The immediate reaction when companies are asked about their tax policies is often somewhere along these lines (hat tip @):
However, that’s not always the case. In particular, some countries have more open debates on corporate tax policies and responsible corporate tax. I am fascinated by these differences in the nature and content of national debates on responsible corporate taxation in the policy arena and the media. And also fascinated by the reasons for these differences.
So, I want to take a look at the responsible tax debate in a few selected countries – namely Denmark, Norway, the UK, Australia and the US, which I am most familiar with. And I want to try to understand why the debates differ.
First, however, I must note that my knowledge of national tax debates is, naturally, limited. Barriers of geography, language, time, resources and so forth constrain my ability to accurately detail every aspect of tax debates in various countries.
(I also note that I will not touch upon the question of whether or not tax is or should be a CSR/responsibility/morality issue at all. For that, I recommend reading this (by @taxpolblog), this, this or this (by @judithfreedman).)
And now on the analysis:
National responsible tax debates
To start with the most immediate country from my perspective: Denmark. The current Danish debate on corporate responsible tax is, well, largely non-existent.
On the one hand, it has been a priority for civil society organisations over the past few years, with both ActionAid Denmark and IBIS (now part of Oxfam) launching CSR related tax projects. And certainly, the Danish public, when surveyed, find responsible tax an important issue.
However, the topic has failed to gain wider media and political traction. Briefly in 2014, the government supported a Danish Fair Tax Mark equivalent, but generally, the public attention to responsibility in corporate tax affairs has been sporadic. One reason for that may be the reluctance of Danish companies to engage in any such debate. I highlighted a few tax policies from Danish companies the other day, but these are exceptions rather than the norm. Danish businesses rarely discuss tax responsibility in the open, and the top business associations see no relationship whatsoever between tax and responsibility. Attempts to open up the debate in private and public forums have been largely unsuccessful.
My sense is that Norway and Denmark are very similar in this respect, though with certain differences. Both are high-tax countries, high-end welfare states, with high social trust and international companies at the forefront of the social responsibility agenda. Still, the responsible tax debate is rather silent. However, my impression is that the Norwegian responsible tax debate is somewhat more open than in Denmark. There seems to be a greater tradition for it. Historically, Norway is an exceptionally open society. Personal tax records are publicly available. And on the corporate side, the Norwegians have been closely involved in transparency initiatives such as EITI (whose Secretariat is located in Oslo) and PWYP. It is also the only Scandinavian country to have a formal Tax Justice Network branch, whose people are very active in fostering debates and partnerships on the responsible tax agenda.
Given the Danish drought on the responsible tax front, interested Danes (like myself) often look to the UK to quench their thirst. As I have remarked previously, the UK tax debate is unique:
Arguably, the UK public, politicians and businesses emphasise and engage in the responsible tax debate to a greater extent than anywhere else. Besides civil society organisations highly active on and attentive to tax issues, key actors and forums such as the CBI, KPMG UK, ICAEW, the Parliament PAC and Responsible Tax Group all contribute to an open and thriving room for debate. The UK also has the Fair Tax Mark, supported by many businesses. And UK actors are among the most active in debating international tax policy and reform initiatives. To my mind, there is no doubt the UK debate on responsible tax is the most extensive – whether that is considered good or bad.
If any country should give the UK a run for its money, however, it might be Australia, as I have been informed. Similarly to the UK, Australian politicians, government and the media are certainly keen on transparency and a responsibility debate, with the Parliament conducting several inquiries into corporate tax practices and enacting extensive regulation to deal with corporate tax avoidance. However, I have not seen Australian businesses engage in the debate to the same extent as in the UK (do they?), which is a key difference from my perspective. Businesses are often at the end of the criticism around tax avoidance and corporate tax practices, and thus it signifies an important gulf in the debate if they are not active participants.
In my view, the US debate is similar to Australia, although perhaps with an even greater chasm between businesses and others engaged in the debate. As elsewhere, American public attitudes to corporate tax practices are skeptical, the media is critical of corporate tax avoidance (lately in particular tax inversions), and there is a number of active civil society organisations campaigning for tax justice and responsible tax. And the US has done much to advance international tax transparency and combat tax havens. But although comprehensive corporate tax reform is high on political agenda, it probably remains a pipe dream. Meanwhile, US corporations are among the most aggressive in utilizing tax avoidance strategies, holding more than $2 trillion offshore, prompting the Senate to question US companies’ tax conduct. However, like Australia (though perhaps to an even lesser degree), US companies largely do not engage in the responsible tax debate. They are active in tax policy discussions (behind closed doors, mostly), but there is little engagement with the media and the wider public on questions of responsibility in tax.
I am not sufficiently familiar with Central European, Asian, African or South American responsible tax debates to provide detailed thoughts, so input here is welcome.
Why these national differences?
Now, the real interesting question flowing from all this, is, of course: Why? If true, why is the UK debate so extensive? Why is the Danish debate so quiet? Why are the US and Australian debates distinct?
To my knowledge, there are no systematic studies of these national differences. Historical, political, institutional, economic, social and cultural factors all play a role, certainly, but more specifically what the causes are, we don’t know.
I will not attempt an exhaustive list of explanations, but I propose that at least the following two factors provide some explanatory power:
Historical role in allowing ‘irresponsible’ corporate tax practices
One important element in the current nature of national tax debates is, I believe, the national historical role in corporate tax practices perceived as being ‘irresponsible’. My hypothesis: The greater the national role, the more national public and political attention, and thus a more extensive/open national debate.
In the UK, politicians and private actors have played a key role in fostering corporate tax avoidance and secrecy through the early Euromarkets, the City of London, and legislation in its overseas dependencies and crown territories. In the US, the finance and banking communities were central to the formation of Caribbean secrecy jurisdictions, and US check-the-box rules have been one of the most (if not the most) important legislative facilitators of corporate tax avoidance over the past half century.
In both countries, politicians and political bodies have been aggressive in leveraging that history to put the tax responsibility of corporations on the public and political agendas over the past decades. The UK PAC and the US Senate Subcommittee on Investigations have been particularly important here. And the same is true of the Australian political arena.
On the other hand, Denmark and Norway, for instance, have comparatively insignificant historical roles in facilitating ‘irresponsible’ corporate tax practices, which may support the explanation of comparatively silent national responsible tax debates in the Scandinavian countries.
Tax aggressiveness of national companies
Another element is the aggressiveness of national companies in exploiting tax avoidance opportunities. My hypothesis is: The more tax aggressive a country’s corporations are, the more attention and thus more debate.
Research has shown that that companies from liberal market economies, e.g. UK, US and Australia, are more tax aggressive than coordinated market economies, e.g. Germany, Denmark and Norway.This is also the impression most people will get from reading the media in general. It could be part of the explanation of the more pronounced responsible tax debates in the former three countries.
There is (to my knowledge) rather limited work on the tax tendencies of different countries’ companies (of which the study linked above is part), but the comparative capitalism (CC) literature of political science tells up plenty about different national institutional set-ups and behaviours of economic actors. The study cited above e.g. uses the Varieties of Capitalism (VoC) framework to distinguish UK/US/AUS from DE/DK/NO. Almost every CC framework, incl. VoC, finds the Anglo-Saxon countries as a distinct grouping, with a greater affinity for unregulated market and capital competition than elsewhere, which may also hint at the greater tax aggressiveness of these countries’ companies.
The comparative capitalism literature can thus assist us in understanding why US, UK and Australia firms are more tax aggressive than, e.g. German, Danish or Norwegian. And, I contend, this plays a key role in the make-up of national debates on responsible tax. When companies are more tax aggressive, politicians, the media and the public will be more likely to perceive irresponsibility or injustice, and thus there will be a greater impetus for public debate on corporate tax responsibility.
Now, while these factors do certainly not provide the whole story, in my view they are important when we are trying to understand the nature and cause of different national debates on responsible corporate tax. Other factors could also be discussed, such as the general nature of debates on responsibility and transparency, or the public attitudes toward taxes. That said, I welcome comments or inputs that might shed further light on these topics!