The Tax Justice Network and Association for Accountancy & Business Affairs have today published a Code of Conduct for Taxation that I have written on their mutual behalf.
The Code of Conduct is just 2 pages long. It has six headings, each of which contains three statements of principle. In combination, these present what we hope is a clear summary of our thinking, and sets out the conditions that we think would help create tax justice. We will publish our ideas on the structure of tax systems separately, in due course. A version of the Code with full supporting arguments is also available.
There is a pressing need for a Code of Conduct. Tax is the bedrock on which democratic society is built and yet tax is under threat. Governments compete with each other to attract transient income from capital. In the process they actively seek to undermine the credibility of each others' tax systems. Many of the best legal and accounting brains in the world are dedicated to facilitating this process either by designing the structures that these governments enact, or by providing arguments in favouring their adoption.
This Code of conduct seeks to redress the problems that have resulted from this combination of circumstances. To do so it has three key features.
The first is that it is broadly based. It applies to governments, tax advisers and taxpayers. Of the three, governments may well find it the hardest challenge; taxpayers might well find it easiest to comply. Many will probably be only too willing to do so.
Second, the Code is based on principles. This is essential. A member of the UK's accounting profession once said: "Rules are rules, but rules are meant to be broken . . . no matter what legislation is in place, the accountants and lawyers will find a way around it". Principles are much harder to abuse, and it is time that the professions were asked to account for the principles they promote, and required their members to commit to them.
Third, the Code talks about a lot more than tax. It addresses the vital issues of transparency and accountability as well. Unless full disclosure is made by all parties to tax liabilities, with as much information as possible being on the record (which, as far as the Code is concerned, means everything bar personal tax returns) then the suspicion that some are securing advantage that others cannot enjoy will persist, and remain the cancer that has eaten at the credibility of tax systems the world over.
A code is, however, only as good as its enforcement. This Code proposes different mechanisms for each of the groups that can sign up to it. Governments would be subject to independent reviews. This process has been pioneered by the IMF: it is possible. Professional firms would be subject to professional discipline for failing to comply with the Code. Taxpayers, like professional firms, should expect a lower level of scrutiny of their activity if committing to the Code. But in that case the penalties imposed for non-compliance should be higher as deliberate misrepresentation could be assumed to have taken place. This would be the sting in the tail that ensures this Code would have teeth.
Is such a scenario possible? We think so. Co-operation is proven to be of benefit in almost all walks of life. Compliance with not just the letter but the spirit of the law is what most people assume and expect of others. And transparency and accountability are the hallmarks of honest dealing. Arguments against such conduct can only be made by those who seek to abuse. Such people do, of course, exist. But if this code does no more than promote principles as being at the centre of the debate on taxation, it will be important. We hope it will do more than that.
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Your statement “Tax is the bedrock on which democratic society is built ” is flawed. If you start to examine cause and effect, then you reach the conclusion that tax is a result of Government, rather than a cause – and of course democracy is only one of many forms of Government.
But if you are really interested in principles then you might argue that tax is a good example of why Plato was against democracy!
I think you would do better to stick to a short sentence – “We don’t like tax avoidance.”
Alastair
We are well aware that many on the Right do not like democracy.
We do.
I happen to think the statement made is correct.
Those who promote tax avoidance want a very different form of society in which people are not equal beforre the law, or anything else come to that.
Some of us think that is wholly unacceptable.
Richard
Your statement is completely back to front. Democratic society is the bedrock on which taxation is built. Tax is under threat because Government has lost the trust of the people and big statism has elbowed out society.
Perhaps you could explain why you don’t have a requirement to be consistent as a fundamental principle for government?
Andrew
I will be as bold as you are, and say you are simply wrong.
It is well known that tax and democracy are inextricably linked – and that without there being a relationship based upon the payment of tax deomcracy flounders because accountability is lost.
And there is no need for tax to undermine trust. Sandinavia proves that.
What is actually happening is that some in society are seeking to undermine the tax system with the objective of undermining the democratic process, which they know will follow.
Open accountability within a society is vital if the freedom that more people enjoy in the world today than ever before is to be defended. It’s a freedom that should let them have free choice at the ballot box to elect a government that will tax as they want. Some resent that democratic right and seek to undermine it. This Code is, in part, about defending that freedom to choose by bthe people of the world from attack.
Richard
S(c)andinavia helps my hypothesis and disproves yours. They can get away with higher taxation because Government has earned trust and because they have strong society. The causality is the other way around.
Lack of trust undermines tax. Tax, as you say, doesn’t necessarily undermine trust.
“without there being a relationship based upon the payment of tax deomcracy flounders because accountability is lost.”
So, death to progressive taxes then? I agree. It’s undemocratic to vote for other people to pay tax to supply services that you will consume.
Andrew
It is clear that you are not interested in rational debate on this issue. Your last comment proves that, and that you are not interested in the democratic process.
This space is open for those who are. Further comment from those who have intent to destroy society as we know it will be blocked.
Richard
As you seem to be supressing comments I guess you don’t want to debate this? No skin off my nose!
Alastair
Debate is very welcome.
What is not is debate about the desirability of democracy.
That is taken as a given on this site.
Richard
[…] On this I can agree. Issues over the handling of tax in accounts for example could definitely do with review. A code of ethics that matters would also help. And it is true to say that the obdurate manner with which certain EU governments have chosen to step around IFRS or provide their own interpretations does not bode well. […]
[…] After all, why should it be that because the ownership of shares is registered in a company wholly owned by the onshore participants to a deal no tax is due? This is a charade or sham at best. And Vodafone knows it. It would, of course, contravene the TJN Code of Conduct. […]
[…] Of course, if countries subscribed to the TJN Code of Conduct for Taxation such secrecy would not be available, and corruption of this sort may not be possible. […]
[…] I would like to think that it will look like this: […]
[…] It’s why we have promoted our Code of Conduct. […]
[…] A commitment to introduce a general anti-avoidance principle to tackle tax […]
Hope you’ll excuse my poor English ; I am not a native speaker.
The debate about cause and effect is a tricky one and it may prove useless.
It is generally acknowledged that tax avoidance shifts the tax burden en thus installs a factual inequality. This is one reason tax avoidance is undesirable.
An interesting angle to view this problem is the question whether there is an obligation to obey the (tax) law. Some say that such an oblgation does exist, as the government usually knows better how to achieve wellfare for every one than we do. Some say there is no such obligation because not every statute or law has inherent moral value. Moreover, the tax avoider does by definition not break the law, he outsmarts it.
Legally tax avoidance is accepted because of two interacting principles :
– the principle of legality, according to which no tax shall be levied than by law
– the freedom of contract, according to which anyone can make any contract at any time
The main legal question is to find out whether those principles still have the quasi absolute meaning they had in the 18th century, or whether they should be seen in their present-day context.
[…] society. I’d urge him to sign his firm up, globally, to a Code of Conduct of the sort the Tax Justice Network has proposed. Then we’d be making progress. This requires firms like his own (and all its numerous tax […]
[…] For a discussion see here. […]