To: HM Queen Elizabeth II, GG David Johnston, Barack Obama, Justin Trudeau, David Cameron, Angela Merkel, Dilma Rousseff, Bill Morneau, Canadian Council of Chief Executives, Pope Francis,
Tax Fairness for All and Tax Justice Now
Dear Your Majesty, Your Excellency, President, Prime-Minister, and other leaders in positions of power to affect positive change.
New research published by the Tax Justice Network shows that tax evasion costs governments around the world more than US$3.1 trillion annually.
In Canada an estimated $81 billion a year is lost to tax evasion in the ‘shadow economy’ - that is half of our total healthcare spending. Canada ranks 11th out of the 145 countries surveyed in total amount of tax evaded.
Last year $40Billion Canadian flowed to the top 10 tax havens – an all time high. Tax havens now hold at least $270B of Canadian corporate money, mostly untaxed.
A study from the Tax Justice Network estimates that between $21 trillion and $32 trillion has been transferred from low- and middle-income countries to more than 80 offshore tax havens.
On behalf of Canadian taxpayers and taxpayers around the globe, I would request that you establish an ''investigative commission'' to investigate the activities of all offshore financial tax jurisdictions worldwide to better understand the dynamics of the inner workings of offshore financial centres and their impact on loss tax revenues of countries around the Globe. The commission could thereafter work to implement enhanced global standards for tax avoidance and work with impacted countries for legislation changes to their domestic tax laws to ensure tax fairness and adequate collection of tax revenues by world governments to fund the development of better society and social programs for its respective populations.
Why is this important?
"Taxes are what we pay for civilized society.'' — Oliver Wendell Holmes, Jr., U.S. Supreme Court Justice
"Taken to its logical extreme, the Laffer curve makes no sense because, if you lower your taxes to zero, how are you going to get higher revenues?" — The Right Honourable Jean Chretien, 20th Prime-Minister of Canada
Taxation is essential to the functioning of a society—indeed, it is a strong indication that “civilization” actually exists. Consequently, the manner in which tax is levied and administered has always been a vitally important question for society as a whole and this is truer today than ever before.
Governments are increasingly being held to account for their spending yet they are finding it difficult to maintain their tax base in the face of a dematerializing economy and increasingly mobile and sophisticated taxpayers. Domestic and international rules on the taxation of cross-border profits have not kept pace with the fundamental changes brought about by globalization and new business practices in a digital environment where intangible assets and mobile capital become ever more important. Public perceptions and expectations as well as political dynamics have also changed drastically in a very short timeframe. At the same time, there is an intensive debate in the public about where the line between what is acceptable tax planning and what counts as aggressive and no longer socially acceptable tax avoidance should be drawn. As a result there is now a commitment to international cooperation between governments to a degree never seen before in the area of taxation. The public debate on compliance and fairness in taxation has become rancorous in many countries, carrying the risk of reputational damage for tax payers (and the professionals advising them) even when they comply with the law.
This is an extremely complex subject and I believe that it should not be left to taxation authorities, taxpayers, their professional advisors and the public to decide what constitutes aggressive and undesirable tax avoidance/planning. It requires the acceptance by all relevant parties (legislators, taxation authorities, taxpayers and the profession) of their duties with a concomitant change in attitude to determine what constitutes responsible tax planning.
I believe that this change must start with the legislators as they are in control of the matter. It should not be beyond the ingenuity of mankind to construct an integrated and fair taxation system, clear in its intention, logical and easy to understand. If legislators do not wish their legislation to be misinterpreted or misused it must be drafted to clarify the intent and remove the opportunity for misinterpretation.
They also need to ensure that tax law applies equally to all tax payers. Governments lose credibility with their citizens, with a consequent reduction in tax morale, if the perception is that some sectors of society are above the law or that certain taxes are “optional” if one has sufficient resources and good advisors.
Moving on to taxation authorities, it is their duty to collect the tax intended by the legislation—no more, no less. If the amount of tax due is unclear from the law, then the law should be changed. Leaving it to be decided in court always creates uncertainty.
If taxation authorities want all taxpayers to abide by the legislation then all taxpayers should be, and be seen to be, equally targeted by administrative measures. Crucially, taxation authorities must recognize that the vast majority of taxpayers and their advisors are honest and have a genuine desire to fulfil their obligations. However, taxation systems are complex, mistakes will occur and tax authorities should not automatically assume that every failure to comply is deliberate and fraudulent.
Regarding taxpayers, their duty is to pay the amount of tax that is due according to the law—nothing more and nothing less. In order to do this they need to be able to correctly determine the amount of tax, which brings us back to the point regarding clear tax legislation.
However, they also need to appreciate that tax evasion and fraud are not victimless crimes—if they are not paying their share they are robbing other taxpayers who have to take up the slack.
Tax avoidance is more complex, especially the vexed question of “aggressive” tax planning or avoidance. While this is not illegal, there is an increasing groundswell of opinion that it can be inappropriate, especially when based around “artificial” arrangements that defeat the purpose of the legislation. Like it or not, more and more people across constituencies see a moral dimension in taxation.
Taxpayers rarely enter into such arrangements without consulting one of the several professions competing in the field of tax advice. Qualified professional accountants are prime providers of tax advice and the only one to abide by a global Code of Ethics.
It is often said by the accountancy profession that is in a difficult position—sandwiched between its duty to clients, who demand to pay the least tax possible (a duty confirmed by many Courts of Law), and taxation authorities expecting them to act as unpaid tax inspectors. Taxpayers have become increasingly litigious where they feel that their accountant has failed to provide them with appropriate advice, including advice on what could be perceived by others as aggressive tax avoidance schemes.
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Source: Fairness in Taxation, International Federation of Accountants,
Friedrich Roedler is Chair of the Fédération des Experts Comptables Européens (FEE) Tax Policy Group.
https://www.ifac.org/global-knowledge-gateway/viewpoints/fairness-taxation