I have noted that PwC have accepted that morality has a role in tax this morning, but EY disagree.
Then I started reading Tax Notes International (paywalled) and read that Manal Corwin, former US deputy assistant Treasury secretary for international tax affairs and now national tax service line leader at KPMG LLP said in a lecture at New York University School of Law on September 30:
Morality can't be a guiding principle for international taxation
Now that's an interesting claim, not least because she seemed to be talking as much about inter-government action as she was company based planning.
The interesting question is that if morality is not the basis for decision making on this issue what does she think is? She did not seem to answer that question but she definitely has a view because in the Q&A she said international cooperation was required to ban the use of country-by-country reporting to apportion profits for unilateral taxation.
Could it just be that greed is her guiding principle?
And if it is, how can she argue that is not a moral judgement?
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The individual’s response to the tax system (even when they are responding in their capacity as manager/agent for shareholders or other stakeholders) is always moral.
But if we base the design of the system itself on morality, we run the risk of allowing some individuals to say “I disagree with the morality of your system, so I shall, out of my own moral principles, legitimately ignore it”.
So perhaps the guiding principle for the rules (or at least their interaction at international level) should be economic utility, or some other comparatively objective measure, while acknowledging that individuals’ responses to it will be subjective & moral.
Economic utility is a subjective measure that must reflect morality
You will never escape morality as the basis for taxation
All you can try to do is pretend that it is not
Richard: would you agree that morality is the guiding principle for all human actions (or inactions)?
Yes
So, is there a universal moral framework that always produces a single unambiguous answer in any given situation?
No of course there isn’t
But that’s why there is no universal answer on tax either and it’s absurd to pretend that there ever will be
But, since honesty is key to tax setting out the case clearly for what is required is essnetial
And that’s not happening
Manal is actually considered dangerously progressive by K Street and their GOP mind-meld on the Hill. She was seen as a principal booster of BEPS from the inside while at Treasury. The full quote from her Tillinghast lecture is appended and provides some of the context you omitted. Your “greed” quip was uncalled for here given the wide availability of more deserving targets.
“Thus, for example, while it might be easy to reach consensus that stateless income, or income that is not taxed anywhere is not a desirable policy outcome, or that artificial structures lacking economic substance designed to avoid taxes are inappropriate, if not illegal, it is more difficult to achieve consensus around what is the right or “moral” amount of worldwide tax a corporation operating across multiple sovereign jurisdictions should pay under the international rules that are in place today.
Moreover, even if it were possible to agree on what a moral global effective tax rate would be, it is difficult to employ moral principles to determine to which country the tax should be paid — only clear and coordinated tax laws can do that. Simply put, morality cannot serve as a guiding principle for establishing, implementing, or enforcing complex international tax rules and standards in a global world.”
I read that
It’s an excuse of an argument I have heard far too often over the last decade that says let’s just use arbitrary rules that we can rig through lobbying
I have nothing to apologise for
I read it as saying that because morality is so subjective, using it as your basis for determining the principles would result in rules which are effectively arbitrary.
Moving away from morality towards objectively clear and coordinated rules would therefore allow you to reduce the arbitrariness of the system, and hence the scope for abuse.
There are no rules not informed by morality
Or perhaps you can explain otherwise?
There are all sorts of rules that aren’t informed by morality! Driving on the left, for example. It’s a clear and coordinated rule that allows things to proceed in a more efficient fashion for all concerned, but there’s no question of arguing that we have that rule because people who drive on the right are in any way immoral.
Of course driving on the left is morally driven. Please don’t be daft
It could be left or right – but the need to agree on an answer is entirely morally driven if we value life
You’re really making a quite absurd claim to say that this does not have a moral foundation by picking out one small aspect of the equation and saying it has no moral dimension when that is very clearly wrong in the overall frame of the need for rules of the road to protect each of us from harm that would result from a free for all
The decision to impose the rule is the moral decision
You’re just begging the question. The rule itself need have no moral dimension.
The rule works better when it ignores morality. If you start saying that the rule is the way it is because of some fundamental moral purpose, then you open up the possibility that people will justify bending or breaking the rule in order to further that purpose – as they understand it.
That’s not so easy to illustrate with driving on the left, but if you take say transfer pricing, the purpose of those rules is to ensure that taxpayers can get no advantage from picking their own cross-border prices. HMRC interpret “the rules only operate where there is an advantage” as “the rules only operate to cancel an advantage”, which has in my experience led to them arguing for unfair double taxation (where an agreement lasts several years, with results varying above and below the agreed arm’s-length position, they argue that advantages get nullified and disadvantages remain so where the overall position is neutral the taxpayer loses out).
The principles behind rules need to be clear if the rules are to be fair. Morality is subjective, and so is open to multiple interpretations, and so cannot provide clear principles to back up a system of rules.
You can use moral arguments in thrashing out what the rules should be, but the rules themselves should be agnostic.
The rule behind TP is simple: it is tax must be paid in the right place at the right time and right is a moral judgement
Politely, you’re talking complete nonsense
But if morality is not to inform your rules please tell me what this wholly normative decision making process you’re using is
And don’t describe logical positivism because that cannot be defined objectively
Exactly: it’s a moral basis for the rule, which is therefore a subjective one, which is therefore open to interpretation, and it therefore leads to results which are manifestly unfair.
This example is based on a situation I have encountered in practice, with the figures simplified.
Say you set up an arrangement that HMRC considers to be non-arm’s length, such that the profit recognised in the UK is £50 in year 1, £200 in year 2, and £50 in year 3 (total £300), but HMRC consider that the arm’s length position would be £100 in each year (total £300), then I think most people would consider that the most a TP adjustment should do is move the profit around between years.
However, HMRC’s position is:
1) The actual provision gives a tax advantage in year 1.
2) Therefore, the actual figures should be replaced by the arm’s length figures where the latter are higher
3) Where the arm’s length figures are lower, the legislation does not apply
4) Therefore your taxable profits are £100, £200, and £100 – total £400.
HMRC’s interpretation of the situation where:
– the “right” UK profit is £300, and
– you have recognised £300 in the UK
is that £400 should be taxed in the UK.
Please explain to me why this is the morally correct result.
I consider that it goes against the spirit of the legislation, and that the problem comes from the legislation being based on a principle which has been poorly thought out and badly expressed, such that it becomes open to subjective interpretation. Moral principles are equally open to subjective interpretation, and thus can equally lead to unfair results.
You gave a duty to declare your taxes properly
If you didn’t that U.S. your problem
Is there a problem with that?
I agree the arm’s length basis makes no sense – and illogical – and should be changed – but what you are asking is an entirely different question which is whether or not legal compliance is optional
You know the answer to that
No, I’m suggesting that if your moral principle is that the “right” amount of income should be taxed, but that principle allows for the corrections to be clearly in excess of what is required under its moral basis, then that moral principle is not a sound foundation for a system of tax.
You are wrong, yet again
A moral principle must be used
Error can arise in its application
Again, your logic is wrong
After all, what else but morality could be the foundation of the system. Are you suggesting immorality!
I’m suggesting that questions of morality shouldn’t be there in the application of the rules. It’s just not a helpful concept, any more than aesthetics is, or colour.
If you start saying that the reason rule X is in place is because it is morally right that it should be, then you open the doors to people saying that as they think rule Y is more morally correct they will apply that rule instead.
Just as if the justification for rule X is that it’s printed on pink paper, and pink is nicer than blue, then people who prefer blue will be tempted to adopt rule Y because it’s on blue paper and therefore must be a better rule.
The correct process is to formulate a rule which doesn’t rely on subjective judgements for its application. I’m happy for you to use moral arguments when working out what the rule should achieve, but they shouldn’t be left in the final product.
Allowing people to be killed on the roads through anarchy is a bad thing – moral issue. So we should have a rule about it which reduces road deaths as far as practical – moral issue (several of them, in fact). So we should all drive on the left – no morals left in there, it’s a pragmatic thing. We’re not saying driving on the left is more moral, we’re saying it’s the agreed objective standard.
Argue that the left is better than the right in some way, and you’re open to someone saying, for example:
– I’m blind in one eye,
– so I can see round corners ahead better if I drive on the right,
– so in my case driving on the right means I have less chance of hitting a pedestrian,
– the choice of side is a moral one about reducing the risk of hitting pedestrians
– that moral principle is achieved better if I drive on the right
– ergo I am morally obliged to drive on the right
But answer the question: how else do you create rules
You are merely talking application
Following your logic a law saying murder is wrong if someone commits a murder, which would be absurd
So of course all rules will be broken
But how do we decide what they are without morality. Please answer the question
If you can’t say so because right now your only proving you can miss the point repeatedly
Deciding that a rule is needed, and determining how that rule is set out, are different things.
If you think murder is wrong, then it is likely you’ll want a law against murder. That’s a moral aspect.
However, when you frame that law, if you then bring moral aspects into the detail then you make the law much harder to apply. Murder is “the unlawful killing of a human by another human with malice aforethought” – this is a pure factual test. There’s no element in there of morality or other subjective issues, because that would only confuse matters.
There are a few very simple objective tests there:
– Did A kill B?
– Is there a law that says A was entitled to do so?
– Are A and B human?
– Did A intend to kill B?
There are subjective elements in the interpretation of the evidence (especially on the events, and on mens rea), but it appears to me (and of course I am not a lawyer) there has been a deliberate attempt to eliminate subjectivity from the law.
If you bring in morality, then you can simplify the law on murder considerably:
– Did A kill B?
– Was that wrong?
But that simple formulation is much harder to apply in practice. There is no certainty, and no predictability.
Now if morality has been eliminated from the law on murder, then I can’t see how it must be included in tax law.
Every single element of your question of whether there was killing with malicious forethought is moral
The test as to whether that criteria is met may be objective but myou still completely fail to say how morality can be taken out of rule making and I know that is because you clearly cannot do so
So please stop wasting my time
I think this is a perfect example of how questions of morality are inherently subjective, and therefore can be unhelpful in settling disputes 🙂
You think morality is fundamental to certain things; I think it is not. Two subjective positions: there is no objective basis for determining the question.
“Every single element of your question of whether there was killing with malicious forethought is moral”
I disagree. I think they’re objective, and morality doesn’t come into them. There are moral aspects to the law of murder, but that formulation does not include them.
“The test as to whether that criteria is met may be objective but you still completely fail to say how morality can be taken out of rule making”
You are begging the question: why should one assume that morality is inherent in rulemaking unless I can show otherwise, rather than assuming it is not in there unless you can show that it is?
My position is that some rules include moral elements but others do not, and that moral angles make rules harder to understand in many cases; I have sought to demonstrate this by example.
Your position seems to be an assertion that all rules have moral angles, so seeking to eliminate them is futile. Can you demonstrate that your argument is correct, or are you content simply to deny my position?
Bear in mind that you are making the stronger claim (I say “some”, where you say “all”) so could perhaps be expected to provide stronger support for it.
Andrew
You are just wrong
It is a moral judgement if something is a killing to which the description murder might apply
And a judgement informed by ethics as to whether it is malicious
You are very simply wrong
And if you can’t see that there then I either feel sorry for you or am annoyed that you are wasting my time
Either way, join the list of those whose comments I delete at will because arguing with you is pint less,meagrely because you can’t, apparently either argue or answer a fair question
Richard
Between “avoidance” which is legal and “evasion” which is criminal has appeared a new category. This is “abuse”, which the general public regard as morally repugnant.
Especially relevant to international tax as the stories that have hit the UK headlines have been the multinationals such as Starbucks and Google which have legally (presumably) avoided tax in UK but in a way that Joe Public finds unacceptable.
Part of this may be a general misunderstanding that corporate tax is based on revenue, whereas it is based on profits.
But when it is a matter of where to allocate those profits, the general public have a limit over which it is morally unacceptable.
Let’s call that “abuse”. Not criminal, but made subject to penalties that makes abuse commercially unattrctive.
Agreed
“But when it is a matter of where to allocate those profits, the general public have a limit over which it is morally unacceptable.”
So what takes priority in determining whether the correct amount of tax has been paid – the view of the “general public” or tax law?
The public
We are the foundation of tax law and if public expectation is not met the law has to change
Having said I would delete, I saw this, which is risible
You commit a basic error. You are arguing we cannot extract morality from a rule
No of course we can’t. This has been known for a very LNG time. We extract rules from morality
If there was no morality opin international tax we would not need rules on allocation income; anything would do
That you cannot see that just proves my point that you are either way out if your depth or are deliberately time wasting
Honesty seems to have disappeared in all this. All taxpayers must know if they are trying to pay less than they should.