</p>
<p>Only in some of the cases could their activities be categorically declared illegal.</p>
<h2>Tax havens are legal</h2>
<p>Here’s how tax havens are used. Trusts and companies are set up in places with low tax rates and secrecy laws such as the Bahamas, Cayman Islands, Hong Kong, Singapore, Switzerland, the US state of Delaware and the Republic or Ireland.</p>
<p>If, for example, a wealthy celebrity or a politician wants to buy a new yacht or a luxury villa but doesn’t want to pay tax or stamp duty or expose their wealth to scrutiny they can get their lawyer or accountant to do it through such a trust.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-pandora-papers-why-does-south-dakota-feature-so-heavily-169291">The Pandora Papers: why does South Dakota feature so heavily?</a>
</strong>
</em>
</p>
<hr>
<p>For somewhere between <a href="https://www.icij.org/investigations/pandora-papers/global-investigation-tax-havens-offshore/">US$2,000 and US$20,000</a> to set up the trust, the name of the real owner or beneficiary can be hidden.</p>
<p>It isn’t illegal for the celebrity or a politician to move their money (so long as it is theirs to begin with). Assets within the trust are subject to local tax laws (sometimes zero tax) and local secrecy laws (sometimes complete secrecy).</p>
<h2>Legal, but used by criminals</h2>
<p>These legal means of using complex networks of secret entities to move around money are the same as those used by criminals.</p>
<p>Alongside the likes of India’s cricket superstar Sachin Tendulkar, Colombian pop singer Shakira and Elton John in the Panama Papers are Italian crime boss <a href="https://www.icij.org/investigations/pandora-papers/global-investigation-tax-havens-offshore/">Raffaele Amato</a>, serving a 20-year jail sentence for weapons and drugs trafficking, and the deceased British art dealer <a href="https://www.theguardian.com/news/2021/oct/05/offshore-trusts-used-pass-on-looted-khmer-treasures-leak-shows-douglas-latchford">Douglas Latchford</a>, suspected of smuggling looted treasures and money laundering.</p>
<figure class="align-center ">
<img alt="Colombian singer Shakira is one of the celebrities named in the Pandora Papers as using offshore companies. Others are Elton John, Ringo Starr, Julio Iglesias and Claudia Schiffer." src="https://images.theconversation.com/files/425189/original/file-20211007-13-1cp8an9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/425189/original/file-20211007-13-1cp8an9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/425189/original/file-20211007-13-1cp8an9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/425189/original/file-20211007-13-1cp8an9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/425189/original/file-20211007-13-1cp8an9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/425189/original/file-20211007-13-1cp8an9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/425189/original/file-20211007-13-1cp8an9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Colombian singer Shakira is one of the celebrities named in the Pandora Papers as using
offshore companies. Others are Elton John, Ringo Starr, Julio Iglesias and Claudia Schiffer.</span>
<span class="attribution"><span class="source">Gregory Payan/AP</span></span>
</figcaption>
</figure>
<h2>It’s far from clear these arrangements should be legal</h2>
<p>The big question raised by the Pandora Papers is why any hiding of private wealth from tax authorities ought to be legal.</p>
<p>The International Monetary Fund estimated in 2019 that tax haven deprived governments globally of <a href="https://www.imf.org/external/pubs/ft/fandd/2019/09/tackling-global-tax-havens-shaxon.htm">US$500 billion to US$600 billion</a> per year. </p>
<p>To put that into perspective, the estimated cost of vaccinating the world against COVID-19 is <a href="https://www.nytimes.com/2021/06/11/briefing/biden-g7-vaccine-donations.html">US$50-70 billion</a>. </p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/425571/original/file-20211009-23-13m746j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/425571/original/file-20211009-23-13m746j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/425571/original/file-20211009-23-13m746j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=968&fit=crop&dpr=1 600w, https://images.theconversation.com/files/425571/original/file-20211009-23-13m746j.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=968&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/425571/original/file-20211009-23-13m746j.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=968&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/425571/original/file-20211009-23-13m746j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1216&fit=crop&dpr=1 754w, https://images.theconversation.com/files/425571/original/file-20211009-23-13m746j.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1216&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/425571/original/file-20211009-23-13m746j.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1216&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">OECD chief Mathias Cormann has brokered a deal for a global minimum corporate tax rate.</span>
<span class="attribution"><span class="source">OECD (CC BY-NC 3.0 IGO)</span></span>
</figcaption>
</figure>
<p>Some of what’s been uncovered in the Pandora Papers is illegal (“evasion”) but much might not be (“avoidance”, aided by anonimity).</p>
<p>The effect is the same. Dollars that ought to have been paid in tax are withheld and used for the benefit of people who aren’t keen to admit to owning them.</p>
<p>Over the weekend the Organisation for Economic Co-operation and Development, now led by Australian Mathias Cormann, brokered a deal under which 136 countries agreed to charge multinational corporations a tax rate of at least <a href="https://www.oecd.org/tax/international-community-strikes-a-ground-breaking-tax-deal-for-the-digital-age.htm">15%</a>, making tax havens harder to find.</p>
<p>Ireland, previously used as tax haven, signed up.</p>
<p>The nations concerned did this because because, even where legal, the use of tax havens costs billions.</p>
<p>We’ll soon have to consider removing a distinction in law that vanished in practice some time ago.</p><img src="https://counter.theconversation.com/content/169353/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alex Simpson has received funding from Economic and Social Research Council, UK. </span></em></p>It’s become hard to tell where avoidance stops and evasion starts. Tax havens enable both.Alex Simpson, Senior Lecturer in Criminology, Macquarie UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1693192021-10-06T11:04:25Z2021-10-06T11:04:25ZPandora papers: media rage at billionaire tax cheats but ignore Boris Johnson’s failure to reform tax havens<p>Many of the world’s richest and most powerful people are in the spotlight for the wrong reasons – again. The <a href="https://theconversation.com/pandora-papers-its-time-to-pursue-lawyers-and-accountants-who-enable-tax-evasion-offshore-tax-expert-qanda-169192">Pandora papers</a> is the third and largest leak of documents in which the secret financial practices of the wealthy are exposed in the media. They highlight mass tax avoidance and evasion, as well as potential money laundering. </p>
<hr>
<iframe id="noa-web-audio-player" style="border: none" src="https://embed-player.newsoveraudio.com/v4?key=x84olp&id=https://theconversation.com/pandora-papers-media-rage-at-billionaire-tax-cheats-but-ignore-boris-johnsons-failure-to-reform-tax-havens-169319&bgColor=F5F5F5&color=D8352A&playColor=D8352A" width="100%" height="110px"></iframe>
<p><em>You can listen to more articles from The Conversation, narrated by Noa, <a href="https://theconversation.com/uk/topics/audio-narrated-99682">here</a>.</em></p>
<hr>
<p>As with the Panama and Paradise papers, the UK is heavily referenced as either the origin or destination for funds that are moved through offshore financial centres to obscure the ultimate recipients. The papers also highlight the still prominent role of British overseas territories such as the British Virgin Islands and Cayman Islands in such schemes.</p>
<p>But what is missing from this story is that this UK involvement could have been avoided. The UK has long known it could do more to prevent individuals from moving money in and out of the country through offshore jurisdictions. The National Crime Agency <a href="https://www.nationalcrimeagency.gov.uk/who-we-are/publications/16-high-end-money-laundering-strategy/file">identified the practice</a> as an issue in its 2014 report. And in 2016, after the leak of the Panama papers, then prime minister, David Cameron, <a href="https://www.theguardian.com/uk-news/2016/apr/21/ministers-consider-forcing-disclosure-of-true-ownership-of-uk-property">pushed for</a> a <a href="https://www.investopedia.com/terms/b/beneficialowner.asp">beneficial ownership</a> register that would force UK companies to reveal the person who ultimately enjoys the benefits of owning an asset, even if they are not the named owner. Five years later, we are no further forward. </p>
<h2>Registration of overseas entities</h2>
<p>In 2018, <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/727915/Draft_Registration_of_Overseas_Entities.pdf">Theresa May’s government</a> publishing a draft Registration of Overseas Entities Bill. This focused on setting up a register in which any “overseas entities” seeking to buy property in the UK would have to disclose their beneficial owners.</p>
<p>The register, which was originally due to come into operation in 2021, would have reduced the likelihood of the UK being embroiled in future scandals by making ownership of UK property transparent. But the legislation was not passed while May was in office and, since Boris Johnson took over in 2019, it appears to have been pushed to one side. </p>
<p>The UK also made it clear, by publishing a draft Order in Council under the <a href="https://www.legislation.gov.uk/ukpga/2018/13/contents">Sanctions and Anti-Money Laundering Act 2018</a>, that following consultation with British overseas territories they would be required to establish a public register of companies’ beneficial owners by 2021. However, it has since <a href="https://www.gov.uk/government/news/british-overseas-territories-commit-to-publishing-further-information-on-company-ownership-in-major-anti-corruption-move">been reported</a> this will now not be required until 2023. </p>
<p>The UK government does have <a href="https://www.gov.uk/government/news/reforms-to-companies-house-to-clamp-down-on-fraud-and-give-businesses-greater-confidence-in-transactions">a commitment</a> to reform Companies House, giving it investigatory powers to verify the identities of proposed company directors before they can be appointed. But no timeline has been set for implementing this. So once again, for all the rhetoric around making the UK more resilient to financial crime, the government’s lack of action speaks louder than words. </p>
<p>This lack of political will is also evidenced by Johnson’s decision not to implement the EU’s <a href="https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.L_.2018.284.01.0022.01.ENG">6th Anti-Money Laundering Directive</a>. While the UK is no longer a member of the EU, it was still in the transition stage at the date when the directive was due to be implemented by member states (December 3 2020). However, the UK had a special concession under the <a href="https://www.europarl.europa.eu/factsheets/en/sheet/5/the-treaty-of-lisbon">Lisbon Treaty</a> whereby it had the freedom to opt in to policing and criminal justice measures in the national interest. In this case, it simply chose not to opt in. </p>
<p>The <a href="https://www.lexology.com/library/detail.aspx?g=7d1db7a3-04b5-4d25-8e6a-f29eaec24cb2">UK government’s justification</a> for this was that the UK is largely compliant with the directive. But this is not the case in relation to beneficial owners: had the UK implemented the directive, it would have introduced similar requirements to the Registration of Overseas Entities Bill. This therefore represents a further decision not to implement a register of overseas entities and their beneficial owners. </p>
<h2>What it means</h2>
<p>The frustration is that the mechanisms to combat offshore secrecy are there, but they are not being advanced – or certainly not with any urgency. If the political will existed, a bill could probably go from draft to assent in months. </p>
<p>My worry is that this inaction amounts to tacit acceptance by the UK government of the wealthy avoiding tax and of illicit finance circulating in the country. Years of leaks and negative attention have done little to spur on the government. And as other countries launch inquiries into the Pandora papers, the UK remains largely silent. </p>
<p>Why is this so? There have <a href="https://www.theguardian.com/news/2021/oct/04/tory-party-top-female-donor-lubov-chernukhin-vast-offshore-empire-husband">been suggestions</a> that some <a href="https://www.independent.co.uk/news/uk/politics/pandora-papers-conservatives-donor-amersi-b1931721.html">Conservative Party donors</a> are the beneficiaries of the currently flawed system. There is also the fact that the proceeds from such transactions ultimately benefit London’s financial district, and that the elites that benefit under this system are the kind of individuals that keep governments in power. </p>
<p>Whatever the case, misplaced media anger at the wealthy who exploit this system, rather than at Johnson and his government for failing to reform the law, perpetuates this inaction. It enables the prime minister to rest easy and make conference speeches about helping voters by levelling up the country, while the same voters are forced to pay more taxes to make up for the amounts that the ultra-wealthy have been able to avoid paying through offshore secrecy.</p><img src="https://counter.theconversation.com/content/169319/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Matthew Shillito does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Five years after David Cameron was pushing for tighter rules around disclosure of beneficial owners, nothing much has changed.Matthew Shillito, Lecturer in Law, University of LiverpoolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1693572021-10-06T05:54:42Z2021-10-06T05:54:42ZThe next Pandora Papers exposé is inevitable – unless governments do more on two key reforms<figure><img src="https://images.theconversation.com/files/424926/original/file-20211006-15-df0a53.jpg?ixlib=rb-1.1.0&rect=0%2C161%2C6000%2C3826&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>The International Consortium of Investigative Journalists (<a href="https://www.icij.org/">ICIJ</a>) is in the process of working through another mountain of documents showing how the rich and powerful use the global financial system to hide their wealth and avoid taxes. </p>
<p>Those 11.9 million records, dubbed the <a href="https://www.bbc.com/news/world-58780561">Pandora Papers</a>, follows similar leaks in 2017 (the <a href="https://theconversation.com/three-strategies-to-fight-the-tax-avoidance-revealed-by-the-paradise-papers-87002">Paradise Papers</a>), in 2016 (<a href="https://theconversation.com/panama-papers-information-sharing-could-bust-open-secretive-companies-in-tax-havens-57214">the Panama Papers</a>) and in 2014 (the <a href="https://theconversation.com/luxembourg-leaks-how-harmful-tax-competition-leads-to-profit-shifting-33940">Luxembourg Leaks</a>, or LuxLeaks).</p>
<p>Commenting on the 13 million financial and tax documents comprising the Paradise Papers in 2017, <a href="https://theconversation.com/three-strategies-to-fight-the-tax-avoidance-revealed-by-the-paradise-papers-87002">we wrote that</a> “governments have not learnt their lesson and taken action”. </p>
<p>Four years later here we are again. Some progress has been made on the critical reforms needed – in particular, eliminating the secrecy that shrouds tax havens – but there’s still more to do. </p>
<h2>Systemic issues</h2>
<p>In sorting through these new documents, journalists have quite reasonably tended to focus on the “easy connections” and “known individuals”. This work has identified at least 956 companies with more than 336 beneficiaries who are “high-level politicians and public officials”. </p>
<p>This includes Vladimir Putin’s mistress allegedly having assets worth US$100 million, Jordan’s King Abdullah II using offshore companies to buy <a href="https://www.washingtonpost.com/world/interactive/2021/jordan-abdullah-shell-companies-luxury-homes/">three Malibu mansions</a> for US$70 million, and the 11-year-old son of Azerbaijani president Ilham Aliyev <a href="https://www.nbcnews.com/id/wbna35720827">owning nine waterfront mansions</a> in Dubai worth US$44 million.</p>
<p>Also on the list of 35 current and former national leaders, including Czech prime minister Andrej Babiš, Kenyan president Uhuru Kenyatta, Ukrainian president Volodymyr Zelensky and former British prime minister Tony Blair. </p>
<p>But as juicy as these stories are, we should not be distracted from the systemic issues that lead to the wealthy using offshore legal entities and accounts. It’s not always nefarious or illicit.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/pandora-papers-its-time-to-pursue-lawyers-and-accountants-who-enable-tax-evasion-offshore-tax-expert-qanda-169192">Pandora papers: 'it's time to pursue lawyers and accountants who enable tax evasion' – offshore tax expert Q&A</a>
</strong>
</em>
</p>
<hr>
<h2>Protecting assets</h2>
<p>In the Pandora Papers are arrangements that, with incomplete information, may appear suspect but may be quite legitimate.</p>
<p>An example might be the 81 trust structures established in the US state of South Dakota and at least 100 more in various other US states where trust disclosures, especially about beneficial ownership, are not mandatory. To properly assess these transactions we really need more information.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-pandora-papers-why-does-south-dakota-feature-so-heavily-169291">The Pandora Papers: why does South Dakota feature so heavily?</a>
</strong>
</em>
</p>
<hr>
<p>The use of complex business structures, involving countries with high levels of secrecy, may be done to facilitate tax avoidance. But it might also be “asset protection”. </p>
<h2>Weak property rights</h2>
<p>In countries with weak property rights and unreliable judicial systems, even those who accrue wealth legitimately can fear losing it. </p>
<p>Consider, for example, the case of China’s billionaire actress and singer Zhao Wei, who in August was “<a href="https://www.wsj.com/articles/zhao-wei-china-biggest-movie-star-erased-from-internet-11631713293">erased from history</a>”, or <a href="https://www.reuters.com/article/us-china-alibaba-jackma-idUSKBN2AU0QL">Jack Ma</a>, China’s richest man until he <a href="https://www.nytimes.com/2020/12/24/technology/china-jack-ma-alibaba.html">criticised financial regulators</a> last year. </p>
<p>This creates a demand for assets held in other countries (preferably secretly) and a legal system that protects ownership of those assets. It also likely explains why 3.3 million of the 6.9 million documents in this latest leak relate to offices located in Hong Kong. </p>
<p>An analysis of these documents recognising the relative strength of property rights in the countries where individuals, or their businesses, are based would be interesting — and not just as an “academic” exercise. </p>
<p>In many countries, particularly developing countries, weak property rights contribute to lack of capital for economic development by creating incentives for the legitimately wealthy to use offshore accounts and assets. </p>
<p>This suggests a critical need to enhance property rights in these countries. </p>
<p>Weak legal systems also facilitate wealth accumulation through corruption or exploitation. </p>
<h2>Unfinished business</h2>
<p>Five years ago when discussing the revelations from the Panama Papers, we suggested the first thing the global community needed to do was require the public disclosure of country-by-country reporting of company tax affairs by all tax authorities. This idea (known as CbCR) emerged from OECD and G20 recommendations made about the time of the Luxembourg Leaks in 2014. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/three-strategies-to-fight-the-tax-avoidance-revealed-by-the-paradise-papers-87002">Three strategies to fight the tax avoidance revealed by the Paradise Papers</a>
</strong>
</em>
</p>
<hr>
<p>About 100 countries have adopted the CbCR policy, at least in part. The problem is that in too many cases – such as Australia and the US – the disclosures are only to the tax authority, not to the public.</p>
<p>In 2017 we also recommended all countries have public registers of beneficial ownership of all entities.</p>
<p>There has also been some progress on this. Significant pressure has been applied to tax havens or secrecy jurisdictions such as the Bahamas and Switzerland. But more is needed. </p>
<p>In Australia, for example, the Paradise Papers led to the government floating the idea of a public register of beneficial ownership, but this was shut down soon after. In the US, states such Delaware and South Dakota are still “secrecy jurisdictions”. </p>
<p>Some progress has been made in making tax havens and secrecy jurisdictions more transparent. But many would say the progress has been mainly benefited wealthy countries, helping them increase tax revenue and to be seen to be doing something to fight corruption, while still allowing corruption to flourish in poorer nations. </p>
<p>Until countries such as the US and Australia embrace the reforms that have been on the table since LuxLeaks, expect further document leaks with similar results in the next five years.</p><img src="https://counter.theconversation.com/content/169357/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Juicy stories of political leaders stashing loot overseas make good headlines. But the real story is the need for systemic solutions, especially on property rights and transparency.Roman Lanis, Associate Professor, Accounting, University of Technology SydneyPeter Wells, Professor, Accounting Discipline Group, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1692912021-10-05T20:22:00Z2021-10-05T20:22:00ZThe Pandora Papers: why does South Dakota feature so heavily?<figure><img src="https://images.theconversation.com/files/424836/original/file-20211005-21-1q0jxlm.jpg?ixlib=rb-1.1.0&rect=0%2C296%2C3000%2C1697&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Why the super-rich are targeting the Mount Rushmore state.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/in-this-handout-image-provided-by-the-world-archery-news-photo/1235614103?adppopup=true">Dean Alberga/Handout/World Archery Federation via Getty Images</a></span></figcaption></figure><p><em>A trove of confidential documents outlining how global elites squirrel away their wealth to avoid tax has been laid bare in the “<a href="https://www.icij.org/investigations/pandora-papers/">Pandora Papers</a>.”</em></p>
<p><em>Consisting of around <a href="https://www.bbc.com/news/world-58780561">12 million documents</a>, the data was obtained by the <a href="https://www.icij.org/">International Consortium of Investigative Journalists</a>, a Washington, D.C.-based think tank that worked with media organizations around the world to publish details of the leaked information.</em></p>
<p><em>As well as giving an insight into <a href="https://www.pbs.org/newshour/show/pandora-papers-expose-how-world-leaders-and-the-ultra-rich-move-their-money">the wealth of world leaders</a>, former presidents and prime ministers, the Pandora Papers reveal how tax havens – including in the the U.S. – are used to hide money from tax authorities. Taxation expert <a href="https://law.vanderbilt.edu/bio/beverly-moran">Beverly Moran of Vanderbilt University</a> walked The Conversation through three takeaways from the leaked documents.</em></p>
<h2>How the super-rich use tax loopholes</h2>
<p>The Pandora Papers come five years after a similar leak of documents called the “<a href="https://www.icij.org/investigations/panama-papers/">Panama Papers</a>.” Those documents showed how many of the world’s wealthiest people routinely avoided any type of tax by placing their assets in tax havens – nations or jurisdictions with low tax rates. </p>
<p>In response to the Panama Papers, many countries took measures that made some of the techniques exposed in the Panama Papers obsolete. For example, after decades of offering rich people the greatest bank secrecy in the Western world, the Swiss forced their <a href="https://www.forbes.com/sites/oliverwilliams1/2019/10/05/secret-banking-secrecy-became-extinct-one-year-ago-today/?sh=51cd79055cb8">banks to open their books</a>. The latest release also comes amid scrutiny over how little tax some wealthy individuals pay. The intergovernmental Organization for Economic Cooperation and Development recently pushed for <a href="https://www.hklaw.com/en/insights/publications/2021/07/agreement-on-global-tax-reform-what-happened-and-whats-next">a corporate minimum tax of 15% as another way to attack the tax haven problem</a>.</p>
<p>The Pandora Papers reveal the tactics wealthy people developed to replace the no longer secret means they used in the past. In particular, the Pandora Papers shine a light on the role of <a href="https://www.washingtonpost.com/world/interactive/2021/jordan-abdullah-shell-companies-luxury-homes/">shell companies</a> in making it harder to tax high-net-worth individuals. Included in the leak are documents revealing aspects of the finances of <a href="https://www.axios.com/pandora-papers-politicians-countries-d8ca46fc-8422-4d39-b354-aa1de2a24a9f.html">hundreds of politicians from 90 countries</a>.</p>
<h2>The role of shell companies</h2>
<p>A <a href="https://apnews.com/article/leaked-pandora-records-show-how-powerful-shield-assets-b31daac39800f6a6423e24465df45ffc">shell company</a> is a legal entity that exists only on paper. It produces nothing and employs no one. Its value lies in a certificate that sits in a government office. </p>
<p>With this certificate, the shell company – whose sole purpose is to hold and hide assets – becomes one of a series of Russian dolls, each fit snugly into the next, creating a type of three-card monte in which the taxing authorities can never find assets nor owners. With a series of shell companies, a billionaire can house his or her assets far from the taxman’s prying eyes.</p>
<p>For the billionaire to avoid the tax, the shell company must reside, for tax purposes, in a tax haven. In the past, that has meant a bank account in the Cayman Islands or Monaco. But as the Pandora Papers show, increasingly it could mean using <a href="https://www.cbsnews.com/news/pandora-papers-tax-haven-south-dakota/">a tax haven in the United States</a>.</p>
<h2>South Dakota as a tax haven</h2>
<p>South Dakota is mentioned throughout the Pandora Papers because many wealthy people use the state as a tax haven. Indeed, of the 206 U.S.-based trusts identified in the Pandora Papers – which combined hold assets worth more than US$1 billion – 81 <a href="https://www.icij.org/investigations/pandora-papers/us-trusts-offshore-south-dakota-tax-havens/">are based on South Dakota</a>.</p>
<p>South Dakota is a particularly good tax haven for a number of reasons. For one thing, it has strong secrecy protections thanks to its <a href="https://www.icij.org/investigations/panama-papers/what-is-a-tax-haven-offshore-finance-explained/">trust laws</a>, which makes it easy to hide the true ownership of property. Trusts are said to offer some of the <a href="https://www.theguardian.com/news/2021/oct/04/pandora-papers-reveal-south-dakotas-role-as-367bn-tax-haven">most powerful legal protections</a> in the world.</p>
<p>According to the Pandora Papers, trust-friendly legislation in South Dakota has resulted in <a href="https://www.startribune.com/foreign-money-flows-to-south-dakota/600103699/">assets in trusts growing fourfold</a> in the state over the past decade to $360 billion.</p>
<p>But South Dakota also benefits from the same things all U.S. states have: comparatively strong rule of law, a stable currency and good infrastructure – especially when compared with other known tax havens outside of Europe. A wealthy person can easily fly to the United States, purchase property in the U.S., put assets in American banks and feel secure knowing that his or her contracts will be respected and protected by a stable and transparent legal system.</p><img src="https://counter.theconversation.com/content/169291/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Beverly Moran does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A taxation expert explains why South Dakota has become a favorite state for the ultra-rich when it comes to squirreling away their wealth.Beverly Moran, Professor Emerita of Law, Vanderbilt UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1691922021-10-04T14:21:14Z2021-10-04T14:21:14ZPandora papers: ‘it’s time to pursue lawyers and accountants who enable tax evasion’ – offshore tax expert Q&A<figure><img src="https://images.theconversation.com/files/425536/original/file-20211008-22-10i6w5n.jpg?ixlib=rb-1.1.0&rect=30%2C15%2C2499%2C1468&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">What's inside the box?</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-vector/greek-mythology-pandora-opening-box-1858047022">delcarmat/Shutterstock</a></span></figcaption></figure><p><em>Many of the world’s richest and most powerful people are in the spotlight once more for using secretive tax havens and corporate structures to hide wealth and avoid paying taxes. The Pandora papers is the third in a series of huge leaks of documents to the media following the <a href="https://www.icij.org/investigations/panama-papers/">Panama papers</a> in 2016 and the <a href="https://www.icij.org/investigations/paradise-papers/">Paradise papers</a> in 2017 – and little seems to have changed in the interim.</em> </p>
<p><em><a href="https://www.theguardian.com/news/2021/oct/03/pandora-papers-biggest-ever-leak-of-offshore-data-exposes-financial-secrets-of-rich-and-powerful">Those included</a> so far in the new revelations include the leaders of the Czech Republic, Cyprus, Jordan and Ukraine, plus members of the ruling family in Azerbaijan and figures close to Vladimir Putin. In all, more than 100 billionaires are reportedly involved in the revelations, with transactions ranging from properties worth millions of pounds to slush funds and superyachts.</em></p>
<p><em>We asked Professor Ronen Palan, a specialist in offshore tax havens at City, University of London, about the story so far.</em></p>
<p><strong>What are your initial thoughts?</strong></p>
<p>I’m afraid I’m not surprised by these papers. There’s no evidence to suggest that the volume of transactions taking place through these offshore centres is declining, so the same financial structures that we heard about in the Panama and Paradise papers are still clearly being used. </p>
<p>It’s fascinating that so many of these people in the public eye must have known that eventually their activities would become common knowledge, and yet they opted for offshore secrecy anyway. I suppose any concerns may be overcome perhaps by greed and the knowledge that they will not be prevented from doing it. </p>
<p>In some cases we are talking about (illegal) tax evasion and in some cases it’s (legal) tax avoidance: the difference comes down to whether the people in question had fully notified the authorities in their home countries about the offshore structures they are using. In instances when I read that they are asked by the media to comment and they decline to respond, it creates the appearance that we are talking about evasion – although this remains unproven. </p>
<p><strong>Why does the situation not appear to be improving?</strong></p>
<p>Over the past 20 or 30 years, <a href="https://www.oecd.org/tax/beps/">international regulation</a> has <a href="https://ec.europa.eu/taxation_customs/common-consolidated-corporate-tax-base-ccctb_en">focused on</a> creating tools <a href="https://www.irs.gov/businesses/corporations/foreign-account-tax-compliance-act-fatca">that allow</a> tax authorities to ensure that taxpayers are not evading taxation. Systems were introduced that focus on “know your customer” or KYC – requiring people transacting in particular jurisdictions to fully identify themselves so that this information can be shared with other jurisdictions. </p>
<p>This essentially creates transparency so that you know who has money where, so that tax authorities can use this information to make sure that their citizens are not evading taxation. But while that can be effective in countries where the tax authority is operating independently of the government and politics, it’s not going to work in Russia or China or many other developing countries. It’s therefore not surprising to me that many of the revelations are about activities outside of the developed world.</p>
<p><strong>But why hasn’t transparency forced tax havens to change?</strong></p>
<p>It has brought about change, but some jurisdictions comply more than others. So you have got some British jurisdictions such as Jersey or the Cayman Islands that are much more transparent than they used to be. On the face of it, they can claim to be more regulated than, say, Denmark or Sweden. </p>
<p>But the professionals who have the expertise to create structures that enable tax evasion are still often based in these places, and they create structures with different layers that will be partly registered in these jurisdictions but partly in those with looser transparency rules such as the British Virgin Islands or Panama – following the letter but not the spirit of the law. This makes it very difficult to see what is happening and whose money is involved. </p>
<p><strong>How do we improve the current situation?</strong></p>
<p>The Pandora papers show we are reaching the limits of what can be done with data transparency. Unless we find ways to tighten the net, this won’t be the last leak of its kind. This <a href="https://www.oecd.org/tax/crime/ending-the-shell-game-cracking-down-on-the-professionals-who-enable-tax-and-white-collar-crimes.htm">is recognised</a> at least implicitly by the OECD (Organisation for Economic Co-Operation and Development) and <a href="https://coffers.eu/">other international bodies</a> in their increasing interest in going after the enablers, rather than just focusing on the tax evaders themselves.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/424482/original/file-20211004-13-nu2mv7.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Professionals in the dusk with the sun behind them" src="https://images.theconversation.com/files/424482/original/file-20211004-13-nu2mv7.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/424482/original/file-20211004-13-nu2mv7.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=609&fit=crop&dpr=1 600w, https://images.theconversation.com/files/424482/original/file-20211004-13-nu2mv7.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=609&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/424482/original/file-20211004-13-nu2mv7.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=609&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/424482/original/file-20211004-13-nu2mv7.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=765&fit=crop&dpr=1 754w, https://images.theconversation.com/files/424482/original/file-20211004-13-nu2mv7.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=765&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/424482/original/file-20211004-13-nu2mv7.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=765&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Meet the enablers.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/business-people-travel-beach-trip-airport-245944036">RawPixel.com</a></span>
</figcaption>
</figure>
<p>Maybe it’s time to create something similar to what applies in medicine, so that, if enablers contravene certain standards, they can be prosecuted – even in countries who are not directly affected by their activities. If they went to such a country, they could be arrested on arrival. </p>
<p><strong>Should we create a new international institution dedicated to stamping out tax evasion?</strong></p>
<p>In practical terms, the three places that matter when it comes to creating international regulations are the US, EU and China. Unfortunately they are not agreeing with one another on much right now, so it will be difficult to reach an agreement about such an institution. Even if they did agree, they would be accused of imperialism by smaller countries, or of acting as dictators. </p>
<p>Of course, these three players would still need to agree on an initiative to really go after enablers, so you can make the same criticism of this strategy, but it is at least more modest in its scope and therefore potentially more realistic. </p>
<p><strong>Are all these revelations actually helpful?</strong></p>
<p>There’s certainly a danger of media saturation, in which the public knows about these kinds of activities and may be less interested by now. But we need to emphasise that the consequences are not going away: to run a modern state, it’s very expensive. To pay for a good education system, a good health system, properly functioning infrastructure and so forth, somebody has to pay for it. </p>
<p>If the rich are avoiding paying their share, somebody else is picking up the tab, and that’s either the poor or the squeezed middle classes. So if the public are tired of all this scandal, it doesn’t change the fact that they are suffering because of it.</p><img src="https://counter.theconversation.com/content/169192/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ronen Palan receives funding from the European Commission's Horizon 2020 fund, European Research Council Advanced Grant, and the OECD. Ronen Palan is a senior advisor to the Tax Justice Network</span></em></p>The latest instalment of leaks about the super-rich using offshore tax havens to hide their wealth has been published.Ronen Palan, Professor of International Politics, City, University of LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1649882021-08-12T12:26:05Z2021-08-12T12:26:05ZAmid calls to #TaxTheChurches – what and how much do US religious organizations not pay the taxman?<figure><img src="https://images.theconversation.com/files/415517/original/file-20210810-21-1rbd2q.jpg?ixlib=rb-1.1.0&rect=30%2C0%2C5061%2C3389&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Megachurches can be megarich.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/first-batpist-megachurch-in-dallas-at-night-royalty-free-image/528409655">Allan Baxter/Getty Images</a></span></figcaption></figure><p>The hashtag <a href="https://twitter.com/search?q=%23TaxTheChurches&src=typeahead_click">#TaxTheChurches</a> began <a href="https://www.businessinsider.com/joel-osteen-rich-taxes-wealth-ferrari-twitter-2021-7">trending on Twitter</a> in mid-July.</p>
<p>The spark was allegations about the wealth of celebrity pastor <a href="https://www.thethings.com/pastor-joel-osteen-criticized-for-his-vast-fortune-as-he-drives-325k-ferrari/">Joel Osteen</a>. But it wasn’t the first time that “tax the churches” has circulated. In fact it is slogan that long predates social media – Frank Zappa was <a href="https://www.youtube.com/watch?v=gydA6tPF5xI&t=0s">singing it</a> back in 1981 and Mark Twain <a href="https://archive.org/stream/MarkTwainsNotebook/TXT/00000233.txt">expressed similar sentiments</a> many decades before that.</p>
<p>As a <a href="https://www.ut.edu/directory/cragun-ryan">sociologist of religion</a>, I’ve long been interested in why religious institutions are exempt from certain taxes and what that means in potential lost revenue for the U.S. In 2012, I examined this issue and estimated that in total, churches in the U.S. get out of paying around <a href="https://centerforinquiry.org/press_releases/u-s-_loses_over_71_billion_in_religious_tax_exemptions/">US$71 billion</a> in taxes annually.</p>
<h2>Auditing the house of God</h2>
<p>Most religious organizations are exempt from a variety of taxes that individuals and businesses are required to pay, like income and property taxes. These exemptions began formally in <a href="https://www.irs.gov/pub/irs-soi/tehistory.pdf">1913 at the federal level</a>, though there is a much longer history of exempting charitable, educational, scientific and religious institutions from taxation.</p>
<p>It is important to note that faith organizations can be exempt from paying taxes solely based on their religious work, not for any other charitable endeavors. Churches and religious organizations – which the <a href="https://www.irs.gov/pub/irs-tege/atg_religious_orgs.pdf">IRS loosely defines</a> as entities organized for “religious purposes” or for “advancing religion” – <a href="https://www.irs.gov/charities-non-profits/churches-religious-organizations">are listed separately from other tax-exempt entities and charities</a> and can be subject to different rules. Some religious congregations do engage in relief efforts for the poor and needy, but many do not. And of the ones that do, many give a <a href="https://doi.org/10.1002/pf.3504">very small amount of their revenue for such charitable purposes</a>.</p>
<p>Additionally, unlike charities, churches and other places of worship are <a href="https://www.irs.gov/charities-non-profits/annual-exempt-organization-return-who-must-file">not required to report any financial information</a> to the IRS. The IRS encourages churches to do so, but they are not required to. And it can be an onerous process for the IRS to gain approval to audit places of worship, requiring <a href="https://www.irs.gov/charities-non-profits/churches-religious-organizations/special-rules-limiting-irs-authority-to-audit-a-church">prior evidence of abuse of tax exemptions reported by a high-level Treasury employee</a>.</p>
<p>In many places in the U.S., income is taxed at the local, state and federal levels. Religious institutions do not pay any income tax at any level of government. Additionally, <a href="https://theconversation.com/whats-the-charitable-deduction-an-economist-explains-162647">individuals and corporations that donate</a> to religions <a href="https://www.irs.gov/charities-non-profits/charitable-organizations/charitable-contribution-deductions">can deduct those expenses</a> – once they are above a specific amount – from their taxable income.</p>
<h2>Heavenly bank accounts</h2>
<p>Religious organizations also pay no taxes on their investments, whether it be interest they earn on their investments or in capital gains – the increased value of stock from when the stock was purchased. As such, they are able to invest excess revenue in the stock market or other investment instruments but pay no taxes on the corresponding earnings. One Fortune 500 company, <a href="https://www.thrivent.com/about-us/">Thrivent</a>, originated as a financial services organizations for Missouri Synod Lutherans in 1902, and then for all Lutherans in the 1960s. It was called Thrivent Financial for Lutherans up to 2014, but it now manages the investments of members of many religious congregations as well.</p>
<p>Religious endowments and investment accounts total in the <a href="https://www.wsj.com/articles/the-mormon-church-amassed-100-billion-it-was-the-best-kept-secret-in-the-investment-world-11581138011">hundreds of billions of dollars in the U.S.</a>. Just how much money religious organizations have is hard to tell, as churches are not required to report such information. However, <a href="https://www.beliefnet.com/faiths/christianity/8-richest-pastors-in-america.aspx">the net worth of some well-known pastors</a>, like <a href="https://www.ibtimes.com/kenneth-copeland-net-worth-evangelist-richest-pastor-world-2951331">Kenneth Copeland</a> and <a href="http://www.sullivan-county.com/news/pat_quotes/palst.htm">Pat Robertson</a>, are estimated to run into the hundreds of millions of dollars.</p>
<p>Religious organizations pay <a href="https://www.tax.ny.gov/pdf/publications/sales/pub843.pdf">no sales tax</a>. This means that, when representatives of a religious entity make a purchase – office supplies, cars or travel, for example – they are exempted from whatever the local sales tax is in that area. <a href="https://www.irs.gov/pub/irs-pdf/p1828.pdf">They also pay no income taxes for businesses they own</a>, if they can show that the business furthers the objectives of the religion. For example, a bookstore that sells religious books would be exempt.</p>
<p>Religious organizations may pay employment taxes for their employees. However, there are exceptions built into the tax code here as well. Clergy and members of religious orders are the only citizens who can opt out of paying <a href="https://www.irs.gov/businesses/small-businesses-self-employed/self-employment-tax-social-security-and-medicare-taxes">Self-Employed Contributions Act taxes</a>, which are 15.3% taxes on income for self-employed individuals that pay for Social Security and other federal benefits.</p>
<p>If religious clergy opt out of the SECA tax, they cannot receive Social Security benefits. Clergy can also <a href="https://www.irs.gov/faqs/interest-dividends-other-types-of-income/ministers-compensation-housing-allowance">deduct the upkeep costs of their “parsonage</a>” – their home or apartment – from their taxable income.</p>
<figure class="align-center ">
<img alt="Joel Osteen launches Joel Osteen Radio at SiriusXM Studios" src="https://images.theconversation.com/files/415519/original/file-20210810-17-wq7aui.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/415519/original/file-20210810-17-wq7aui.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/415519/original/file-20210810-17-wq7aui.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/415519/original/file-20210810-17-wq7aui.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/415519/original/file-20210810-17-wq7aui.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/415519/original/file-20210810-17-wq7aui.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/415519/original/file-20210810-17-wq7aui.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Reports on Joel Osteen’s wealth led to the trending of #TaxTheChurches.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/joel-osteen-launches-joel-osteen-radio-at-siriusxm-studios-news-photo/456343642?adppopup=true">Taylor Hill/Getty Images</a></span>
</figcaption>
</figure>
<p>Finally, religious organizations <a href="https://www.tax.ny.gov/pit/property/exemption/index.htm">pay no property taxes</a>. Property taxes are primarily used in the U.S. to fund local services like firefighting, emergency medical services and police departments, as well as schools and other infrastructure, all of which religious organizations use.</p>
<p>Some municipalities make information on property taxes publicly available, so it is relatively easy to work out the cost of this tax exemption to local communities.</p>
<p>I looked at <a href="https://www.mymanatee.org/">Manatee County in Florida</a> as an example. Manatee County is a midsize county in Florida with just over 300,000 citizens living in a mixture of rural and urban areas. <a href="https://www.prri.org/research/2020-census-of-american-religion/#page-section-1">Recent data</a> suggests that Manatee County is close to the national average when it comes to the religious makeup of its residents. Finally, Florida property values and the cost of living rank almost exactly in the middle of all U.S. states, making Manatee County a fairly representative illustration of the nation generally.</p>
<p>Manatee County’s <a href="https://www.manateepao.com/">public portal</a> indicates which properties are classified as churches and are therefore exempt from “ad valorem” taxes – those based on the assessed value of the property – and other property taxes. By downloading the “just market values” for the 360 properties classified as having a religious exemption, I was able to work out that their combined value was $406.7 million. If they paid the standard property taxes required of both commercial and residential properties in Manatee County, they would add $8.5 million to the tax revenue of the county annually. With the county’s budget at $740million, an additional $8.5 million works out to be about 1.1% of the total. This, <a href="https://www.mymanatee.org/common/pages/DisplayFile.aspx?itemId=17765969">according to the 2022 Manatee County budget proposal</a>, would be enough to cover the building of all three newly proposed emergency medical services stations in the county, along with upgrades of EMS equipment and its 911 service.</p>
<p>[<em>3 media outlets, 1 religion newsletter.</em> <a href="https://theconversation.com/us/newsletters/this-week-in-religion-76/?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=religion-3-in-1">Get stories from The Conversation, AP and RNS.</a>]</p>
<h2>Taxing the ‘infidel and the atheist’</h2>
<p>Projecting those numbers out to the entire U.S. population is tricky. The number and proportion of religiously exempt properties varies by county; property values and tax rates vary across the country, and the value of religiously exempt properties varies as well. </p>
<p>But if one assumed that the exempt taxes are uniform across the country based on the information derived from Manatee County – which, to be clear, they’re not – local and state governments forgo roughly $6.9 billion in tax revenue annually by exempting religions from paying property taxes.</p>
<p>This is just an estimate – it is nearly impossible to know the actual amount, and it may be that the true figure is even higher. If churches and other places of worship were required to file annual financial reports, researchers could use that information to evaluate the financial health of religious entities in the U.S.</p>
<p>It would also give a clearer understanding as to how much, in <a href="https://digitalcommons.law.uidaho.edu/cgi/viewcontent.cgi?article=1194&context=idaho-law-review">Twain’s words</a>, “the infidel and the atheist and the man without religion are taxed to make up the deficit in the public income” caused by the exemption for churches.</p>
<p>With such information more readily available, the public would find it much easier to discuss the merits of a hashtag campaign like #TaxTheChurches.</p><img src="https://counter.theconversation.com/content/164988/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ryan Cragun does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Megachurches and the men who lead them can be superrich. So why don’t the IRS and local authorities see a cent in taxes? A scholar explains.Ryan Cragun, Professor of Sociology, University of TampaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1624562021-06-09T18:03:52Z2021-06-09T18:03:52ZIs tax avoidance ethical? Asking on behalf of a few billionaire friends<figure><img src="https://images.theconversation.com/files/405448/original/file-20210609-14356-15ah5fg.png?ixlib=rb-1.1.0&rect=0%2C32%2C1994%2C1398&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Should America's billionaires be paying more tax?</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/democratic-presidential-candidate-former-new-york-city-news-photo/1209988648?adppopup=true; https://www.gettyimages.com/detail/news-photo/spacex-ceo-elon-musk-speaks-at-the-international-news-photo/855370170?adppopup=true; ; https://www.gettyimages.com/detail/news-photo/amazon-ceo-jeff-bezos-attends-a-commemoration-ceremony-held-news-photo/1173086694?adppopup=true">J. Countess/Getty Images, Joe Raedle/Getty Images, Arif Hudaverdi Yaman/Anadolu Agency via Getty Images</a></span></figcaption></figure><p>Some of the U.S.’s wealthiest individuals reportedly pay just a tiny fraction of the billions of dollars added annually to their fortunes in federal income tax – sometimes they pay nothing at all.</p>
<p>Investigative journalism outlet ProPublica <a href="https://www.propublica.org/article/the-secret-irs-files-trove-of-never-before-seen-records-reveal-how-the-wealthiest-avoid-income-tax">says it has obtained a “vast cache” of information</a> from the Internal Revenue Service that purports to show the lengths that American billionaires go to to avoid paying taxes.</p>
<p>It claims to provide an insight into how prominent billionaires such as Jeff Bezos, Elon Musk and Michael Bloomberg take advantage of “tax avoidance strategies” beyond the reach of ordinary people.</p>
<p>Though there is general public consensus on the illegality of tax evasion – the act of deliberately not paying taxes that are due – much more variance exists in how the public evaluates and scrutinizes tax avoidance strategies that seek to minimize the amount an individual pays through legal loopholes. There is no suggestion that the billionaires in the ProPublica report did anything illegal. A <a href="https://de.reuters.com/article/uk-usa-election-poll/trump-calls-tax-avoidance-smart-most-americans-call-it-unpatriotic-poll-idUKKCN1242FY">poll taken just before the 2016 election</a> found that nearly half of Americans agreed with Donald Trump – another wealthy individual not averse to tax avoidance strategies – who noted that paying minimal or no taxes is “smart.” But two-thirds said it is “selfish” and 61% declared it to be “unpatriotic.”</p>
<h2>Rights and responsibilities</h2>
<p>As a <a href="https://www.unomaha.edu/college-of-business-administration/college-profile-and-directory/bass-erin.php">scholar who studies business ethics</a>, I see these differences in how individuals view and rationalize tax avoidance as being dependent on a person’s <a href="https://www.wiley.com/en-us/Managing+Business+Ethics%3A+Straight+Talk+about+How+to+Do+It+Right%2C+7th+Edition-p-9781119194309">ethical foundations</a>. Ethical foundations are the principles, norms and values that guide individual or group beliefs and behaviors. They can shape what people <a href="https://doi.org/10.1016/B978-0-12-407236-7.00002-4">believe is important</a> – such as fairness, care for oneself or others, loyalty and liberty – and guide judgments about what is right, or ethical, and what is wrong, or unethical. </p>
<p>Philosophers have debated these ethical foundations for centuries, coming up broadly with three different perspectives that are worth exploring in the context of tax avoidance strategies.</p>
<p>Thinkers from <a href="https://plato.stanford.edu/entries/kant/">Immanuel Kant</a> to <a href="https://plato.stanford.edu/entries/rawls/">John Rawls</a> have offered what has been called the <a href="http://doi.org/10.1007/s10551-013-1963-0">deontological</a> argument. This emphasizes ethics based on adherence to rules, regulations, laws and norms. Such an approach suggests that “what is right” is defined as that which is most in line with an individual’s responsibility and duty toward society.</p>
<p>Meanwhile, utilitarian philosophers such as <a href="https://plato.stanford.edu/entries/mill/">John Stuart Mill</a> and <a href="https://plato.stanford.edu/entries/bentham/">Jeremy Bentham</a> put forward an argument that recognizes the costs and benefits, or even trade-offs, in pursuing what is right. Under this belief system, called <a href="http://doi.org/10.1007/s10551-013-1963-0">consequentialism</a>, behaviors are ethical if the outcome is beneficial to the greatest number of people, even if it comes at a cost.</p>
<p>A third perspective comes in the shape of what is called the <a href="http://doi.org/10.1007/s10551-013-1963-0">virtue ethical foundation</a> that is associated with <a href="https://plato.stanford.edu/entries/aristotle/">Aristotle</a> and other Greek philosophers. This suggests that what is right is that which elevates the individual’s virtues and efforts toward moral excellence – defined by both avoiding vices and striving to do good. In this way, ethical behavior is that which enables the individual to achieve his or her most excellent moral self. </p>
<h2>On morals and money</h2>
<p>When applied to the tax avoidance strategies of individuals, each perspective offers a unique understanding of why individuals differ on what they view to be “right.” </p>
<p>An individual who adopts the deontological perspective likely evaluates a public figure’s tax avoidance strategies – and that of others – with less scrutiny. As long as an individual follows the tax code, and acts legally, the tax avoidance strategies are likely to be viewed by that individual as ethical. </p>
<p>In contrast, a consequentialist is likely to evaluate tax avoidance strategies by also looking at how those taxes could have been used to benefit society – by paying for schools and hospitals, for example. When one individual – be it a billionaire or any other person – avoids taxes, <a href="https://www.accountingtoday.com/news/global-tax-avoidance-costs-countries-427b-each-year-says-report">it increases the costs</a> experienced by everyone else while also decreasing the benefits experienced by society as a whole. The cost to society in terms of lesser funding for programs and services supported by tax dollars may be even greater when a wealthy individual avoids taxes, given what is <a href="https://budget.house.gov/publications/report/funding-irs">likely a highter tax responsibility</a> than that of individuals with modest incomes. Thus, consequentialist individuals may well conclude that tax avoidance strategies are unethical.</p>
<p>An individual who adopts the virtue perspective of Aristotle might evaluate tax avoidance strategies in the context of an individual’s other virtuous behaviors. If someone avoids taxes but provides financial support to other institutions or entities that are meaningful to the tax avoider but also produce benefits for society, then the virtuous individual may view this behavior with less disdain. For example, someone may use tax avoidance strategies and direct some wealth to provide funding directly to an academic health care center for cancer research. But if that person employs tax avoidance strategies in the absence of any other virtuous behaviors, then the tax avoidance is likely to be seen and rationalized as unethical.</p>
<h2>Social influencers</h2>
<p>So whether tax avoidance strategies are viewed and rationalized as ethical or unethical likely depends on the ethical foundations of the person judging such actions.</p>
<p>But when it comes to public figures and the superrich, there are additional ethical concern at play here. <a href="https://doi.org/10.2307/41166057">Public figures are evaluated</a> not just on their own personal morality, but also by what influence their behaviors could have on others. If the superrich avoid taxes, it might signal to the public to do the same, which could have greater consequences. The public often demands more of the superrich – and ethics are no exception. The expectation is that these individuals, as leaders in society, should create <a href="https://www.industryleadersmagazine.com/the-impact-of-a-good-leader-and-good-leadership-in-society/">benefits for society through their behaviors</a>. As a result, these individuals <a href="https://www.yahoo.com/lifestyle/america-has-higher-standards-for-ceos-than-for-presidents-211525571.html">may be held to a higher ethical standard</a> and their behaviors more closely scrutinized.</p>
<p>As such, the question of whether the tax avoidance strategies of the ultrawealthy are “ethical” depends not only on the ethical foundation of the individual who views and judges the behavior, but also on the expectation of the ultrawealthy to create benefits for society.</p>
<p><em>This is an updated version of an <a href="https://theconversation.com/is-tax-avoidance-ethical-asking-for-a-friend-147967">article originally published</a> on Oct. 30, 2020.</em></p><img src="https://counter.theconversation.com/content/162456/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Erin Bass does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Wriggling out of paying taxes may be legal, but is it right? Aristotle, Immanuel Kant – and others – have their say.Erin Bass, Associate Professor of Management, University of Nebraska OmahaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1622942021-06-07T15:05:50Z2021-06-07T15:05:50ZG7 tax deal: if you think multinationals will be forced to pay more, you don’t understand tax avoidance<p>Finance ministers in London from the G7 group of wealthy nations <a href="https://www.gov.uk/government/news/g7-finance-ministers-agree-historic-global-tax-agreement">have agreed</a> a deal that has been described invariably as a landmark that will transform the landscape of global corporate tax. Although details are somewhat scant, and the supposed deal is still in a negotiation phase, it is certainly transformational. </p>
<hr>
<iframe id="noa-web-audio-player" style="border: none" src="https://embed-player.newsoveraudio.com/v4?key=x84olp&id=https://theconversation.com/g7-tax-deal-if-you-think-multinationals-will-be-forced-to-pay-more-you-dont-understand-tax-avoidance-162294&bgColor=F5F5F5&color=D8352A&playColor=D8352A" width="100%" height="110px"></iframe>
<p><em>You can listen to more articles from The Conversation, narrated by Noa, <a href="https://theconversation.com/uk/topics/audio-narrated-99682">here</a>.</em></p>
<hr>
<p>The only thing I am not sure about is, transformation from what to what? Is it going to transform a system of taxation that was designed early in the 20th century and is simply not fit for purpose in the 21st? Or is it going to transform the techniques of tax avoidance, and give rise to a whole new suite of tax avoidance schemes? My gut feeling is the latter. </p>
<p>I do not seem to be alone in this. Stock markets around the world have taken the deal in their stride, barely registering what is supposed to be biggest transformation in corporate taxation in the past 100 years. It seems to be telling us that post-tax corporate profits are unlikely to change much, if at all.</p>
<h2>How tax avoidance works</h2>
<p>The international business taxation regime that emerged in the early 20th century said that active business income would be taxed in the place where the business is located. But inherent in this was a loophole, since a large portion of global trade takes place in the form of intra-firm trade between subsidiaries within the same company. Companies often transfer large portions of profitable activities to subsidiaries in low-tax jurisdictions, aka tax havens, so that the income appears to have been sourced there. As a result, they are taxed at very low levels. </p>
<p>Regulators are all too aware of these techniques of tax avoidance, known as <a href="https://www.taxjustice.net/faq/what-is-transfer-pricing/">transfer pricing</a>. They have introduced a whole suite of regulations to stop these practices, but it doesn’t seem to have had the desired effect. Instead, it has given rise to a different type of tax avoidance schemes known as <a href="https://www.youtube.com/watch?v=8s0Vogit4WQ">jurisdictional arbitrage</a>. </p>
<p>Such schemes take advantage of gaps, loopholes or omissions in the laws of one country to play against the rules of another. Apple, for instance, <a href="https://www.irishtimes.com/business/apple-made-key-subsidiary-irish-resident-for-tax-reasons-in-2014-1.3282037">took advantage</a> of the difference between the rules in Ireland and the US regarding where business income is taxed (known as tax residency) <a href="http://www.hsgac.senate.gov/subcommittees/investigations/">to create</a> two subsidiaries in Ireland that had tax residency nowhere. </p>
<p>Apple assigned to these two subsidiaries the majority of its sales income from outside the US. And since these subsidiaries were tax resident nowhere, they could not pay tax anywhere. This is <a href="https://www.theguardian.com/technology/2020/jul/15/apple-does-not-need-to-pay-13bn-irish-tax-bill-court-rules">currently the subject</a> of a <a href="https://www.politico.eu/article/commission-lays-out-arguments-in-appeal-of-apple-tax-case/">case being brought</a> against Apple by the European Commission. </p>
<p>Amazon, in contrast, <a href="https://researchcentres.city.ac.uk/__data/assets/pdf_file/0009/607698/The-Amazon-Method-2021.pdf">has devised</a> a system of internal transfers that takes advantage of the generous US tax credit system. By transferring losses from its international segment to the US, it ends up paying little or not tax at all.</p>
<p>Moreover, jurisdictional arbitrage is only for starters. Sophisticated firms – not least Amazon – also <a href="https://researchcentres.city.ac.uk/__data/assets/pdf_file/0009/607698/The-Amazon-Method-2021.pdf">take advantage</a> of accounting rules in conjunction with financial instruments such as derivatives and swaps to modify the very accounting data that is used in calculating taxation. They can modify the location, timing or even accounting categories of income, turnover and the like, to shift profits either from one place to another, or often to a future that never comes. </p>
<h2>What next</h2>
<p>The new system agreed in London is aimed at some of these techniques. First, it proposes to impose a global minimum of 15% corporate taxation. Now, let us be clear. A single corporate entity located in a 0% tax jurisdiction like the Cayman Islands or Bermuda is unlikely to be used for tax avoidance purposes nowadays, since there are enough anti-avoidance rules to ensure that it cannot. </p>
<p>Nonetheless, subsidiaries in Cayman, Bermuda – or in reality the Netherlands, Luxembourg, Switzerland, Ireland or Singapore – are often used as components in complex jurisdictional arbitrage schemes. Zero taxation plays an important role in these schemes. </p>
<p>Still, it is difficult to tell whether a global minimum rate might affect schemes like Apple’s “resident nowhere” Irish set-up. Equally, it is a mystery to me at this stage as to how Amazon’s tax position might be affected. Hence, the G7 has come up with a second element to the new rules: tax must be paid where sales happen, not where the operation is registered. If adopted, the Apple scheme would not work any longer because Apple subsidiaries would pay tax where they sell their products.</p>
<p>We can anticipate already at this point new ways around the rules. The deal refers only to very large firms (though what “very large” entails is still unknown). It will also only affect firms with a 10% annual profit margin and above. </p>
<p>I suspect that if the new regime is sufficiently robust, the “very large” rule could see the biggest firms being broken up. Instead we might see groups of technically independent companies acting as an alliance to ensure the whole operation is below the threshold. We saw something similar with the rise of the so-called “<a href="https://www.imf.org/external/pubs/ft/fandd/basics/52-shadow-banking.htm">shadow banking</a>” industry, where onerous banking regulations gave rise to apparently independent sets of companies acting in effect together as banks to avoid the need for a banking licence. </p>
<p>Alternatively, the deal may encourage more of the techniques perfected by the Amazons of this world, using sophisticated accounting to grow in size under the guise of losing money. </p>
<p>The deal, in other words, may be transformational, but whether or not it will affect the amount of taxation paid by the corporate sector is a different matter altogether.</p><img src="https://counter.theconversation.com/content/162294/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ronen Palan receives funding from the ERC and is a senior adviser to the Tax Justice Network. </span></em></p>To weigh the prospects of a transformation, it pays to look at the markets.Ronen Palan, Professor of International Politics, City, University of LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1522752021-05-13T15:24:53Z2021-05-13T15:24:53ZHow global tax dodging costs lives: new research shows a direct link to increased death rates<figure><img src="https://images.theconversation.com/files/400056/original/file-20210511-21-1be4z7b.jpg?ixlib=rb-1.1.0&rect=135%2C99%2C2868%2C1828&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/offshore-banking-tax-havens-concept-golden-183132836">Shutterstock/ChameleonsEye</a></span></figcaption></figure><p>Tax abuse is an expensive business. According to a <a href="https://www.taxjustice.net/reports/the-state-of-tax-justice-2020/">recent report</a> by the Tax Justice Network, avoiding or evading tax deprives governments across the world of around US$427 billion (£302 billion) every year. This is money that could otherwise be spent on things like clean water, sanitation, education and health care. </p>
<hr>
<iframe id="noa-web-audio-player" style="border: none" src="https://embed-player.newsoveraudio.com/v4?key=x84olp&id=https://theconversation.com/how-global-tax-dodging-costs-lives-new-research-shows-a-direct-link-to-increased-death-rates-152275&bgColor=F5F5F5&color=D8352A&playColor=D8352A" width="100%" height="110px"></iframe>
<p><em>You can listen to more articles from The Conversation, narrated by Noa, <a href="https://theconversation.com/uk/topics/audio-narrated-99682">here</a>.</em></p>
<hr>
<p>The same report also claims that the laws and practices of just four countries – the UK and <a href="https://theconversation.com/why-british-law-doesnt-necessarily-apply-in-overseas-territories-57748">its network</a> of overseas territories and crown dependencies, along with Switzerland, the Netherlands and Luxembourg – are responsible for 55% of tax losses suffered around the world. </p>
<p>Now for the first time, we can realistically assess how these huge gaps in tax receipts directly affect the mortality rate of young children and their mothers. We do this using the Government Revenue and Development Estimations (<a href="http://med.st-andrews.ac.uk/grade/">GRADE</a>) tool, which uses <a href="https://www.wider.unu.edu/project/government-revenue-dataset">government revenue data</a> from the United Nations University <a href="https://www.wider.unu.edu/">World Institute for Development Economics Research</a> and <a href="https://link.springer.com/article/10.1007/s11079-020-09597-0">models</a> the impact of government revenue on child and maternal mortality. Thus we can quantify the human cost of revenue losses through tax avoidance (which is legal) and tax evasion (which is not) for every country in the world. </p>
<p>Unsurprisingly, the biggest impact is felt by the populations of low and middle income countries, when, for example, a multinational corporation under reports their profit to minimise the tax owed locally and instead reports profit in another country with a very low or zero tax rate. </p>
<p>Nigeria, for example, was calculated to have lost almost <a href="https://iff.taxjustice.net/#/profile/NGA">US$11 billion or US$57 per person</a> in 2020 due to unpaid tax revenue. Projecting this annual loss over a ten-year period, we estimate almost 150,000 child deaths could have been averted if these losses had been curtailed. Imagine the potential for multiple countries and multiple decades. </p>
<figure>
<iframe src="https://player.vimeo.com/video/500133131" width="500" height="281" frameborder="0" webkitallowfullscreen="" mozallowfullscreen="" allowfullscreen=""></iframe>
</figure>
<p>These kinds of shocking numbers have already had an impact. The <a href="https://www.glanlaw.org/irish-tax-policies-child-rights">Global Legal Action Network</a>, <a href="https://actionaid.ie/submission-un-to-examine-whether-irish-tax-policy-harms-children-in-lower-income-countries/">Action Aid</a> and others used them to make a submission to the United Nations <a href="https://ohchr.org/EN/HRBodies/CRC/Pages/CRCIndex.aspx">Committee on the Rights of the Child</a> (UNCRC). </p>
<p>Their concern was Ireland’s responsibility for <a href="https://c5e65ece-003b-4d73-aa76-854664da4e33.filesusr.com/ugd/14ee1a_21d5fea7778c408db4ba8901648f6052.pdf">the impacts of cross-border tax abuse</a> which may deprive low-income countries of revenues to spend on children’s economic, social and cultural rights. Following the submission, the <a href="https://tbinternet.ohchr.org/Treaties/CRC/Shared%20Documents/IRL/CRC_C_IRL_QPR_5-6_43616_E.pdf">UNCRC asked</a> Ireland <a href="https://www.irishtimes.com/news/ireland/irish-news/un-to-examine-whether-irish-tax-policy-harms-rights-of-children-overseas-1.4401519">to explain</a> what it is doing to ensure its policies <a href="https://www.irishtimes.com/opinion/irish-tax-policy-is-now-a-human-rights-issue-for-the-un-1.4418291">do not contribute</a> to tax abuse by companies operating in other countries.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/375945/original/file-20201218-21-kugeb7.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/375945/original/file-20201218-21-kugeb7.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=301&fit=crop&dpr=1 600w, https://images.theconversation.com/files/375945/original/file-20201218-21-kugeb7.PNG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=301&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/375945/original/file-20201218-21-kugeb7.PNG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=301&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/375945/original/file-20201218-21-kugeb7.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=378&fit=crop&dpr=1 754w, https://images.theconversation.com/files/375945/original/file-20201218-21-kugeb7.PNG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=378&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/375945/original/file-20201218-21-kugeb7.PNG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=378&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Countries responsible for global tax abuses.</span>
<span class="attribution"><span class="source">The State of Tax Justice 2020</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>This is the first time the UNCRC has examined the consequences of a country’s tax policies on the rights of children living overseas. Hopefully, it is just the beginning. If campaigners elsewhere make similar submissions, the handful of countries responsible for more than half of global tax abuses might be persuaded to review and adjust their approach. </p>
<h2>Revenue for rights</h2>
<p>Richer countries have a responsibility to the citizens of poorer countries, and this is not limited to ministries concerned with foreign aid. Multinational corporations usually have their headquarters in wealthy countries, which have a moral duty to prevent <a href="http://docstore.ohchr.org/SelfServices/FilesHandler.ashx?enc=4slQ6QSmlBEDzFEovLCuW1a0Szab0oXTdImnsJZZVQcIMOuuG4TpS9jwIhCJcXiuZ1yrkMD%2FSj8YF%2BSXo4mYx7Y%2F3L3zvM2zSUbw6ujlnCawQrJx3hlK8Odka6DUwG3Y">human rights violations abroad</a>. Governments must not remain passive when organisations based within their territory harm such rights in other countries. </p>
<p>This is especially crucial for low and middle income countries, but equally, the governments of those countries must seek to protect their citizens and prioritise fundamental rights over business interests.</p>
<p>In the future, multinational businesses ought to be required to publish profits and tax paid in the country where the profit and tax was generated. Fortunately, momentum is gathering behind requiring this kind of <a href="https://www.globalreporting.org/about-gri/news-center/momentum-gathering-behind-public-country-by-country-tax-reporting/">public reporting</a>. Increasingly companies appear to be publishing this information voluntarily – one example is <a href="https://www.vodafone.com/content/dam/vodcom/sustainability/pdfs/vodafone_2018_tax.pdf">Vodafone</a>. </p>
<p>When this data is available – from both corporations and countries – the <a href="http://med.st-andrews.ac.uk/grade/">GRADE</a> tool can be used to shine a light both on the positive impact these taxes have on lives, and the negative effects of lost revenue. We hope it could become a powerful weapon in the battle for transparency and a move away from the kind of practices which compromise fundamental human rights.</p><img src="https://counter.theconversation.com/content/152275/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Bernadette O'Hare receives funding from the Scottish Funding Council, the Global Challenges Research Fund, and Professor Sonia Buist Global Child Health Research Fund. Thanks to Dr Stuart Murray for the visualisations used in the GRADE and Dr Marisol Lopez, Research Fellow, the University of St Andrews. </span></em></p><p class="fine-print"><em><span>Kyle McNabb and Stephen Hall do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Lost revenue is money that could be spent on lifting people out of poverty.Bernadette O'Hare, Senior Lecture in Global Health Implementation, University of St AndrewsKyle McNabb, Research Associate, Overseas Development InstituteStephen Hall, Professor of Economics, University of LeicesterLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1585532021-04-07T13:41:43Z2021-04-07T13:41:43ZCorporation tax: why Janet Yellen’s call for a global minimum rate is a bad move<p>The US treasury secretary, Janet Yellen, <a href="https://www.ft.com/content/79023ff2-c629-429c-8a34-16bf68b4ea15">is calling for</a> governments around the world to support the US in setting up a global minimum corporation tax rate. She did not specify a rate but it comes at a time when the US government is <a href="https://www.cnbc.com/2021/03/31/biden-infrastructure-bill-companies-split-on-whether-to-fight-corporate-tax-hike.html">trying to raise</a> the nation’s internal corporation tax rate from 21% to 28%. </p>
<hr>
<iframe id="noa-web-audio-player" style="border: none" src="https://embed-player.newsoveraudio.com/v4?key=x84olp&id=https://theconversation.com/corporation-tax-why-janet-yellens-call-for-a-global-minimum-rate-is-a-bad-move-158553&bgColor=F5F5F5&color=D8352A&playColor=D8352A" width="100%" height="110px"></iframe>
<hr>
<p>Yellen said that imposing a global minimum would “make sure the global economy thrives based on a more level playing field in the taxation of multinational corporations”, and that it would spur “innovation, growth and prosperity”. </p>
<p>The new US administration has <a href="https://www.capacitymedia.com/articles/3827855/yellen-u-turns-on-us-digital-tax-opposition">already been trying</a> to reach international agreement over a digital tax for online giants such as Amazon and Facebook, pushing for the OECD to reach a deal by the summer. The Economist <a href="https://www.economist.com/finance-and-economics/2021/04/06/janet-yellen-calls-for-a-global-minimum-tax-on-companies-could-it-happen">reckons that</a> Silicon Valley’s “big five” paid just US$220 billion (£159 billion) in <a href="https://www.thetaxcouncil.org/wp-content/uploads/2013/05/Cash-Tax-vs-Book-Tax_final.pdf">cash taxes</a> in the past decade, representing just 16% of their pre-tax profits. </p>
<p>Yet Yellen’s call for a global minimum corporation tax goes much further than this. And in my view it’s a bad idea: it would disadvantage developing countries and is probably not workable anyway. </p>
<h2>A race to the bottom?</h2>
<p>Yellen claims that a global minimum rate will end a “30-year <a href="https://theconversation.com/corporation-tax-race-to-bottom-may-be-ending-after-40-years-heres-why-it-never-made-sense-153662">race to the bottom</a>” – but global practice points to a more mixed picture. <a href="https://taxfoundation.org/publications/corporate-tax-rates-around-the-world/#Findings">In 2020</a>, nine countries across five continents reduced their corporation tax rates by between one (Togo) and five percentage points (Greenland). Within the OECD, <a href="https://taxfoundation.org/publications/corporate-tax-rates-around-the-world/#Findings">several countries have plans</a> to cut their rates in the coming fiscal year or two: France is cutting from 32% to 25%, while Sweden is cutting from 21% to 20%. The Netherlands was also planning a cut, but has since <a href="https://www.ey.com/en_gl/tax-alerts/the-netherlands-publishes-2021-budget-proposals">changed its mind</a>. </p>
<p>Many other countries have kept their rates stable for many years however. Nigeria’s rate has been <a href="https://tradingeconomics.com/nigeria/corporate-tax-rate#:%7E:text=The%20Corporate%20Tax%20Rate%20in%20Nigeria%20stands%20at%2030%20percent.">steady at 30%</a>, while Brazil’s is an <a href="https://tradingeconomics.com/brazil/corporate-tax-rate">unchanging 34%</a>. China’s rate <a href="https://tradingeconomics.com/china/corporate-tax-rate#:%7E:text=Corporate%20Tax%20Rate%20in%20China%20is%20expected%20to%20reach%2025.00,according%20to%20our%20econometric%20models.">has been 25%</a> for more than a decade (but 15% for sectors that the government is trying to encourage, such as certain tech businesses). South Africa’s rate <a href="https://tradingeconomics.com/south-africa/corporate-tax-rate">has been 28%</a> for nearly a decade too, though it is <a href="https://taxsummaries.pwc.com/south-africa/corporate/taxes-on-corporate-income#:%7E:text=In%20South%20Africa%2C%20the%20CIT,or%20after%201%20April%202022.">coming down to 27%</a> in 2022. </p>
<p>Each rate is subject to drivers peculiar to the country in question and its economy, but none of these countries is “racing to the bottom”. Neither are they begging for a global minimum rate. There has been far more interest in a digital corporation tax, with some companies such as India, the Czech Republic, France and Turkey <a href="https://news.bloombergtax.com/daily-tax-report/digital-services-tax-why-the-world-is-watching">already introducing</a> a levy. </p>
<h2>Threat to flexibility</h2>
<p>In developing and developed countries alike, multinationals are a source of foreign direct investment, which makes them attractive to governments. These corporations both hire workers and create many more jobs indirectly through everything from using local contractors to creating demand for consumer goods through the salaries they pay. </p>
<p>Some countries have used their freedom to set corporation tax rates as a way to attract such business. There are examples of low corporation tax regimes around the world, from Ireland (12.5%) to Moldova (12%), from Paraguay (10%) to Uzbekistan (7.5%). In a world where there are huge disparities in the income levels of different countries, a minimum global corporation tax rate could crowd out those who are not especially attractive but for the fact that they can offer lower rates. </p>
<p>For some corporations, it will also raise the cost of doing international business. Take the example of an American corporation with a presence in Ireland. Suppose the global minimum rate was set at 20%: such a company will have to pay 7.5 percentage points more of corporation tax on trading in Ireland than it does at present. Not only does this potentially make Ireland less attractive, it means that the costs will be passed on – be it to the company’s suppliers or its customers or whatever. </p>
<p>More generally, a global minimum rate would remove the flexibility for different nations to pursue policies that best suit them. Take COVID-19, for example. With
<a href="https://blogs.imf.org/2021/03/31/slow-healing-scars-the-pandemics-legacy/">IMF</a> and <a href="https://www.worldbank.org/en/news/press-release/2021/01/05/global-economy-to-expand-by-4-percent-in-2021-vaccine-deployment-and-investment-key-to-sustaining-the-recovery">World Bank</a> data suggesting that developing countries may experience a longer economic hangover than their developed counterparts, Ghana <a href="https://home.kpmg/us/en/home/insights/2021/03/tnf-ghana-tax-provisions-2021-budget.html">recently introduced</a> a 30% tax rebate for companies in sectors such as travel, tourism and hospitality for the rest of 2021. </p>
<p>This is comparable to the <a href="https://www.pinsentmasons.com/out-law/news/uk-budget-2021-corporation-tax#:%7E:text=The%20current%2019%25%20rate%20of,even%20after%201%20April%202023.">UK’s recent announcement</a> that it was deferring a planned increase in corporation tax for several years to encourage business spending. Under a global minimum corporation tax rate regime, will independent nation states be able to proffer such initiatives?</p>
<p>Finally, a global minimum rate will not end creative accounting. Each country’s tax code will still have its own set of complicated exceptions and exemptions, and companies will still pay specialist advisers handsomely to help them make the most of them. A global minimum rate will also do nothing to help with tax evasion, which was <a href="https://www.internationalinvestment.net/news/4024539/global-tax-evasion-costs-usd427bn#:%7E:text=Taxpayers%20around%20the%20world%20lose,group%20the%20Tax%20Justice%20Network.">recently estimated</a> to cost taxpayers almost half a trillion US dollars a year.</p>
<p>In short, Yellen’s proposal is no magic bullet and it’s targeting a problem that is not what it appears. This is a battle that is not worth winning, and it will cause much collateral damage before it comes to an end.</p><img src="https://counter.theconversation.com/content/158553/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sharif Mahmud Khalid does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Not content with swinging behind a global digital tax, now the US treasury secretary wants to put paid to bargain corporation tax rates in general.Sharif Mahmud Khalid, Assistant Professor in Accounting and Financial Management, University of SheffieldLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1532762021-01-19T13:10:14Z2021-01-19T13:10:14ZTrump sees power as private property – a habit shared by autocrats throughout the ages<figure><img src="https://images.theconversation.com/files/379102/original/file-20210116-23-1j0yfa1.jpg?ixlib=rb-1.1.0&rect=5%2C11%2C3673%2C2372&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Lord of all he surveys?</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/president-donald-trump-stands-on-the-white-house-balcony-news-photo/1229299863?adppopup=true">Nicholas Kamm/AFP via Getty Images</a></span></figcaption></figure><p>Shortly before crowds of his supporters <a href="https://www.nytimes.com/2021/01/09/us/capitol-rioters.html">stormed the Capitol</a> on Jan. 6, Donald Trump implored them to “<a href="https://www.nytimes.com/2021/01/06/us/politics/trump-speech-capitol.html">take back our country</a>.” His words echoed a long history of authoritarians who have attempted to privatize power and turn it into personal property.</p>
<p>Taking back what is yours would not, by this logic, be trespassing, terrorism or treason. Instead, it is merely setting things right. By inciting a predominantly white crowd to lay siege to an institution that was ratifying what they had been <a href="https://www.latimes.com/opinion/story/2020-12-06/donald-trump-election-fraud-lies-psychology">told was a “stolen” election</a>, Trump was trying to preserve his presidency as if it were private property – his to keep, or give away.</p>
<h2>Turning power into property</h2>
<p>As <a href="https://www.wcl.american.edu/community/faculty/profile/nicola/bio">scholars</a> of <a href="https://www.jura.uni-frankfurt.de/42780580/Zur_Person">comparative authoritarianism</a>, we have come to learn that this is nothing new. History offers plenty of egregious examples of autocrats who treated their office and powers as their private property. Louis XIV, king of France, <a href="http://doi.org/10.7228/manchester/9780719062353.001.0001">did not know how to distinguish between himself and the state</a>. According to the legend, the “Sun King” <a href="https://doi.org/10.2307/286184">said that he was the state</a> or, modified in property terms, that the state belonged to him.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/379103/original/file-20210116-17-1belcjx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/379103/original/file-20210116-17-1belcjx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/379103/original/file-20210116-17-1belcjx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=753&fit=crop&dpr=1 600w, https://images.theconversation.com/files/379103/original/file-20210116-17-1belcjx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=753&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/379103/original/file-20210116-17-1belcjx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=753&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/379103/original/file-20210116-17-1belcjx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=946&fit=crop&dpr=1 754w, https://images.theconversation.com/files/379103/original/file-20210116-17-1belcjx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=946&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/379103/original/file-20210116-17-1belcjx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=946&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The Sun King in all his pomp.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/louis-xiv-king-of-france-in-royal-costume-oil-on-canvas-by-news-photo/526886762?adppopup=true">Corbis Historical via Getty Images</a></span>
</figcaption>
</figure>
<p>Whether autocrats come to office by chance of birth, are elected or usurp the leadership of the state, they almost habitually succumb to the temptation to regard their position not as a temporary loan, but as capital they can dispose like landlords. The way autocrats deal with tenure, succession and state assets reveals how they treat political power as private property.</p>
<p>Once elected, fairly or after manipulation, autocrats tend to wrench power from a legitimate government and, if necessary, <a href="https://www.theatlantic.com/ideas/archive/2020/03/new-authoritarianism/607045/">remove the time limits</a> on their term of office.</p>
<p>In the case of <a href="https://theconversation.com/statesman-strongman-philosopher-autocrat-chinas-xi-is-a-man-who-contains-multitudes-92962">China’s Xi Jinping</a>, this was achieved through <a href="https://www.npr.org/sections/thetwo-way/2018/03/11/592694991/china-removes-presidential-term-limits-enabling-xi-jinping-to-rule-indefinitely">cosmetic constitutional changes</a> handled by compliant party cadres. Referendums, marred by intimidation and violence, had the same result of extending the tenures of <a href="http://www.nbcnews.com/id/wbna6276009">Alexander Lukashenko in Belarus</a>, <a href="https://www.cnn.com/2009/WORLD/africa/04/09/algeria.election/index.html">Abdelaziz Bouteflika in Algeria</a> and <a href="https://www.nytimes.com/2009/02/16/world/americas/16venez.html">Hugo Chávez in Venezuela</a>.</p>
<p>Brazen despots, such as <a href="https://www.nytimes.com/2016/09/03/world/asia/uzbekistan-islam-karimov-obituary.html">Uzbekistan’s former leader Islam Karimov</a>, simply <a href="https://thediplomat.com/2015/04/karimov-uzbekistans-perpetual-president/">disregard a constitutional term limit</a>. Vladimir Putin sidestepped it by first setting up a stooge, <a href="https://www.theguardian.com/world/2020/jan/15/dmitry-medvedev-the-rise-and-fall-of-the-robin-to-putins-batman">Dmitry Medvedev</a>, before faking a fresh start after manipulating the constitution. </p>
<p>When it comes to Trump, he dealt with the looming end of his term of power through denial. The lost election forced him to <a href="https://apnews.com/article/ap-fact-check-trump-conclusively-lost-bbb9d8c808021ed65d91aee003a7bc64">deny it happened</a>, instead <a href="https://www.politifact.com/factchecks/2021/jan/07/donald-trump/trump-clings-fantasy-landslide-victory-egging-supp/">claiming a landslide victory</a>. Against all evidence, Trump <a href="https://www.reuters.com/article/us-usa-election-voting-rules-insight/as-trump-pushes-baseless-fraud-claims-republicans-pledge-tougher-voting-rules-idUSKBN28V1DN">decried what he claimed was electoral fraud</a>, insisted on <a href="https://www.nbcnews.com/politics/2020-election/trump-campaign-asks-another-georgia-recount-n1248538">repeated recounts</a> and <a href="https://www.nbcnews.com/politics/2020-election/trump-s-election-fight-includes-over-30-lawsuits-it-s-n1248289">filed a flurry of lawsuits</a> without merit.</p>
<p>But even <a href="https://www.npr.org/2020/12/11/945617913/supreme-court-shuts-door-on-trump-election-prospects">Trump-appointed Supreme Court justices</a> could not defend his claims to what he believed to be his own: the presidency. Trump’s last call to manufacture facts that supported his denial went out to Georgia’s secretary of state to <a href="https://www.nytimes.com/2021/01/03/us/politics/trump-raffensperger-call-georgia.html">find over 11,780 votes</a>.</p>
<h2>Inheritance of power</h2>
<p>Following the example of hereditary monarchies, autocrats have a penchant for <a href="https://journals.sagepub.com/doi/abs/10.1177/0032321719862175?journalCode=psxa">controlling the transfer of political office</a> as property. Acting as if they “own” the power justifies the selection and anointing of an heir. It also ensures the tacit amnesty of any crime they may have committed by putting in place someone likely to absolve them and the gentle continuity of authoritarian rule to continue their legacy. </p>
<p>Hardcore versions of this include the <a href="http://doi.org/10.4324/9781315455532">Kim dynasty in North Korea</a> and the <a href="https://www.meforum.org/517/does-bashar-al-assad-rule-syria">Assad family clan in Syria</a>, in which the authoritarians guarantee continuity through their offspring. Elsewhere, it is wives – for instance <a href="https://www.jstor.org/stable/3173094">Eva Perón in Argentina</a> and <a href="http://www.ateneo.edu/ateneopress/product/conjugal-dictatorship-ferdinand-and-imelda-marcos">Imelda Marcos in the Philippines</a>, who became powerful national figures utilizing the base of support that their spouses had amassed.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/379104/original/file-20210116-21-1pj5o23.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="North Korean leader Kim Jong Il and his son Kim Jong Un attend a massive military parade to mark the 65th anniversary of the communist nation's ruling Workers' Party in Pyongyang, North Korea." src="https://images.theconversation.com/files/379104/original/file-20210116-21-1pj5o23.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/379104/original/file-20210116-21-1pj5o23.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=339&fit=crop&dpr=1 600w, https://images.theconversation.com/files/379104/original/file-20210116-21-1pj5o23.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=339&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/379104/original/file-20210116-21-1pj5o23.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=339&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/379104/original/file-20210116-21-1pj5o23.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=426&fit=crop&dpr=1 754w, https://images.theconversation.com/files/379104/original/file-20210116-21-1pj5o23.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=426&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/379104/original/file-20210116-21-1pj5o23.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=426&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">North Korean leadership is a family affair.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/NorthKoreaKimSuccessionQuestions/403d9a3c6043452cb26ca0691be66b6a/photo?Query=Kim%20Jong%20Un%20Kim%20Jong-Il&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=593&currentItemNo=6">AP Photo/Vincent Yu, File</a></span>
</figcaption>
</figure>
<p>Meanwhile for others it is friends, such as <a href="https://www.reuters.com/article/us-venezuela-chavez-maduro/venezuelas-maduro-from-bus-driver-to-chavezs-successor-idUSBRE9250PO20130306">Nicolas Maduro in Venezuela</a>, who was a Chavez loyalist, or personal physicians, such as the <a href="https://doi.org/10.1080/01436598608419948">murderous François “Papa Doc” Duvalier in Haiti</a>, who become confidants to ruling strongman leaders and then heirs to the throne.</p>
<p>Under Soviet-style communism, the party first takes the place of power as the legitimate heir to ensure unbroken continuity. </p>
<p>Succession tends to be more difficult where reasonably reliable elections carry the risk of expropriating the holder of power. </p>
<p>Trump may have intended to eliminate this risk by combining denial of the results with court action, the spread of false narratives and the incitement to insurrection of his followers.</p>
<h2>Appropriation of public property</h2>
<p>Political authoritarianism pays off, history has shown, especially for those who <a href="https://www.bloomsbury.com/us/dictators-and-dictatorships-9781441173966/">ruthlessly commercialize their position of power</a>. They assume that by virtue of their office they are entitled to the assets of the state, or rather society, for private use. </p>
<p>[<em>Deep knowledge, daily.</em> <a href="https://theconversation.com/us/newsletters/the-daily-3?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=deepknowledge">Sign up for The Conversation’s newsletter</a>.]</p>
<p>Authoritarian leaders have tended to disdain generating a regular income, so their hidden balance sheets <a href="https://www.hudson.org/research/14020-money-laundering-for-21st-century-authoritarianism">read much like those of operational networks of organized crime</a> specializing in theft, embezzlement, fraud and bribery. Latter-day autocrats conceal, as best they can, the sources of their wealth or refuse to pay taxes. Hitler had his tax debt waved in 1935 and then <a href="https://www.nytimes.com/1970/04/08/archives/hitler-revealed-as-a-tax-dodger-used-several-ruses-while-chancellor.html#:%7E:text=Through%20all%20the%20years%20before,was%20declared%20exempt%20from%20taxes.">declared that paying taxes was incompatible</a> with the political office of the Führer. Putin’s declared income <a href="https://qz.com/1594989/vladimir-putins-financial-disclosure-claims-little-wealth/">compares to that of a mid-level Russian bureaucrat</a>, while in reality, by conservative estimate, <a href="https://www.cnbc.com/2017/07/31/financier-bill-browder-says-vladimir-putin-is-worth-200-billion.html">his assets amount to over US$200 billion</a>. It has remained unclear until today how former Italian Prime Minister Silvio Berlusconi increased his already considerable wealth during his four terms. He was <a href="https://www.nytimes.com/2012/10/27/world/europe/berlusconi-convicted-and-sentenced-in-tax-fraud.html">convicted of tax evasion</a> and balance-sheet fraud. Chilean dictator Augusto Pinochet spread his and his family’s ill-gotten liquid assets <a href="https://www.irishtimes.com/news/general-pinochet-hid-15m-in-us-banks-1.423929">in over 100 accounts</a> in the U.S. alone.</p>
<p>Trump broke with the practice of presidential candidates and presidents by persistently refusing to <a href="https://www.nytimes.com/2020/07/09/us/politics/trump-taxes.html">disclose his tax returns</a>, a refusal his lawyers justified before the Supreme Court on the grounds of “<a href="https://www.usatoday.com/story/news/politics/2020/08/20/trump-tax-returns-judge-rejects-efforts-block-manhattan-subpoena/5616510002/">irreparable harm</a>.” Trump also took advantage of his office to <a href="https://www.gq.com/story/trump-kids-profit-presidency">enrich family members</a> by providing them with business opportunities. At a cost to U.S. taxpayers, the Trump company <a href="https://www.washingtonpost.com/politics/secret-service-spending-bedminster/2020/09/17/9e11e1c2-f6a0-11ea-be57-d00bb9bc632d_story.html">charged the Secret Service</a> for rooms at Trump properties. The entrepreneur-entertainer has seemingly glorified in the monetary benefits of his presidency with notions that he embodies “the Great” America.</p>
<p>It remains to be seen whether U.S. democracy will have the strength to expropriate ex-President Trump, take away from him the perks – honor, trust and profit – of the presidency and teach whoever may follow the difference between private and public property.</p><img src="https://counter.theconversation.com/content/153276/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>In claiming the election was “stolen” from him and using the office of the president to the benefit of his family, Trump dips into the authoritarian playbook to convert power into property.Fernanda G Nicola, Professor of Law, American UniversityGünter Frankenberg, Professor of Public Law, Legal Philosophy and Comparative Law, Goethe University Frankfurt am MainLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1473422020-10-28T12:22:33Z2020-10-28T12:22:33ZTrump’s ultra-low tax bills are what happens when government tries to make policy through the tax code<figure><img src="https://images.theconversation.com/files/365632/original/file-20201026-21-jv1ly0.jpg?ixlib=rb-1.1.0&rect=65%2C32%2C3576%2C2014&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The tax code can feel like a labyrinth.
</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/hedge-maze-in-barcelona-royalty-free-image/463203147">Marcel Germain/Moment via Getty Images</a></span></figcaption></figure><p>People tend to have one of two reactions to the revelation that President Donald Trump has paid little to no taxes in recent years: He’s either an <a href="https://www.nytimes.com/2020/10/10/opinion/sunday/trump-taxes.html">amoral tax cheat</a> or <a href="https://www.cnbc.com/2016/09/26/trump-brags-about-not-paying-taxes-that-makes-me-smart.html">he’s smart</a>.</p>
<p>To me, it reveals just how much is wrong with the U.S. tax code, which Congress treats as a sort of <a href="https://www.amazon.com/Fine-Mess-Global-Simpler-Efficient/dp/0143111140/ref=sr_1_1?dchild=1&keywords=tr+reid+a+fine+mess&qid=1601908367&sr=8-1">policy Swiss Army knife</a> to deal with innumerable desired social and economic policy goals, from <a href="https://www.nerdwallet.com/blog/mortgages/how-to-get-the-most-out-of-real-estate-tax-deductions/">homeownership</a> to protecting the <a href="https://legislature.maine.gov/statutes/36/title36sec4303.html">Maine blueberry industry</a>. </p>
<p><a href="https://scholar.google.com/citations?user=rmtYVssAAAAJ&hl=en&oi=ao">I teach</a> a course on “the politics of taxes,” in which we examine how politics shapes tax policy in the United States and other countries – as well as how taxation affects politics. My students are consistently struck by the extent to which Congress uses taxes as its <a href="https://www.routledge.com/Tax-Politics-and-Policy/Thom/p/book/9781138183391">default go-to policy lever</a>. </p>
<p>It wasn’t supposed to be this way.</p>
<h2>The tax code takes over</h2>
<p>In principle, the main function of taxation is to fund the government. But in practice, Congress also uses it to tackle challenges in virtually every policy area, from promoting conservation and charitable giving to encouraging entrepreneurship and ensuring steady business revenue. </p>
<p>All of these policies, however sound they made be individually, make the income tax system <a href="https://www.pewresearch.org/politics/2017/04/14/top-frustrations-with-tax-system-sense-that-corporations-wealthy-dont-pay-fair-share">more complicated for ordinary taxpayers</a> and creates a vast array of means by which some wealthy people <a href="https://www.jct.gov/CMSPages/GetFile.aspx?guid=fe7080a8-5a54-48e6-8cc0-ee243fc03236">can reduce their tax payments</a> to levels that feel unfair to many voters. They also, ultimately, aren’t a very good way to reach achieve the policy’s explicit goals. </p>
<p>This convoluted system <a href="https://review.chicagobooth.edu/public-policy/2018/article/why-it-s-so-hard-simplify-tax-code">was thus not created in a big bang of malfeasance</a> or ineptitude but mostly through piecemeal changes that increasingly complicated the tax code. Legislative reforms meant to simplify the tax code, such as those passed in 1986 and <a href="https://www.brookings.edu/blog/up-front/2019/09/25/a-fixable-mistake-the-tax-cuts-and-jobs-act">2017</a>, have accomplished little. </p>
<p>“The result of this process is a set of very complex provisions that appear to have no overall logic if the tax law were being designed from scratch,” as the <a href="https://www.taxpolicycenter.org/briefing-book/why-are-taxes-so-complicated">nonpartisan Tax Policy Center put it</a>. </p>
<p>This complexity has a range of negative impacts. </p>
<p>For example, estimates vary but most suggest <a href="https://bipartisanpolicy.org/wp-content/uploads/2019/04/Tax-Administration-Compliance-Complexity-Capacity.pdf">taxpayers likely pay well over US$100 billion</a> a year in time and money filing their taxes each year – known as <a href="https://onlinebusiness.northeastern.edu/blog/what-is-tax-compliance/">tax compliance</a>. The <a href="https://www.americanactionforum.org/research/tax-day-2019-little-impact-on-compliance-costs-from-tcja-so-far">2017 Tax Cuts and Jobs Act</a> does not appear to have reduced compliance costs despite its emphasis on simplifying the 1040 tax form. </p>
<p>And it’s a lot worse than in other rich countries.</p>
<p>The average American <a href="https://www.jct.gov/CMSPages/GetFile.aspx?guid=fe7080a8-5a54-48e6-8cc0-ee243fc03236">spends about 13 hours</a> filing their taxes each year, according to the Joint Committee on Taxation, <a href="https://www.theatlantic.com/ideas/archive/2019/04/american-tax-returns-dont-need-be-painful/586369/">compared with under an hour</a> in the Netherlands, Japan and Estonia. In Sweden, the government fills in the tax forms automatically, and <a href="https://www.washingtonpost.com/news/monkey-cage/wp/2018/04/12/why-the-u-s-tax-system-is-so-complicated-but-americans-are-proud-to-pay-taxes-anyway/">citizens can simply view and approve them</a> – or make changes – on their cellphone. </p>
<p>Another result is that social welfare programs in the U.S. can be needlessly complicated. </p>
<p>For example, Canada <a href="https://www.pri.org/stories/2019-02-05/what-we-can-learn-canada-s-universal-child-care-model">provides its citizens</a> with cheap child care simply by subsidizing it so that it costs $6 a day. Instead of offering subsidies, the U.S. supports lower- and middle-income parents mainly through the <a href="https://www.cbpp.org/research/federal-tax/eitc-and-child-tax-credit-promote-work-reduce-poverty-and-support-childrens">tax code with credits</a> like the earned income tax credit and the child tax credit. But both are very complicated, poorly understood and <a href="https://www.eitc.irs.gov/partner-toolkit/basic-marketing-communication-materials/eitc-fast-facts/eitc-fast-facts">often do not reach those who need it</a>. </p>
<figure class="align-center ">
<img alt="President Donald Trump listens during a White House meeting with Hispanic leaders on July 9 in Washington." src="https://images.theconversation.com/files/366176/original/file-20201028-15-eb5fon.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/366176/original/file-20201028-15-eb5fon.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=379&fit=crop&dpr=1 600w, https://images.theconversation.com/files/366176/original/file-20201028-15-eb5fon.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=379&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/366176/original/file-20201028-15-eb5fon.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=379&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/366176/original/file-20201028-15-eb5fon.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=476&fit=crop&dpr=1 754w, https://images.theconversation.com/files/366176/original/file-20201028-15-eb5fon.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=476&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/366176/original/file-20201028-15-eb5fon.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=476&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Trump has refused to release his tax returns since the 2016 election.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/TrumpTaxes/7544c40ad3424449aeee05c552e21280/photo?Query=trump%20AND%20tax&mediaType=photo,video,graphic,audio&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=2654&currentItemNo=58">AP Photo/Evan Vucci</a></span>
</figcaption>
</figure>
<h2>How Trump takes advantage</h2>
<p>Complexity also means that <a href="https://wwnorton.com/books/9781324002727">the tax code is littered with opportunities for wealthier taxpayers</a> like Trump to reduce their tax bill quite substantially. The perception that there are loopholes that only the rich can use <a href="https://www.pewresearch.org/politics/2017/04/14/top-frustrations-with-tax-system-sense-that-corporations-wealthy-dont-pay-fair-share">leads many taxpayers to view the system as unfair</a>. </p>
<p>Three of the strategies The Times reported that Trump has used to avoid taxes demonstrate this quite well. </p>
<p>In 2006, lawmakers wanted to promote conservation while helping farmers and ranchers, so <a href="https://www.propublica.org/article/conservation-easements-the-billion-dollar-loophole">they expanded conservation easements</a>, in which property holders agree to not develop land in exchange for a tax deduction. Trump used this <a href="https://www.irs.gov/charities-non-profits/conservation-easements">frequently abused</a> provision to claim a <a href="https://www.washingtonpost.com/politics/trump-got-a-21-million-tax-break-for-saving-the-forest-outside-his-ny-mansion-now-the-deal-is-under-investigation/2020/10/07/de84c1ba-ff6b-11ea-830c-a160b331ca62_story.html">$21.1 million deduction</a> in 2015 for not developing land near his Seven Springs estate that his family wanted to use as a private retreat anyway. </p>
<p>Another example is <a href="https://www.taxlawforchb.com/2017/07/abandonment-of-a-partnership-interest-or-when-a-taxpayer-rejects-its-tax-return-position/">how U.S. tax policy allows individuals to walk away</a> from an investment and, if they receive nothing, declare any losses that haven’t yet been taken on their current tax return, reducing income by that amount. The policy aim here is to encourage entrepreneurship by not making business failure too onerous.</p>
<p>Trump <a href="https://www.nytimes.com/interactive/2020/09/27/us/donald-trump-taxes.html">used this abandonment rule</a> in 2009 to declare more than $700 million in losses when he walked away from his Atlantic City casinos. Yet it appears he got something in exchange for walking way – stock in a new company – which means he may have technically violated the rules of that tax break. </p>
<p>And in 2009, Congress <a href="https://www.paulhastings.com/docs/default-source/PDFs/1444.pdf">wanted to help businesses recover</a> from the financial crisis so it made it easier to use the large losses that many companies were experiencing to offset income earned in prior years, which resulted in refunds for taxes already paid. <a href="https://www.nytimes.com/interactive/2020/09/27/us/donald-trump-taxes.html">This allowed Trump</a> to claim a refund of $56.9 million he had paid in taxes in 2005 and 2006. </p>
<p>[<em>Deep knowledge, daily.</em> <a href="https://theconversation.com/us/newsletters/the-daily-3?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=deepknowledge">Sign up for The Conversation’s newsletter</a>.]</p>
<p>The government has ways other than tax code to implement a policy with a social or economic aim, such as via regulations or spending on a new or existing government program. Lawmakers have often preferred to use the tax code because it can seem easier and avoids the political costs associated with <a href="http://www.artsrn.ualberta.ca/econweb/landon/CJE1997.pdf">higher taxes</a>. </p>
<p>Ultimately, however, <a href="https://fas.org/sgp/crs/misc/R44530.pdf">research shows</a> using tax code is not the best way to achieve a policy’s ends.</p><img src="https://counter.theconversation.com/content/147342/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gary Winslett does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Congress tends to use the tax code to implement policy, which increases complexity and creates loopholes wealthy taxpayers like Trump can exploit.Gary Winslett, Assistant Professor, MiddleburyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1392792020-07-12T19:59:38Z2020-07-12T19:59:38ZYes, some millionaires pay no tax, but crimping deductions mightn’t help<figure><img src="https://images.theconversation.com/files/346838/original/file-20200710-26-ntfq4h.jpg?ixlib=rb-1.1.0&rect=161%2C622%2C3622%2C1532&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://unsplash.com/@thepeoplesdigital">Fiona Smallwood/Unsplash</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>For some people tax time will result in no tax paid this year, and if past years are anything to go by, <a href="https://www.smh.com.au/politics/federal/meet-the-48-millionaires-who-pay-no-income-tax-not-even-the-medicare-levy-20170419-gvnkxh.html">about 50 of them</a> will be millionaires.</p>
<p>Not mere millionaires, but millionaires earning more than A$1 million per year.</p>
<p>For some of these 50 or so very high earners, managing tax will be expensive. The two dozen or so that typically claim deductions for the “cost of managing tax affairs” claim an average of about <a href="https://www.smh.com.au/politics/federal/tax-stats-meet-the-56-millionaires-who-pay-next-to-nothing-20160321-gnndna.html">$1.7 million each</a>.</p>
<p>It might have been with this in mind that during last year’s election campaign Labor promised to cap the size of the deduction people could claim for “managing tax affairs”. The proposed cap was <a href="https://web.archive.org/web/20190518084803/https://www.alp.org.au/policies/deduction-cap-for-managing-tax-affairs/">$3,000</a>.</p>
<p>Tax agents would still be able to charge more than $3,000 – a lot more if they want to, even an additional million or more – but their clients would only be able to deduct $3,000 of it from their income when submitting their tax return.</p>
<h2>Labor wanted to cap deductions</h2>
<p>The rationale was straightforward: if people are claiming over $1 million in deductions on money spent managing their taxes, then putting a ceiling on those deductions ought to stop it.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/346803/original/file-20200710-54-ndaar6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/346803/original/file-20200710-54-ndaar6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/346803/original/file-20200710-54-ndaar6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=970&fit=crop&dpr=1 600w, https://images.theconversation.com/files/346803/original/file-20200710-54-ndaar6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=970&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/346803/original/file-20200710-54-ndaar6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=970&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/346803/original/file-20200710-54-ndaar6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1220&fit=crop&dpr=1 754w, https://images.theconversation.com/files/346803/original/file-20200710-54-ndaar6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1220&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/346803/original/file-20200710-54-ndaar6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1220&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Labor leader Bill Shorten wanted to cap the deduction for the cost of managing tax affairs at $3,000.</span>
<span class="attribution"><span class="source">DAVID CROSLING/AAP</span></span>
</figcaption>
</figure>
<p>Not so fast.</p>
<p>Often in tax we plug holes quickly rather than stepping back and looking at the whole system and its interactions. And then we have to plug another one.</p>
<p>The question to ask first is whether capping this individual line item would prevent or move the leakage.</p>
<p>We went to the source by conducting a <a href="https://www.taxinstitute.com.au/tiausttaxforum/to-cap-or-not-to-cap-policy-options-for-dealing-with-the-costs-of-managing-tax-affairs-deduction-in-australia">nationwide survey</a> of Australia’s most senior tax professionals to glean their perspectives.</p>
<p>Our findings reflect the views of people who, to paraphrase <a href="https://inews.co.uk/culture/well-he-would-wouldnt-he-bbcs-the-trial-of-christine-keeler-gets-famous-quote-right-374825">Mandy Rice Davies</a>, “would say that, wouldn’t they”.</p>
<h2>It might not have worked</h2>
<p>Nonetheless, the detail of what they told us was surprising.</p>
<p>Here’s what they said.</p>
<ul>
<li><p>Most of the targets would be unaffected. They would be able to switch their deductions into associated corporate entities. This interchangeability of personal and corporate tax deductions highlights the importance of considering the system as a whole.</p></li>
<li><p>Because of this it might, counter-intuitively, have the opposite effect to what was intended, creating a saturation where the truly wealthy could escape the cap, but those of lesser means could not.</p></li>
<li><p>A better solution would be for the tax office to conduct more tax audits. Studies suggest the decisions of high wealth individuals to engage in aggressive tax planning practices are <a href="https://www.researchgate.net/publication/321052694_Tax_malfeasance_of_high_net-worth_individuals_in_Malaysia_tax_audited_cases">strongly</a> <a href="https://www.ibfd.org/sites/ibfd.org/files/content/pdf/aptb-versionAug2012.pdf">influenced</a> by the probability of being selected for audit.</p></li>
<li><p>There are definitional ambiguities in relation to the subcomponents of the deduction that make it hard to work out what is going on. Sometimes “litigation” includes tax planning, other times it does not. “Other” is a grab bag that can include <a href="https://www.ato.gov.au/Individuals/Tax-return/2020/Tax-return/Deduction-questions-D1-D10/D10-Cost-of-managing-tax-affairs-2020/">software costs, travel costs and reference material</a>. It would help if the tax office provided guidance.</p></li>
<li><p>High wealth individuals often employ tax advisers to cope with complexity and uncertainty of the tax system rather than to reduce tax.</p></li>
</ul>
<p>As we said, you are welcome to consider the possibility that the observations of the tax professionals are self-serving, but their overwhelming embrace of more tax audits and their pleas for the tax law to be easier to understand also suggest a keenness to ensure that taxpayers do the right thing.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/be-careful-what-you-claim-for-when-working-from-home-there-are-capital-gains-tax-risks-141364">Be careful what you claim for when working from home. There are capital gains tax risks</a>
</strong>
</em>
</p>
<hr>
<p>Labor’s proposal to cap the deduction for the cost of managing tax affairs at $3,000 (when for most people the deduction is <a href="https://www.ato.gov.au/About-ATO/Research-and-statistics/In-detail/Taxation-statistics/Taxation-statistics-2016-17/?anchor=Individuals#Table6">closer to $300</a>) was understandable, although it might not have worked as intended.</p>
<p>It was a reminder of the oft-quoted maxim that for every problem there is a solution that is simple, neat – and wrong.</p>
<hr>
<p><em>For further details, please see: Kayis-Kumar A, Evans C and Lim Y, <a href="https://www.taxinstitute.com.au/tiausttaxforum/to-cap-or-not-to-cap-policy-options-for-dealing-with-the-costs-of-managing-tax-affairs-deduction-in-australia">To cap or not to cap? Policy options for dealing with the costs of managing tax affairs deduction in Australia</a> (2020) 35(2) Australian Tax Forum.</em></p><img src="https://counter.theconversation.com/content/139279/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Some tax deductions for the cost of managing tax affairs exceed $1 million, but high wealth individual\s can write off the expense in other ways.Ann Kayis-Kumar, Associate Professor, UNSW SydneyChris Evans, Professor, School of Taxation & Business Law, UNSW SydneyYoungdeok Lim, Senior Lecturer, Accounting, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1373032020-04-29T13:22:43Z2020-04-29T13:22:43ZTax havens: there’s a chance now to apply conditions to bail outs<figure><img src="https://images.theconversation.com/files/331366/original/file-20200429-51489-1rqg9k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Essential services in society are paid for by taxes – which lots of companies avoid paying.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/paramedic-wearing-personal-protective-equipment-ppe-1702088257">Shutterstock</a></span></figcaption></figure><p>The huge economic slowdown brought about by COVID-19 has resulted in companies around the world seeking help from their governments. The conditions of these bailouts vary but some countries have notably said that tax avoiders should not benefit. Poland and Denmark <a href="https://www.nytimes.com/reuters/2020/04/20/world/europe/20reuters-health-coronavirus-denmark.html">were the first</a>, with Austria, France and Italy <a href="https://www.politico.eu/article/if-you-want-a-bailout-in-europe-dont-use-tax-havens/">making similar noises</a>.</p>
<p>Companies that avoid paying tax argue that they operate within the law <a href="https://theconversation.com/explainer-whats-the-difference-between-tax-avoidance-and-evasion-57755">and do not breach any rules</a>. This may be true. But the outcomes for government purses have been dire. <a href="https://missingprofits.world/">One piece of research</a> found 40% of all corporate tax revenues are parked in tax havens, leading to a tax loss for global society of US$700 billion in 2017 alone. </p>
<p>How can a company that has avoided giving back to the society in which it operates and paying into crucial services now expect to be bailed out?</p>
<p>Good corporate citizenship involves the fair payment of local taxes. For far too long corporations have seen tax as a cost to their business rather than a repayment to the stakeholders that provide key infrastructure and services like roads, police and hospitals.</p>
<p>At the same time, there has been rising global competition between states to <a href="https://theconversation.com/how-ireland-managed-to-keep-investment-flowing-during-the-tough-times-44379">attract foreign business investment</a>. This results in a race to the bottom for countries trying to raise tax revenues, with offshore tax havens often charging zero taxes for the businesses based there. </p>
<p>Over the last few decades, giant multinationals have got away with very little in the way of corporate tax payments. Exposés like the <a href="https://theconversation.com/luxembourg-leaks-reveal-the-organised-hypocrisy-of-the-modern-corporation-33969">Luxembourg leaks</a> revealed how companies shift their profits from the country where they were earned (such as the UK) to a country that has a much lower corporate tax rate (such as Luxembourg). These are the same tax receipts that pay for the hospitals struggling to cope with the surge in demand from COVID-19 sufferers. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/331342/original/file-20200429-51495-10sv30q.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/331342/original/file-20200429-51495-10sv30q.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=394&fit=crop&dpr=1 600w, https://images.theconversation.com/files/331342/original/file-20200429-51495-10sv30q.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=394&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/331342/original/file-20200429-51495-10sv30q.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=394&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/331342/original/file-20200429-51495-10sv30q.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=496&fit=crop&dpr=1 754w, https://images.theconversation.com/files/331342/original/file-20200429-51495-10sv30q.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=496&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/331342/original/file-20200429-51495-10sv30q.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=496&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Lots of multinationals move their profits to tax havens like Monaco.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/panoramic-view-fontvieille-new-district-monaco-592843472">Shutterstock</a></span>
</figcaption>
</figure>
<p>There is an <a href="http://repository.essex.ac.uk/8128/1/WP2013-2_Corporate_Governance.pdf">entire industry</a> set up around this practice. Armies of lawyers, bankers and accountants enable companies to funnel their profits to low-tax jurisdictions. This may be legal but instead of helping states protect their infrastructures and services, this erodes their tax receipts.</p>
<p>Open to debate is the definition of a tax haven. The EU has its <a href="https://www.consilium.europa.eu/en/policies/eu-list-of-non-cooperative-jurisdictions/">official list</a> of “non-cooperative jurisdictions for tax purposes”. This includes places like the Cayman Islands and Panama, which are outside of the EU. Yet some of the biggest tax havens are in the EU, <a href="https://fsi.taxjustice.net/en/introduction/fsi-results">including Luxembourg and Ireland</a>. </p>
<p>This is a highly sensitive and political issue. But the reality is that it has become normal for multinationals to even shift their profits from one EU country to other EU countries which have lower corporate tax rates. <a href="https://missingprofits.world/">One study finds</a> that France, for example, loses 22% of its corporate revenue to tax havens – 18% of this goes to other EU countries. In 2017 it lost US$13 billion, of which more than US$11 billion went mostly to Luxembourg, Belgium, the Netherlands and Ireland. </p>
<p>Another <a href="https://www.taxjustice.net/2020/04/08/revealed-netherlands-blocking-eus-covid19-recovery-plan-has-cost-eu-countries-10bn-in-lost-corporate-tax-a-year/">recent study by the Tax Justice Network think tank</a> found that Italy and Spain – both badly hit by coronavirus – lost significant tax revenues (US$1.5 billion and US$1 billion, respectively) to the Netherlands in 2017. Yet most of the recent announcements by countries to not give state aid to tax avoiders <a href="https://www.politico.eu/article/if-you-want-a-bailout-in-europe-dont-use-tax-havens/">only use the EU’s official list</a>.</p>
<h2>A long-term solution</h2>
<p>A better solution to this problem would be to introduce <a href="https://theconversation.com/country-by-country-reporting-is-a-victory-for-citizens-over-companies-14654">country-by-country reporting</a>. This would allow investors and government to accurately tell where a company trades, where it parks its profits, and where and what taxes it actually pays. Considering accounting has international standards and most big corporations are audited by one of the Big Four auditing firms, this should be relatively easy to implement.</p>
<p>Unfortunately, however, researchers have shown time and again – for example in the creation of privatised international accounting standards or <a href="https://link.springer.com/chapter/10.1057/978-1-137-54212-0_13">the dominance of the Big Four global accounting firms</a> – how the practice of accounting is highly political and captured by powerful corporate interests. As a result, more and more of the tax burden falls on ordinary people who have less power <a href="https://www.tuc.org.uk/sites/default/files/documents/completedownload.pdf">and influence over their tax affairs</a>. </p>
<p>Now that we are in a profound economic crisis, with a number of multinationals reliant on state aid, we have a unique opportunity to change business as usual. Corporations are in trouble and seeking state aid so governments can now call the shots, and make sure that money is not given away without conditions. Such conditions can include not having a subsidiary in a tax haven, transparency about profits earned in each country, and greater openness and commitment to paying fair taxes in the countries where revenues are earned.</p>
<p>This will require genuine global cooperation on tax matters. A race to the bottom between countries for tax collection should no longer be tolerated. At stake are the jobs, pensions, education and healthcare for citizens in every country.</p><img src="https://counter.theconversation.com/content/137303/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Atul K. Shah is affiliated with Tax Justice Network a non-profit think tank.</span></em></p>Some EU countries have said they won’t help companies based in tax havens – but that doesn’t include the EU’s own tax havens.Atul K. Shah, Professor, Accounting and Finance, City, University of LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1226432019-09-19T04:25:04Z2019-09-19T04:25:04ZMedia Files: investigative journalist Bastian Obermayer, who led the Panama Papers tax exposé<figure><img src="https://images.theconversation.com/files/290037/original/file-20190829-106517-41qm2j.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C3569%2C2548&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Panama Papers was the biggest-ever collaboration for investigative journalism, involving 400 journalists in 80 countries who collectively produced 6,000 stories in 100 different media outlets.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Today on <a href="https://theconversation.com/au/podcasts/mediafiles">Media Files</a>, a podcast on major themes and issues in the media, we meet <a href="https://www.icij.org/journalists/bastian-obermayer/">Bastian Obermayer</a>, the Pulitizer prize-winning journalist who led the Panama Papers investigation into global tax evasion and money laundering.</p>
<p>It was the biggest-ever collaboration for investigative journalism, involving 400 journalists in 80 countries who collectively produced 6,000 stories in 100 different media outlets.</p>
<p>Bastian Obermayer is the deputy editor for investigations at the Süddeutsche Zeitung in Munich, Germany. He was the person who received the original email from the anonymous source known as John Doe.</p>
<p>Bastian recently joined the Centre for Advancing Journalism at the University of Melbourne, courtesy of the <a href="https://about.unimelb.edu.au/strategy/governance/macgeorge/macgeorge">Macgeorge fellowship</a>. He recorded this discussion with Andrew Dodd for Media Files.</p>
<h2>New to podcasts?</h2>
<p>Podcasts are often best enjoyed using a podcast app. All iPhones come with the Apple Podcasts app already installed, or you may want to listen and subscribe on another app such as Pocket Casts (click <a href="https://pca.st/7anl">here</a> to listen to Media Files on Pocket Casts).</p>
<p>You can also hear us on any of the apps below. Just pick a service from one of those listed below and click on the icon to find Media Files.</p>
<p><a href="https://itunes.apple.com/au/podcast/media-files/id1434250621?mt=2"><img src="https://images.theconversation.com/files/233721/original/file-20180827-75984-1gfuvlr.png" alt="Listen on Apple Podcasts" width="268" height="68"></a> <a href="https://www.google.com/podcasts?feed=aHR0cHM6Ly90aGVjb252ZXJzYXRpb24uY29tL2F1L3BvZGNhc3RzL21lZGlhZmlsZXMucnNz"><img src="https://images.theconversation.com/files/233720/original/file-20180827-75978-3mdxcf.png" alt="" width="268" height="68"></a></p>
<p><a href="https://radiopublic.com/go?url=https%3A%2F%2Ftheconversation.com%2Fau%2Fpodcasts%2Fmediafiles.rss"><img class="alignnone size-medium wp-image-152" src="https://images.theconversation.com/files/233717/original/file-20180827-75990-86y5tg.png?ixlib=rb-1.1.0&q=45&auto=format&w=268&fit=clip" alt="Listen on RadioPublic" width="268" height="87"></a></p>
<hr>
<h2>Additional credits</h2>
<p>Producers: Andy Hazel and Henning Goll.</p>
<p>Theme music: Susie Wilkins.</p>
<h2>Image</h2>
<p>Shutterstock</p><img src="https://counter.theconversation.com/content/122643/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andrew Dodd does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Today we meet Bastian Obermayer, the Pulitizer prize-winning journalist who led the Panama Papers investigation into global tax evasion.Andrew Dodd, Director of the Centre for Advancing Journalism, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1223322019-08-23T13:10:13Z2019-08-23T13:10:13ZIf G7 are serious about tackling inequality they should implement our global tax framework<p>A major priority for the French government in hosting the 2019 G7 summit at Biarritz is to <a href="https://www.diplomatie.gouv.fr/en/french-foreign-policy/french-g7-presidency/events/article/french-g7-presidency-speech-by-m-jean-yves-le-drian-minister-for-europe-and">combat inequality, both within advanced economies and between countries</a>. But if the G7 are serious about tackling inequality, there is a need to tackle the “race to the bottom” in taxation that affects governments around the world. In our recent research, we’ve developed a new evaluation framework to assist in that task.</p>
<p>The Biarritz agenda is just the latest example of a strong international consensus that reducing inequality is one of the major challenges of our age. The <a href="http://www.oecd.org/social/inequality.htm">Organisation for Economic Cooperation and Development (OECD)</a> noted this year:</p>
<blockquote>
<p>Income inequality in OECD countries is at its highest level for the past half century. The average income of the richest 10% of the population is about nine times that of the poorest 10% across the OECD, up from seven times 25 years ago.</p>
</blockquote>
<p>The <a href="https://www.imf.org/external/np/fad/inequality/">International Monetary Fund (IMF)</a> has expressed similar concerns. Inequality, it notes, erodes social cohesion, causes political polarisation and stunts economic growth. And the <a href="https://www.worldbank.org/en/topic/isp/overview">World Bank</a> has weighed in: “Inequality reduction today matters for opportunity and mobility tomorrow, and for the next generation.”</p>
<h2>Race to the bottom</h2>
<p>A fundamental driver of inequality is the race to the bottom in taxation. This involves governments competing to attract globally mobile investment by offering increasingly generous corporate tax rates and provisions. In the process, however, such policies often undermine that country’s own tax base and that of other governments. Policies that cut taxes on business and investment income, by offering generous tax reliefs and breaks, not only limit government revenue, they also often fuel inequality by favouring high income groups.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/289234/original/file-20190823-170935-lx46n0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/289234/original/file-20190823-170935-lx46n0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/289234/original/file-20190823-170935-lx46n0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/289234/original/file-20190823-170935-lx46n0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/289234/original/file-20190823-170935-lx46n0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/289234/original/file-20190823-170935-lx46n0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/289234/original/file-20190823-170935-lx46n0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Tax plays an important role in redistributing wealth.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/inequality-between-people-concept-1159942408?src=2mVh9n6E4wpWtpghlusSOw-1-1">Shutterstock</a></span>
</figcaption>
</figure>
<p>At the Lough Erne summit in 2013 in Northern Ireland, the G7 addressed tax avoidance activities by multinational corporations. That summit communiqué lent support to two policy tools: <a href="https://www.oecd.org/tax/automatic-exchange/">automatic information exchange</a>, and <a href="http://www.oecd.org/tax/beps/beps-actions/action13/">country by country reporting</a>. Both became part of the OECD’s <a href="http://www.oecd.org/tax/beps/">Base Erosion and Profit Shifting Initiative (BEPS)</a>. </p>
<p>These <a href="https://www.researchgate.net/publication/334374918_The_Big_Bang_Tax_Evasion_After_Automatic_Exchange_of_Information_Under_FATCA_and_CRS">initiatives were intended to increase information</a> on the movement of income into tax havens, and on where multinational companies truly conduct their business. However, multinational companies paying less tax than they should by shifting profits is only part of the equation of fixing flawed tax systems that contribute to inequality. </p>
<p>The other side of this equation is how governments are caught in this race to the bottom, competing to offer more generous tax rates to businesses. This process and its harmful impact on tax revenues and inequality has been neglected by the G7 to date.</p>
<p>In <a href="https://www.imf.org/external/np/pp/eng/2014/050914.pdf">2014, research by the IMF</a> found that these processes were particularly harming developing countries by depleting them of tax revenues. For example, a 1% reduction in corporation tax in all countries was found to reduce a typical country’s corporate tax base by 3.7%, but this was two to three times higher for developing countries. </p>
<p>Other estimates in the research suggested non-OECD countries lose on average 13% of their corporate tax revenues. The IMF research established this was due to a phenomenon known as <a href="https://www.taxresearch.org.uk/Blog/2019/05/16/tax-spillover-assessments-an-idea-whose-time-has-come/">“tax spillovers”</a>. Spillovers are the negative impact one country’s tax policies have on other countries. </p>
<h2>Our new framework</h2>
<p>The agenda of the French government at Biarritz represents an awareness of these processes. They are working towards agreeing a minimum level of corporation tax to be overseen by the OECD by January 2020. But agreeing, implementing and enforcing rules on a minimum rate will be difficult. And it will only establish one limited bottom line in reducing the harmful spillovers identified by the IMF.</p>
<p>Until recently, there has been no satisfactory method for identifying and evaluating the tax spillovers generated by national policies. But in <a href="https://onlinelibrary.wiley.com/doi/full/10.1111/1758-5899.12655">our recent research</a> we created such a framework. It currently has the <a href="https://www.imf.org/external/np/exr/consult/2018/corptaxation/pdf/2018commentscorptaxation.pdf">support of development NGOs such as Oxfam, Action Aid, and Eurodad</a>. They see the framework as a way of stemming the “race to the bottom” that is fuelling inequality and harming developing countries.</p>
<p>Our framework measures the scale of spillover risks and vulnerabilities produced by specific national tax policies and practices. The framework also assesses domestic spillovers – how certain tax policies and practices can undermine other tax policies and revenues in the same country. In a <a href="https://www.taxjustice.net/2019/01/23/brexit-and-the-future-of-tax-havens/">pilot assessment for the UK,</a> we identified a host of tax reliefs and administrative practices that benefited high earners and were eroding the UK tax base, thus fuelling inequality. Conducting tax spillover assessments makes it possible to identify these harmful tax practices and to target reforms to address them.</p>
<p>If the French government wants to achieve more far-reaching and comprehensive results with a longer duration at Biarritz, they should push for the G7 to establish regular, country level tax spillover assessments to be conducted by independent international organisations.</p>
<p>This would provide a monitoring mechanism to encourage countries to keep to minimum agreed levels of corporation tax. Through international peer pressure, it would also discourage a wider range of policies that generate harmful tax spillovers and fuel inequality. A commitment to conducting spillover assessments would give the Biarritz summit real teeth on tax and establish a tax legacy beyond that of Lough Erne.</p><img src="https://counter.theconversation.com/content/122332/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Murphy receives funding from EU Horizon 2020 under grant agreement No 727145, Combating Financial Fraud and Empowering Regulators (COFFERS)
Richard Murphy has worked with a number of development NGOs in the past.
</span></em></p><p class="fine-print"><em><span>Andrew Baker does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A fundamental driver of inequality is the race to the bottom in how governments set their corporate tax rates.Andrew Baker, Faculty Professorial Fellow in Political Economy, University of SheffieldRichard Murphy, Visiting Professor, Anglia Ruskin University and Professor of Practice in International Political Economy, City, University of LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1138192019-03-24T13:21:52Z2019-03-24T13:21:52ZIt’s tax time! Do you know the difference between avoiding and evading taxes?<figure><img src="https://images.theconversation.com/files/264508/original/file-20190318-28471-r163da.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Accountants can help you figure out the difference between avoiding taxes and evading taxes.</span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><p>Tax season is upon us, and many Canadians are flocking to their tax advisers hoping for magical tips that will help them save some of their hard-earned money.</p>
<p>Recently I came across an old study that was rather intriguing and a cause for concern at the same time. <a href="https://scholar.google.com/scholar?cluster=10341344875819705859&hl=en&oi=scholarr">In this 1993 study,</a> the authors reviewed the results of client satisfaction surveys of 187 people who used local accounting firms. They hoped to discover factors that most determined how satisfied customers were with their tax service providers. </p>
<p>Based on the survey results, the No. 1 tax service factor ranked was… drum roll please … how much money was spared from the taxman. </p>
<p>If I was a gambler I would not hesitate to go all in and bet that 26 years later, it’s quite likely that many Canadians would still have a strong positive correlation between satisfaction level and the amount of taxes saved. And so what’s odd about that? Let me explain.</p>
<p>It’s no surprise that taxpayers would generally like to minimize the amount of taxes owing. Even tax courts have recognized this phenomenon, <a href="https://www.uschamber.com/above-the-fold/the-president-vs-learned-hand">evident in this quote from Justice Learned Hand</a>, an American judge and judicial philosopher, in 1947: </p>
<blockquote>
<p>“Over and over again courts have said that there is nothing sinister in so arranging one’s affairs so as to keep taxes as low as possible. Everybody does it, rich or poor, and all do right, for nobody owes any public duty to pay more than the law demands; taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.”</p>
</blockquote>
<p>If tax minimization, therefore, is the desired, sought-after result, we need to understand how to achieve it.</p>
<h2>Tax evasion versus tax avoidance</h2>
<p>It’s critical to understand the difference between tax avoidance and tax evasion. Tax evasion involves either not following or breaking the rules of Canada’s Income Tax Act to avoid or minimize taxes, thus making it an illegal activity. </p>
<p>Examples of tax evasion would be failing to report, or under-reporting income, or taking excess deductions for expenses that may not have been incurred while earning income. The Canada Revenue Agency (CRA) <a href="https://www.canada.ca/en/revenue-agency/campaigns/tax-evasion-no-borders.html">takes this very seriously.</a></p>
<p>Tax avoidance, although not illegal, may still be subject to scrutiny by the CRA if the tax reduction strategies taken are not aligned <a href="https://www.canada.ca/en/revenue-agency/corporate/about-canada-revenue-agency-cra/tax-alert/tax-avoidance.html">with the spirit of the law.</a> Canadians must be aware that their tax advisers can only save them money to a certain extent and should pay close attention to ensure that no one, knowingly or unknowingly, drifts them into tax evasion territory.</p>
<h2>Choosing a tax service provider</h2>
<p>Income tax in Canada is legislated under the aforementioned Income Tax Act, and the tax rules are not only complex but also constantly changing. </p>
<p>When selecting a tax service provider, one of the criteria should be to pick someone with up-to-date knowledge in the field. For the most part, when it comes to tax return preparation, tax software will capture new rules and rate changes that come into effect from year to year. </p>
<p>For example, the increase in the federal small business deduction rate from 18 per cent in 2018 to 19 per cent effective Jan. 1, 2019, will result in <a href="https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4012/t2-corporation-income-tax-guide-chapter-4-page-4-t2-return.html">overall corporate tax rate reductions</a>. Examples of other tax changes over the years, all of which are reflected in software updates by vendors <a href="https://turbotax.intuit.ca/personal-tax-software/standard-online.jsp?gclid=CjwKCAjwycfkBRAFEiwAnLX5IRUBbWcp9p_vM0BxpTyJcZQBk9p_EnDvVnj6saf3p1wRBBTN0GvqjRoChv8QAvD_BwE&gclsrc=aw.ds">like Turbotax</a> or <a href="https://www.taxprep.com/en/index.asp">Taxprep</a>, are the elimination of the fitness, arts and public transit tax credits and changes to Capital Cost Allowance rates and classes and <a href="https://www.canada.ca/en/revenue-agency/news/newsroom/tax-tips/tax-filing-season-media-kit/tfsmk1.html">dividend tax credit rates</a>.</p>
<p>All such changes will be reflected in the current year’s tax software, used by most tax return preparers when preparing and filing a client’s tax return. </p>
<h2>Easy to go from basic to complex</h2>
<p>Interestingly, it does not take much to go from a “basic” tax situation, which typically entails having employment income, RRSP contributions, some investment income reported on T5s and minimal tax deductions, to a situation where the expertise of a tax practitioner becomes quite necessary.</p>
<p>The “basic” situation mentioned above could become complex if we simply add rental properties to the mix, especially foreign-owned rental properties that may involve determining and calculating the eligibility of foreign tax credits among other issues.</p>
<p>The other aspect that taxpayers should keep in mind in their quest to minimize taxes is to be wary of aggressive tax planners who may consider or propose questionable actions that could result in tax evasion, a punishable crime.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/why-we-should-listen-to-people-angry-about-their-taxes-84812">Why we should listen to people angry about their taxes</a>
</strong>
</em>
</p>
<hr>
<p>One such example was the charitable donation <a href="https://globalnews.ca/news/4132157/canada-charity-tax-scams-tax-shelters/">tax shelter scheme</a> in which the Canada Revenue Agency eventually ended up denying Canadians more than $7 billion in tax credits. The CRA reassessments resulted in interest charges and hefty penalties on individuals who, whether on the recommendation of their tax service providers or on their own, participated in the tax sham — all to minimize taxes or maximize tax refunds.</p>
<h2>Audit help</h2>
<p>The final test of a good tax adviser is someone who will be there to assist you in case of a CRA audit. With the ever-changing tax landscape and complexity of tax rules and calculations, defending the information provided on your tax return requires a good understanding of the tax rules and demonstrating precisely how they were followed. </p>
<p>Suffice to say that these additional services will in fact increase the cost of tax compliance. But knowing that your tax service provider will be there to support and assist you in case of a CRA audit can lead to substantial peace of mind.</p>
<p>Although paying taxes is a positive indicator because it signifies earnings, an inflow of income and above all a contribution to society, come tax time the name of the game becomes tax minimization. </p>
<p>I doubt that paying taxes will ever be a joyous occasion for many Canadians, but we can certainly find comfort in the fact that we live in a great country. Many people have even risked their lives to come here, raise their families — and pay their taxes.</p>
<p>The taxes we pay allow us access to many benefits, both at an individual level and as a society as a whole. Many of us likely share the sentiment of the late U.S. Supreme Court justice, Oliver Wendell Holmes, when he said: “<a href="https://www.goodreads.com/quotes/123900-i-hate-paying-taxes-but-i-love-the-civilization-they">I hate paying taxes. But I love the civilization they give me</a>.” </p>
<hr>
<p><em>This is a corrected version of a story originally published March 24, 2019. The earlier story erroneously referred to Justice Learned Hand as a U.S. Supreme Court justice.</em></p><img src="https://counter.theconversation.com/content/113819/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sonia B. Dhaliwal does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>It’s tax season. That’s why Canadians must pay close attention to the possibility of going from the tax avoidance realm into tax evasion when preparing their tax returns or hiring an accountant to do so.Sonia B. Dhaliwal, Assistant Professor, University of GuelphLicensed as Creative Commons – attribution, no derivatives.