Breaking bad? Justifying tax practice in a moral grey zone

The TV series Breaking Bad chronicles the journey of Walter White, a high school chemistry teacher-turned-drug lord, as he navigates a treacherous path of mounting moral dilemmas and challenges, grappling with justifying his ever-more-problematic actions to himself and those around him.

The recent history of the work of tax professionals shows a strikingly similar arc. Overly caricatured? Perhaps. But as with all good stories, there’s some truth to it. Amid the growing politicization of corporate and international taxation, the once-exclusive domain of niche specialists has transformed into a focal point of public interest, with critical scrutiny of not just governments’ tax policies or corporate tax payments, but also the everyday activities of tax professionals, advisers and experts, who must now explain themselves and their work to a global audience.

Let’s not overstate the case. The bulk of tax professionals’ work consists of routine, compliance-driven bean-counting and uncontroversial number-crunching.

But some of it is most definitely not mundane and uncontroversial. Some aspects are sensational and highly significant for contemporary society, fundamentally influencing perceptions of fairness and overall beliefs in democracy. The high-end of modern tax practice – the work of international corporate tax experts, wealth managers, and those involved in global tax policy-making – has huge ramifications for economics and politics today. And people have started to notice.

The highly quotable Pascal Saint-Amans, for a decade the chief architect of change in the global tax system as Director of the OECD’s tax division, perhaps said it best, when assessing the accomplishments of the OECD’s tax work:

“We have moved from tax being just a tax geek thing to tax being a political item (…) And the fact that we’ve probably helped this political trend toward companies and individuals becoming more compliant and less aggressive in their tax planning.”

Pascal Saint-Amans in 2017, in conversation with Tax Analysts’ Stephanie Soong

In this new context, how do tax professionals justify their work? How do they explain to stakeholders what they do, and why they do it? How do they react to scrutiny and criticism?

A surge of new research paints a vivid picture of how tax experts and organizations grapple with legitimating their practices in a context of rising discontent, mistrust and unhappiness.

One key theme is the presence of conflicting cues about what is considered legitimate in the tax industry – the grey zone. Whereas classic theories of the professions emphasized the legitimation of specialized professional work based on moral or functional justifications, the advent of global markets and giant professional service firms points to a new dominance of commercial logics in assessing acceptable behaviour for tax and accounting practice.

Today, tax professionals are expected to pay attention to calls from a wide range of stakeholders for ‘fairer’ corporate tax payments and greater tax transparency, while at the same time engaging a commercial mindset, contributing to the maintenance of shareholder value. Such times of instability trigger ‘legitimacy reassessments’, as a recent paper by Mattia Anesa, Andreas Paul Spee, Nicole Gillespie and Fabio James Petani argues: Tax professionals’ justifications change over time, shifting from building on a literal interpretation of the law (cf. the ‘tax mantra‘), to a focus on commerciality and economic substance (cf. BEPS), to a wider concern with the reputational implications of tax practice.

Not everyone’s excited about these shifts in legitimacy. “Most tax professionals”, writes Silke Ötsch in a new study, “hope for a pendulum movement as a rollback of regulation”. Ötsch documents how tax professionals recall basic social values in justifying their work in an ongoing crisis of legitimacy: Tax professionals argue that they protect individual freedoms (from the state’s tax-grabbing hands), provide valuable services to socially-minded elites, and support the competitiveness of local economies.

Len Seabrooke and I found a similar dynamic in a recent paper focused on how tax professionals in the Big Four respond to challenges to their legitimacy: They hearken back to ‘simpler times’ (i.e. when critical NGOs and politicians didn’t interfere as much) and appeal to their technical superiority when defending their professional turf.

We also found, however, that many elite tax actors work hard to turn this new era of scrutiny and challenged legitimacy to their advantage, engaging in what we call ‘scanning work’ to identify and neutralize threats to their work. And with great success: All of the Big Four firms, for instance, have turned radical new requirements for corporate tax transparency – requirements promoted by activists – into profitable business services.

Individual tax professionals also stand to gain in a more particular way. A 2018 study by Vaughan Radcliffe, Crawford Spence, Mitchell Stein and Brett Wilkinson found that in-house tax advisors adapt well to major disruptions, like the OECD’s Base Erosion & Profit Shifting project: They take advantage of the newfound importance of and public attention to corporate tax strategy, using their technical knowledge to strategically reposition within their organization, moving closer to boardroom decisions, and gaining power and prestige.

So on the one hand, there seems to be some level of change – new forms of justifications and awareness by tax professionals of a changing social and political context of the work, which requires different claims to legitimacy. On the other hand, some – or indeed many – tax professionals have adapted well to (re)legitimate and defend their work, even profiting from the new demands placed on corporations and the tax industry at large.

What this means in the aggregate remains contested. Another study by Mattia Anesa, with Nicole Gillespie, Andreas Paul Spee and Kerrie Sadiq, argues that the core logics of corporate tax minimization remain stable despite attacks on its legitimacy. Studying the Australia context, they find, simply put, that there are no viable alternatives, so tax minimization continues to be the go-to approach.

I share this sentiment – to some extent. In my own work on the Big Four (focused on transfer pricing), I’ve found a remarkable resilience to change, in part because of the deep, foundational power that these firms exercise over the tax domain and in the global economy at large.

Yet, on a more optimistic note, all these papers find clear indications of a shift towards more significant changes in the work and legitimation of contemporary tax practice. As Len Seabrooke and I write to close our paper:

“The external influence of new global movements and demands on professional frames and solutions, requires more consideration. [It] may offer nuance to the long-identified shift away from broad, socially founded professional values in accounting, which have been overtaken by commercial organizational values in large global accounting firms. In our case of corporate tax transparency, we show that such external influence requires scanning work by the Big 4, to take account of the wider social space in legitimating their practices. This scanning work may lead to significant change to professional work in accounting through moral repositioning of frames for action”

At the very least, recent developments in the tax world, and the research on it, should leave us open to the potential of a ‘brave new world’, rather than a continued ‘breaking bad’, in the work of tax professionals.

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