Tax evasion, hell (sometimes) with good intentions


In early October, the publication Pandora Papers Public opinion was once again shocked by the revelation that some of the richest and most powerful people in the world, including senior officials, were using offshore companies and tax centers to hide. their wealth and avoid paying taxes on their components.

Although nothing new, after the revelations of the Panama Papers in 2016 and the Paradise Papers in 2017, the Pandora Papers scandal continues at an unprecedented rate (11.9 million documents and 2.94 TB of data). The revelations prompted the European Union (EU) to make such a statement New Legislative Activity To Combat Corporate Tax Evasion.

A more coherent and unified legal framework would undoubtedly make it possible to reduce the harmful effects of tax evasion – that is to say, by definition, the exploitation of legal loopholes between the systems, and therefore to oppose tax evasion – the problem we need to deal with effectively is legal reform?

To answer this question, it is important to understand that there are very different tax deductions. They involve multiple actors (companies, taxpayers, tax advisers, states), but have very different implications from an ethical point of view.

The spirit of the law

An article In research published in 2014, we identified three forms of tax evasion:

First, the habits ofState-induced tax exemption See the methods introduced by a state to achieve the socially and economically desirable goals of a citizen.

These include, for example, tax deductions for donations to charities in the United States (available to individuals and businesses) or tax breaks introduced in the European Union (EU) to promote environmental change. (For example, SuperBonus110 Italy or energy conversion tax credit, CITE, France) for the installation of solar panels in houses and other energy improvements.

In other words, they are practices that effectively reduce the amount of tax payable in a way that favors a particular public policy. The move to cut Irish national corporation tax from 40% to 12.5% ​​in the late 1990s is a form of avoidance of the state stimulus, as it aims to boost the Irish economy by attracting foreign investment, one of the lowest in the European Union. .

Second form: Strategic tax evasion, Tax breaks include all systems that have only one of the many dimensions of a transparent and transparent business strategy.

For example, it is the decision of EU companies to outsource customer call centers to India at low labor cost. These systems have a strong “financial essence” and are transparent, although in some cases the tax transfer may not be considered in accordance with the intention of the legislator.

At the individual level, we can cite the selection of several professional tennis players, including the current world number one, the Serbian Novak Djokovic. Change residence in Monaco, A country where residents are not subject to personal income tax.

Serbian tennis player Novak Djokovic plays the Monte-Carlo tournament at home.
Valérie Hatché / AFP

Given that professional tennis players travel the world 40 (work) weeks a year with ease, it is hard to deny that this decision is transparent and tied to the profession’s business model (and the beautiful climate and facilities of the profession. ‘high quality training in Monaco).

finally, Toxic tax evasion Indicates all plans and adjustments undertaken primarily or exclusively for tax deduction purposes. This tax exemption law takes advantage of literal interpretations of the law, legal loopholes or inconsistencies between national laws, and the use of artificial structures, tactics not involving transactions or financial assets, and the determination of transaction prices between hidden or obscure subsidiaries. , Or the creation of imaginary companies (that is to say a company, located in tax centers in general, without significant assets or commercial activities, serving as a means of tax deduction).

The legitimacy of these methods is often questioned because they are contrary to the spirit of the law, that is to say to the meaning or the fundamental objective of the legislation. A well-known example of tax evasion is the “Double Irish, Dutch Sandwich” system, which allows shell companies to set up shell companies in Ireland and the Netherlands and transfer their profits to tax havens. Transfer around $ 20 billion to $ 20 billion in profits to Bermuda in 2017.

This breakdown of the different forms of tax evasion shows that not all systems are equally immoral.

Inadequate control approach

Thus, the tax exemption Toxic It is still immoral because it involves forms of fraud, which violate the social contract between business and society, and threaten human rights. The only argument in favor of toxic tax evasion is, in fact, an unethical argument based on the simple view of business as an “ethical” activity, which is legal and everything is ethical as a result.

On the contrary, the exception State motivation It presents two strong moral arguments: first, it is socially desirable because it is designed to produce socially desirable results; Second, these laws respect the letter and spirit of the law, as they are explicitly promoted by national law.

However, there is a dark side to this social form of tax evasion: it benefits the richest in society (rich citizens, strong businesses) and thus contributes to increasing social inequalities. In addition, the introduction of favorable tax conditions (eg lower corporate tax) could lead to greater tax competition between companies and countries.

Finally, training Tactical Tax exemption is a gray area. The fact that these practices are linked to transparency and a good commercial strategy and all their ethical justifications can be considered as creating value for all the partners of the company.

However, these strategic approaches raise other concerns. First, the collection of unjustified corporate tax payments by high-income individuals and multinational corporations can reduce the willingness to pay taxes to other taxpayers (entrepreneurs and SMEs), thereby compromising the integrity of the country and its country. tax system. . Second, these practices lead to a change in profits, thereby reducing the tax resources of the country of origin.

Given the complexity of the forms of tax evasion described above, the multiple ethical questions they raise, and the interfering roles played by businesses, individuals and national governments, a purely regulatory approach does not appear. exclude the opening of a new Pandora’s box. In a few years.

We need a multi-stakeholder agreement as we emerge on a sustainable, environmental, social and governance (ESG) standard by establishing sustainable regulatory frameworks, general principles, communication channels and an external reporting system. . In other words, we need all stakeholders to recognize that paying taxes is part of their corporate responsibility (public, civic), and not just a legal matter.

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