Ain’t nothin’ but a G7 thang

This weekend, the Group of Seven (G7) finance ministers completed a “historic deal”, a new “global tax agreement” that will truly bring the international tax system “into the 21st century”.

Or so, at least, is the narrative presented by some of the G7 folk (most prominently UK chancellor Rishi Sunak), which has been swallowed by large swathes of journalists and observers, hook-line-sinker.

Yes, certainly, if we look purely at the content of the G7 announcement, it looks transformative: A global minimum corporate tax of at least 15%, and a reallocation of taxing rights for the largest and most profitable multinationals towards market jurisdictions, where sales are made.

But the significance of the G7 announcement has been massively overblown and oversold, in both political and normative terms. There are at least four parts to this argument worth highlighting.

First, the G7 just isn’t as important as it once was for the making of international tax reform. The G7 used to be the prime high-level political forum, the most important gathering of ministers and state leaders, setting out the direction for technical negotiations conducted by the OECD, and making the key decisions in turn.

But following the global financial crisis, the locus of global tax governance shifted from the G7 towards the Group of Twenty (G20) – and with significant implications. The G20 includes not just the ‘old’ powers of Europe and America but also the ‘rising powers’ of China, India, Brazil and others, bringing together a much more powerful and diverse geopolitical coalition.

It is this expanded power base, the might of the G20, that has made it possible for the international community to even consider such comprehensive and progressive reforms as a global minimum corporate tax. The shift to the G20 has meant global tax reform initiatives have far more teeth in recent years, with a stronger and more credible threat of sanctions for those unwilling to follow along (e.g. tax havens). If this were still a G7 world, we probably wouldn’t be having these discussions.

But because the G20 includes other countries than the G7, with different interests in international taxation, the contents of global tax reform are also shifting, less defined exclusively by the ‘old’ powers, increasingly marked by the preferences of ‘rising’ powers, whose voices are becoming harder and harder to ignore.

Thus, framing the G7 agreement as some sort of endpoint, as a final stop for global tax reform, fundamentally betrays these empirical and political development, and overlooks the importance of the G20. (Yes, of course, it is a significant political signal that seven of the most politically powerful countries agree on principles of reform, but in truth this doesn’t mean much unless China, India, Brazil and the rest of the G20 are on board. (They will likely be, but for other reasons I’ll get to in a second, not because “the G7 said so”.))

Second, there’s another important shift of political power that means it’s not all G7: that from the OECD to the “Inclusive Framework”. Ten years ago, negotiations on reforming the global corporate tax system was practically conducted at the OECD amongst its 30-something member states, where the G7 all feature prominently. So you could’ve been forgiven for saying the G7 pragmatically decided things. But that’s no longer the case.

Today, negotiations fall under the auspices of the “Inclusive Framework”, a forum established in 2016 under the OECD, at the behest of the G20. It has a vastly expanded membership, now gathering 139 countries and jurisdictions, all formally on an “equal footing” to decide the direction of the international tax system. While significant inequalities in power and resources remain, the dynamics of the Inclusive Framework have unquestionably shifted decision-making authority away from the ‘old powers’ and towards emerging economics and developing countries.

So, again, when the G7 are presented as the ultimate brokers of a global agreement, as the key decision-makers, it is indicative of a significant misunderstanding both of the raw political process and the shifting power relations of global tax governance. The G20 and the Inclusive Framework are the key decision-making authorities here, not the G7.

Third, content-wise the G7 announcement simply doesn’t entail much noteworthy new information. Let’s look at the bits of the G7 “tax deal”. The first component is a global minimum tax of “at least 15%”. The global minimum tax itself has been under discussion at the G20 and the Inclusive Framework since 2018, and the member states have reaffirmed in status reports, in high-level communications, and in negotiations several times their commitment to the principle, so we already knew they were supportive (although inevitably much technical work remains – the G7 announcement doesn’t change that.) The “at least 15%” bit is sort of new, but if you paid close attention you’d have noticed it came out of discussions at the Inclusive Framework’s Steering Group – a 24-country committee including China, India, Brazil, Nigeria and others alongside six of the seven G7 members – rather than the G7 itself.

The second component is a reallocation of taxing rights for the largest and most profitable multinational companies, with 20% of their profits above a 10% margin awarded for market jurisdictions (where sales are made) to tax. Hmm, where we have heard that before? Oh right, it’s been the basis of negotiations at the Inclusive Framework for more than a year, and that direction of travel is only reaffirmed by the G7 announcement, as it has been again and again previously in other communications. The specification that it is “the largest and most profitable” firms that are in scope is a recent change arising from Joe Biden and Janet Yellen’s interventions but again something that is being discussed primarily at the Inclusive Framework’s Steering Group, not the G7.

Thus, while the political signal of the G7’s formal announcement certainly carries weight, the content of that signal has been interpreted as much, much more novel and groundbreaking than it really is.

Fourth, beyond the misrepresentation and misinterpretation of the political proces, the political power relations, and the substantive content of the announcement, the portrayal of the G7 as key, final decision-makers is a significant problem from a normative perspective. The G7 can’t decide but also the G7 shouldn’t decide how to reform the global tax system.

Inevitably, global tax governance reflect established power structures and the fundamental inequalities between countries in terms of their ability to influence global policy-making. And so it is obviously the G7 who stand to gain the most from the “historical global tax deal” that they have brokered.

But there is an obligation to point that out, to question and critique it, rather than accept and buy into it. There is a real chance, with the emergence of the G20 and the Inclusive Framework, to build more inclusive, more democratically accountable, and more sustainable global tax rules. And there are already signs that we are headed in that direction, though it is still very far from reality.

Acknowledging that it is not the G7 that decide these matters is an important starting point here. Acknowledging that emerging markets and developing countries do have a voice, and should have a voice, is an important starting point. That, in addition to the raw political realities, is why we should not simply accept the prevailing narrative around the G7’s “historic tax deal” from this weekend.

What do stakeholders expect from corporate taxation?

A fascinating new paper was published earlier this month in the Journal of Business Ethics, titled “Corporate Tax: What Do Stakeholders Expect?“. It is authored by Carola Hillenbrand, Kevin Guy Money and Chris Brooks at the University of Reading and Nicole Tovstiga at the University of London.

The abstract reads:

Motivated by the ongoing controversy surrounding corporate tax, this article presents a study that explores stakeholder expectations of corporate tax in the context of UK business. We conduct a qualitative analysis of in-depth interviews with representatives of community groups (NGOs/think tanks and special interest groups), as well as interviews with those representing business groups (business leaders and industry representatives). We then identify eight themes that together describe “what” companies need to do, “how” they need to do it, and “why” they need to do it, if they wish to appeal to a wide group of interested parties. We discuss our findings based on the corporate social responsibility literature and propose novel ways for community groups and business groups to connect on the topic of corporate tax, suggesting opportunities and themes for dialogue and potential steps to co-create solutions in a stakeholder society.

Right down my alley. In short: different groups have different expectations when it comes to corporation taxes. As I have written elsewhere, including in a new paper with Maya Forstater, these differences in expectations lead to a polarised debate about corporate taxation with a “missing middle ground”.

What’s interesting about this paper, to me at least, is not so much the findings on perceptions themselves. Maybe they will be surprising to people outside the tax world, but most people inside the tax world will find the results eerily familiar. Rather, it is the strong confirmation of “accepted wisdom”. Sometimes, the most important job of research is to test whether such “accepted wisdom” is really true.

And the paper really does a great job of evidencing the different expectations of stakeholders, in a succinct manner, with a strong empirical basis in the UK context. The survey a broad range of stakeholders (n = 61) from community groups (NGOs, think tanks and interest groups) and business groups (business leaders and industry representatives) through qualitative interviews. They look at a variety of dimensions of expectations including level of tax payments, transparency, inequality, ethics, social responsibility, etc.

The results are summed up in two massive tables and accompanied by a lengthy discussion. But here’s my TL;DR recap:

Issue/Group Community group Business group
Desired principle of corporate tax Pay where local presence, size and capacity is, and where businesses actually operate. Like today, but with more
legal clarity and certainty
Business interests Driven by profit ahead of wider societal, community and ethical interests (which is bad) Businesses do and should act on behalf of owners, though there is increasingly wider ethics/integrity concerns
Political (in)equality As powerful societal players, big businesses get special treatment. There’s inequality within business world; SMEs and those not operating in low-tax countries are disadvantaged
Listening Companies don’t listen to community groups
(they should)
Businesses could improve listening and communication
Public debate Should include all stakeholders; today, community groups are excluded Community groups excluded from public debate fairly because they don’t understand tax rules and need education
Transparency More! Businesses try but some issues are too complex for public

In short, this is a very strong illustration of the polarised perceptions of community groups and business groups when it comes to corporation taxes.

The authors sum up:

Overall, our findings suggest that stakeholders tend to sympathize with views held within their own network and tend to iterate well-established narratives within such networks.

This aligns well with Maya’s and my point:

When arguments are strongly divided, each group tends to judge that their own arguments as based on evidence and justice in the public interest; while viewing ‘the other side’ as speaking from their own self-interest to protect individual and organisational short-term goals.

In addition to a good analysis of stakeholders perceptions, the authors add a discussion of how to deal with the issues they identify, in particular diverging expectations.

Unfortunately, they only discuss it from the side of companies: what companies can and should do about it. That the authors don’t address what community groups (their other key stakeholder) can do, or what the two groups can do together, is a missed opportunity, but alas. This part of the paper is clearly shaped by the fact that this is a business ethics journal and a business ethics article.

The authors propose the following model for thinking about the “whywhat and how” of corporate management of community groups’ expectations on corporate taxation:

Capture 2.PNG

Again, there is a lengthy discussion in the paper of this. My TL;DR:

  • Why engage: Integrity and ethics are opportunities to address social license to operate and to demonstrate corporate value.
  • What to do: Assess tax payments and strategy in relation to community expectations and in cooperation with community groups.
  • How to do it: Engage proactively with community groups, communicate tax more and better, be more transparent.

I am not sure how actionable these ideas really are, or if they bring much new to existing corporate social responsibility ideas. While these seem like nice ideas, the authors do not address in any great detail how their proposals would actually work given the chasm in perceptions illustrated by their own interview results. For instance, business groups’ views that community groups “don’t understand tax” would seem an obvious hindrance for companies to engage more proactively with those community groups.

Nonetheless, I do find the framework interesting as food for thought and as a starting point for further discussion.

All in all, I think it is an interesting paper, though I am sure many in the tax community will not be surprised the least bit by the results or the proposals to remedy polarisation. Still, the value of evidence to confirm, and also in some cases challenge, conventional wisdom should not be underestimated. Moreover, my summary here is of course simplified and the analysis itself provides more nuance, further information and intriguing discussion. I do encourage anyone with an interest in corporate taxation and public debates to go read it. It’s openly accessible over at Springer.

The Paradise Papers should lead us towards a new global tax system

Last week, I published an op-ed in Danish newspaper Politiken with my colleague Saila Stausholm. I reproduce it below, liberally translated, for those interested. Given the op-ed format, it naturally has certain limitations and a certain style that differs from my usual writings on this blog – so take that into account. Here we go:

The Paradise Papers should lead us towards a new global tax system

Last Sunday, the International Consortium of Investigative Journalists (ICIJ) lifted the dam that had been holding back a new giant offshore leak, the Paradise Papers.

While the stories of tax haven usage do not necessarily reveal any illegal activity, the reactions tell us that citizens and politicians are outraged by the implications in the leaks of leaders and elites in the world’s richest countries.

Exactly because much of this activity is legal, the leak highlights the massive chasm between what ordinary people see as reasonable, and what the global elite can do within the limits of the law.

The Paradise Papers thus clearly showcase the structural problems of a nationally anchored tax system that works globally for mobile capital.

It is outdated, and there is a need for not just outrage and political attention, but also new, concrete ideas and the courage to change the system radically.

Small “quick fixes” here and there are not enough. On the contrary, we need to change the tax system fundamentally in order for it to match the ongoing reconfiguration of the global economy.

As illustrated by the tax haven leaks of the past few years, the opportunities to use tax havens and the offshore world are a key symptom of a tax system where regulation has not kept pace with globalisation.

Before the Paradise Papers, we had the Panama Papers, which created outrage in 2016, implicating the Icelandic Prime Minister, the Saudi Arabian king, the Pakistani Prime Minister, football world star Lionel Messi, and actor Jackie Chan.

In Denmark, too, the Panama Papers had consequences: The Danish tax administration is continuing its investigations into the affairs of at least 500 Danes.

Before the Panama Papers, we had the LuxLeaks, which revealed that PwC had helped a string of global corporates attain hugely favourable tax terms in Luxembourg. This had happened while current European Commission President Jean-Claude Juncker was Prime Minister in the Grand Duchy.

LuxLeaks also fostered significant political reactions, and became the starting point for Margrethe Vestager’s high-profile state aid cases against Luxembourg involving Amazon, Fiat, and McDonald’s.

And again before LuxLeaks, we had the Offshore Leaks in 2013. In addition, we have had the SwissLeaks and the Bahamas Leaks. These many leaks must be viewed in light of the increasing focus on tax havens and the issues created by the international tax system for both rich and poor countries.

Since the global financial crisis broke out in 2007-08, nation-states have increasingly identified the strengthening of national and international tax systems as a central part of the solution to the economic challenges we face today: debt crisis, public budgets under pressure, low growth and growing inequality.

As a consequence, both national governments and the international community has ramped up political initiatives against tax havens, against aggressive tax planning, against money laundering, and against tax evasion.

Today, we have much more transparency and better international exchange of tax information; we have closed some of the worst loopholes; and we have changed what is acceptable in terms of bank secrecy, shell companies, etc.

But the political reforms from the past decade have not really taken on the fundamental causes of the problems we are seeing today in tax havens and in the international tax system.

All the key components of the international tax system, established in the early 20th century, have not changed substantially.

Countries can still undermine each other by commercialising their sovereignty and offer favourable terms to foreign capital and thus reduce the economic and democratic capacity of their neighbours. And despite initiatives in the EU and the OECD, international cooperation is still relatively limited and, to a large extent, controlled by a small core of actors from the world’s richest nations.

Global corporations are still, essentially, taxed like they were 100 years ago, when they were small regional networks primarily trading physical goods.

This means that global capital – large corporations and rich individuals – are still able to structure tax liabilities with little friction across borders, while governments are largely bound by geographical and territorial borders.

If we want to address the fundamental challenges facing the international tax system today, we need a complete overhaul of the system. We need global innovation. Innovation is needed because old solutions will not do. And global scope is needed because solutions need to encompass all relevant countries and interests, if we harbour any ambition of finding sustainable and lasting answers.

First of all, we need innovation in terms of more and better inclusion of various interests in political decision-making processes. This is particularly relevant at the international level, where the group of decision-makers involved has historically been very narrow.

Our research has shown that a small group of actors play a disproportionate role in international tax policy-making. And that a core group of technical experts contribute to setting a course for regulatory initiatives that widely differs from the perceptions and goals of the general public and of politicians.

International tax policy is very important, and should have broad participation in all phases from the public, from civil society, from researchers, from interest organisations, and from politicians from all sides. This is not the case today. This would improve the quality of the democratic system and the political decision-making.

One model for such an expansion of participation is a World Tax Organisation. Today, taxation is just about the only major global political issue area where we do not have a global organisation with active participation from across the globe, where global challenges can be discussed, and common guidelines can be laid out.

We have a World Trade Organisation, a World Bank, a World Health Organisation, and so forth. But we do not have a World Tax Organisation.

This is not to say that these organisations are flawless, nor that a new organisation will solve all of our problems on its own. It is just one suggestion and just one part of the solution. What such an organisation does provide is a common global forum, where a broad range of issues can be raised and addressed, which simply does not exist in the area of taxation.

The “global” political discussions we have today largely take place in the OECD, the G20 and the EU; they play a key role in setting the agenda.

This makes it difficult for other countries and other stakeholders to join and influence discussions, despite the fact that many of the issues caused by the current international tax system hit emerging and developing countries disproportionately hard.

Without assuming the full design of a World Tax Organisation, we can at least imagine that it would function as a global forum that could take up key questions about international tax policy and tax havens, start political reform discussions, carry out global consultations, set out global guidelines, etc.

A more expansive idea of such an organisation could, like the World Trade Organisation, be entrusted with the power to assess and enforce whether any one country’s tax system would live up to globally agreed minimum standards, in order to ensure that it did not harm other countries with its policies or allow harmful discrimination of certain persons or companies.

In addition to creating a better forum for the negotiation of common ground rules, we also need to rethink how we tax cross-border activities in the global economy of today.

Today, global corporations and rich individuals have particularly large scope to lower their tax bills by manipulating mobile income across borders because our tax systems are still based around outdated ideas of how and where value is created in a global economy.

For instance, a substantial part of global corporate assets today are intellectual property: patents, copyrights, etc. In short: ideas.

In contrast to traditional assets such as factories, ideas and mobile and malleable. Where and when does an idea originate, and how does it create value?

Despite hundreds of pages of guidelines and regulation, multinational companies retain a great deal of flexibility in answering these questions and thus determining the location and size of their taxable incomes.

Large and complex global ownership networks equally allow corporations to move ideas, services and profit relatively friction-less across borders.

This is why taxation of corporations, and individuals, who effectively operate on a global scale, should also work effectively globally.

In the area of corporate taxation, one proposal in this vein is unitary taxation, where global corporations’ taxable income is consolidated at the global level, before it is distributed to each country of operation based on a predetermined formula.

In this way, it becomes far less important where corporations locate their profits, and thus harder to avoid tax liabilities as in today’s system.

In the area of personal taxation, a truly global tax regime might utilise multilateral tax assessments and audits for globally mobile individuals.

Again, these proposals are not silver bullet panaceas that will solve everything in a second. But they may be part of the solution, and they serve as important pointers towards a positive future for tax systems.

In order for these innovations to realistically happen, we also need a complete rethinking of attitudes to national sovereignty.

A key cause of today’s relatively limited international cooperation in tax matters, and of continued resistance towards a World Tax Organisation, is that governments across the world are terrified to surrender absolutely sovereignty over their tax systems.

However, as German philosopher Peter Dietsch has illustrated, international tax cooperation is not about surrendering sovereignty, it is about strengthening it.

Today, we have de facto lost sovereignty when tax havens induce limitations on our economic and political latitude. And yet we refuse to challenge their rights to do so.

Paradoxically, this insistence on the absolute sovereignty of others’ in tax matters thus weakens our own sovereignty.

If we are to achieve the needed global innovation in tax matters, we need to acknowledge that global cooperation provides a unique opportunity to regain lost sovereignty.

Another acknowledgement that is required for global tax innovation is that international tax politics is not a zero-sum game.

Today, many governments resist good ideas for change because they fear an absolute reduction in national tax revenue.

The Danish government, for instance, has expressed skepticism about a common European corporate tax system, proposed by the European Commission, which has the purpose of eliminating many of the most important current channels of tax avoidance used by large corporations in Europe. This skepticism is caused by a fear that Danish tax revenue would suffer due to our small market size.

There are many good reasons to be skeptical of the European Commission’s proposal, but tax revenue fears must be understood in the context of the long list of indirect benefits to the Danish public coffers, which are likely to outweigh any direct, absolute revenue losses. These include administrative cost savings and reduction in tax avoidance.

There are countless examples of hesitation around new political ideas because of this zero-sum mentality in tax matters.

But it is crucial that we view global innovation in tax policy as a unique opportunity to ensure a sustainable international tax system for the future.

Global tax innovation can be a critical way to future-proof our tax systems and thus our public finances. With a typical Treasury expression, the dynamic effects of global tax innovation are potentially enormous.

A World Tax Organisation and a global tax system will not solve all of our problems on their own, but they are a important steps in the right direction – and it is unlikely that we can effectively address our current challenges without effective organisational support and global policies.

However, global fora and global politics of this kind today are also plagued by large inequalities in resources, competencies and capacity between national representations. This will not be solved by establishing a new global organisation or new global policies.

This is why we also need to acknowledge the broader global political inequalities that lead to lack of cooperation, both in terms of a lack of will and in terms of lack of capacity.

For instance, a key reason that many small island states have historically pursued “tax haven strategies” is that they simply have not identified or been able to execute viable alternative strategies for economic development, and that they have been encouraged to do so, for instance by successive British governments.

Another challenge lies in the dominance that large Western states exercise in global politics. They tailor global tax rules to their advantage, while small tax havens and developing countries have almost no influence on international standards and regulation.

This gives substantial incentives to defect and to counteract global cooperation.

The USA, for instance, has played a key role in reducing bank secrecy in Switzerland, but in parallel it has strengthened its own secrecy industry at home, effecting what political scientists Lukas Hakelberg and Max Schaub have called “redistributive hypocrisy”.

We need to recognise and address these types of global political inequalities if the fight for global tax innovation is to succeed.

And there are good reasons for trying to do just that. The Paradise Papers and the increasing public attention to the challenges of tax havens and the international tax system underline the necessity of altering the current political course.

Small “quick fixes” of an outdated international tax system will not do.

We are hoping that the continuing stream of offshore leaks will not just lead to outrage but also to fundamental disruption of our whole approach to questions of global political inequality, globalisation, and, specifically, global taxation.

There is a need for broader and better participation in global political discussions of tax havens and tax systems. A World Tax Organisation would be a great place to start.

And there is a need to move towards tax systems that are truly anchored at the global level in order to deal with global economic activity.

There is also a need to rethink our approach to national sovereignty and to depart from the zero-sum mentality.

And finally, we need to address the global political inequalities that pose such a significant barrier to progress in the fight against tax havens.

If we can begin to move in this direction, just a bit, the future suddenly looks much brighter for the international tax system, for public finances, and for the modern global economy.

Law and morality in the Paradise Papers

Predictably, responses to the release of the Paradise Papers, another leak showcasing the activities of “the offshore world”, has tended to fall onto a familiar continuum.

At one end, there’s the “it’s all about the law” fraction. This group maintains that since the leak reveals seemingly little outright illegal activity, any issues arising from the stories should be taken up with politicians – it’s their job to change the laws, change the system, after all. Most of the people and companies at the centre of revelations have opted for this line of argument. Apple, for instance, said in a statement, “At Apple we follow the laws, and if the system changes we will comply”. Translation: If you want us to change, change what’s lawful. Myself, I had the rather mixed pleasure of being chastised in a major Danish newspaper this week for my comments on the leaks by a tax advisor who suggested that the revelations were a witch hunt given the absence of illegality.

At the other end, there’s the “it’s all about morality” fraction. This group maintains that while few laws seem to have been broken, it is the morality of the revealed affairs that requires scrutiny. The implication here is that the onus of change is upon the taxpayers involved to modify their behaviour. Amongst others, most of the media outlets involved in the Paradise Papers seem to have taken this as their starting point, and that seems to be the line of thought by many in the general public too. Nick Hopkins at the Guardian noted, “Thanks to the Paradise Papers leak, the world will get a chance to scrutinise and pass judgment on the tapestry of schemes and networks politicians say they find so unpalatable – and many ordinary people find offensive and unfair.” Various academics have also highlighted what is, in their view, the positive nature of these morality debates.

Of course, this is a simplistic representations, and there is inevitably other dimensions and a large middle ground, where discussions are now developing on the interplay of law, morality and other dimensions in the Paradise Papers and beyond.

Unfortunately, it seems from my vantage point, this middle ground remains minuscule compared to the outsized presence at each end of the scale, especially in the popular media discussions.

So I want to strike another blow for considering both law and morality in responding to the Paradise Papers.

Why? Because both the “it’s all about the law” and the “it’s all about morality” mantras are letting important issues slip by, and letting those responsible off the hook.

To start, the “it’s all about the law” crowd let taxpayers, companies, celebrities, elites and others involved off the hook. Yes, they may acting in accordance with the law (although lawfulness is usually impossible to ascertain from the documents), but the law is unfortunately not always a fixed and readily identifiable line across which we can easily distribute those in and out of compliance. The letter of the law is one thing, the spirit of the law is another. That is, of course the reason we have legal institutions such as the courts – to make final determinations about legal compliance, and fortunately so.

However, the opportunities to play at the margins of this compliance line are extremely unevenly distributed. For instance, a regular salary-earner (the vast majority of taxpayers in any developed country) has rather limited possibilities to engage in tax evasion and avoidance; most of her taxable income and economic affairs will be subject to third-party or verified reporting, which is hard to abuse. Meanwhile, Nike – a resourceful globally operating corporation with mobile income and fungible assets – has much more scope to engage in such activity. In general, the opportunity for avoidance and evasion is simply highly progressive (the richer, the more opportunity), as illustrated by recent research. As I have also written previously, the legal and institutional framework is the key element in determining whether people comply with tax laws, but other important factors include levels of wealth, tax rates, audit probability, and tax morale – each of which is unevenly distributed across the population of taxpayers.

Moreover, as my own and others’ research has shown, politicians do not have exclusive authority over the content and nature of national nor international tax rules. A range of stakeholders, including those who use the offshore system, play a role in shaping the political discussions and outcomes that support the offshore system in the first place.

In this context, when commentators claim that Nike’s global tax set-up, or the use of offshore investment vehicles, are entirely unworthy of discussion because of their legality, or compare these to an ordinary taxpayer claiming a regular tax deduction, there are good reasons to be skeptical. This ignores the fuzziness of the law and compliance, and it neglects the role of personal and corporate behaviour, and thus responsibility, in the offshore system.

And it ignores the broader societal imperatives at play, and the contemporary context of widespread condemnation of “the offshore”, of inequality, of public frustration, etc. Utilising the offshore system brings additional risk – financial, but also reputational and legitimacy-wise – because it may look off from the perspective of the general public. As I wrote just a few days ago, this increased risk brings with it added responsibility “to address the broader societal concerns, to take them into account, not just in communicating actions but also in assessing those actions in the first place”.

In a similar manner, the “it’s all about morality” crowd is letting politicians, political institutions, international organisations, and also the media and the public off the hook. On the former, it is, after all, indeed the political system which is ultimately responsible and accountable for crafting laws which make it possible to utilise the offshore system. “Tax havens” are notoriously difficult to regulate because of fundamental principles of the international tax order, such as fiscal sovereignty and the collective action problem – but that doesn’t mean we should give up and shift the blame.

Moreover, the “it’s all about morality” crowd is unfortunately also guilty of letting the worst offenders involved in the leaks somewhat off the hook. When the court of public opinion becomes “all about morality”, we risk pooling the very bad with the not-so-bad. The mere use of investment vehicles in the Cayman Islands is chugged in with regulatory arbitrage, tax avoidance, money laundering and outright corruption. Is Queen Elizabeth’s offshore investment as bad as Glencore’s secret loans, in terms of the law or in terms of morality? If so, then by extension almost any cross-border activity involving “offshore” site becomes a no-go. As I wrote the other day,  I do not think encouraging a total shutdown of the Bermudan economy is advisable. That does not mean we should not discuss the impact of such activities but rather that we should not support outright bans of whole countries. I do recognise that many smart people have sought to distinguish between these shades of offshore activity, but my perception is it still does not have sufficient impact to really translate in to the public domain.

We also risk conflating a range of issues when saying “it’s all about morality”. In the case of Queen Elizabeth’s fund, the combination of personal wealth, investments unfamiliar to the general public, and offshore structuring has made for widespread condemnation. Each of these elements are issues that are open for discussion, e.g. in terms of inequality, but to mix them all up creates an unnecessarily neatly pooled picture of what is going on and what is at stake.

Finally, “it’s all about morality” provides a neat excuse for actors to call for rash, politically satisfying initatives, rather than deliberated, effective reform. As Shu-Yi Oei and Diane Ring have argued, recent years’ tax haven leaks have given rise to non-rational responses by political actors. “Quick fix” unilateral action by politicians under pressure, for instance, can undermine broader global progress. The need to do something can overshadow the need to do right. There is also the risk of undermining existing reforms. The recent progress on automatic exchange of tax information, which only started this past September, has rarely been mentioned in the wake of the leaks although it is likely to have a significant effect upon the practices showcased in the media.

Thus, when commentators lump all practices revealed in the Paradise Papers together as equally problematic, there are similarly good reasons to be skeptical. This neglects political responsibility, the very real effects of political (in)action, and the varying relationships of varying offshore practices to law. It also risks undermining actually effective and meaningful political reforms, including those already in place but which we are yet to see the full effect of.

All of this is unfortunate because the Paradise Papers, as with previous leaks, provide unique momentum for real transformative change, which is needed if we are to really get at the issues underlying the revelations. One of the key messages I have tried to convey in the wake of the leaks is that we have still not genuinely tackled crucial questions about how to tax multinational firms in a modern global economy, how to regulate fiscal sovereignty in an age of harmful tax competition, or how to ensure the global legitimacy of tax governance and cooperation.

These are questions that go to the heart of the Paradise Papers revelations, as well as revelations from prior leaks. And these are questions we should be asking these days, while the momentum is there. It becomes difficult to do so if we do not recognise the role of both law and morality because we let those responsible off the hook and we let important issues slip by.

Instead, I think that the best way forward is to genuinely consider the role of both law and morality. And that we consider the fundamental underlying questions that lead to outrage and leaks and political trouble in the first place. That includes paying attention to both political action and behavioural change on the part of taxpayers. It is not possible to bring about meaningful transformative change, I believe, without addressing both norms and politics. And the issues at stake are too important to let those with the power to change the state of affairs off the hook.

So what does that kind of way forward look in practice? I have some ideas. Stay tuned..

ParadisePapers and guilt by association

The new leak is upon us. 13,4 million new documents from Appleby, an upscale offshore service provider headquartered in Bermuda, as well as 19 company registries have provided fodder for politicians, professionals and the public since the stories began to flood in late Sunday night.

Inevitably, the headlines will tell tales of the various offshore activities of the rich and famous, with extensive detail provided by corporate ownership documents, contracts, internal communications, and so forth.

However, the leaks illustrate a range of different activities which might usefully be segmented in terms of both law and broader societal concerns.

At the “very bad” end of the law spectrum, there is likely some outright evasion of taxation or regulation, corruption, and some highly dubious and opaque dealings involving problematic individuals and corporations. Although many more stories are to come, the lack of adequate anti-money laundering management on the part of Appleby points in this direction, as does the secret loans of Glencore, and the case of Mrs Brown’s Boys.

At the other end of the law spectrum, there will be relatively innocuous investments, holdings, etc. Queen Elizabeth’s offshore investment vehicle, for instance, appears in line with common investment practice. (I realise many will say these are not innocuous whatsoever – I’ll pick this up below).

And in between, in the “grey zone”, there will be instances of tax avoidance, structures established in unusual and unexpected locations and manners, secretive ownership set-ups that do not pass the sniff test, etc.

While these different issues vary in terms of their relation to the law, they are bound to be bundled together in stories from and in reactions to the Paradise Papers.

And the reason for that is broader societal concerns. From the perspective of many people, the mere association with “the offshore world” and with Appleby implies guilt in some sense, morally if not legally. No doubt this is partly caused by recent years’ rise in media stories and political rhetoric on “cracking down on tax havens”, which leaves little room for nuance.

But the broader societal perspective is no less important to take into account than strictly legal questions. Here we need to understand the association with Appleby and offshore in the context of the implicit or explicit support granted to “the offshore system” and the large system issues in the international order by such association.

The use of offshore structures bring with them increased risk – reputational risk certainly (as the leaks firmly illustrate), but also risk of exacerbating the problems of the international system (both in terms of tax, economy, investments, etc.) through financial and normative support to those profiting from these problems and/or to the offshore system as a whole, and even to the issues of the global economy as a whole, such as inequality. I stress risk here because offshore structures may well not lead to such a result but nonetheless they maintain the potential for it, even if that is not the intention.

Increased risk implies increased responsibility. In the same way that the corporate tax mantra may not suffice for the public when corporations are explaining their tax affairs, the reference to purely legal compliance (which in itself is difficult to impossible for journalists and others to challenge without detailed insight) may not be sufficient to really address broader societal concerns. There is a responsibility, whether you think it is fair or not, to address the broader societal concerns, to take them into account, not just in communicating actions but also in assessing those actions in the first place.

This responsibility to address claims of “guilt by association” simply comes with the territory of offshore investments. Some may not like it, but that’s reality.

And this responsibility is especially incumbent on high-profile individuals and corporations, who are figures of society, and who play a heightened role in shaping society-wide norms, e.g. the trust and belief in the tax system and the willingness of ordinary people to pay the correct amount of taxes.

And it is also especially incumbent in an era where there is widespread polarisation of debates on tax and the offshore, as well as widespread problems with the international tax system.

The answer to this responsibility, I hope, should not be to avoid entirely engaging with cross-border investment involving “offshore” sites, or to shy away from the discussions entirely in order to shield one self. Encouraging a total shutdown of the Bermudan economy, or a total shutdown of discussions on the offshore, is clearly not advisable. In order to fix the underlying structural issues, we need to continue working towards a better offshore system, better global cooperation, a better international tax system, a better global economy. This may sound like platitudes but really the root cause of many of the issues we are faced with, and the issues people perceive today, run deep.

In the short term, we should be able to move discussions and policy forward by paying attention to and responding to both legal concerns and the concerns of a wider societal nature. We should not accept outright claims of “guilt by association”. But we should also not accept outright claims that this boils down exclusively to an issue of legal compliance.

Varieties of Something

What is a tax haven really (if anything at all)? How can we classify them? And what are the existing attempts at doing so? In connection with a research project, I recently asked for your help in pointing out sources discussing different “varieties” of tax havens, i.e. what different countries “specialise” in. That fostered a series of long and detailed discussions. (Thanks for the comments all.) In this post, I will try to sum up some of the insights and some of my own thoughts on these questions.

What is a tax haven?

Let me start with the first ponder: What is a tax haven really, if anything at all? This is not an easy question. In fact, it is an absolutely grueling question. In popular culture, tax havens are typically thought of as sun-kissed islands full of bankers with money-stuffed suitcases – the Curaçaos and Bermudas of the world. But in reality, the binary “either/or” classification fails to capture the true nuance. As Aisling Donohue noted, “every country has some aspect of their tax regime more favourable than that of others.” And the world of tax havens have changed substantially over the past half century; today, there is more transparency than ever and regulatory reform has fundamentally altered the possibilities for and in tax havens.

Moreover, the act of classification itself – of designating the “tax haven” label to some country – has always been and remains an exercise marked by political inequalities and a fragmented, confused nature. As Allison Christians rightly pointed out, this labeling is almost always a “rich countries deride poor countries” type of dynamic – which is a key reason we typically think of tax havens as these precarious resorts. Blacklisting is a geopolitical power game, an uneven discriminatory battleground that does not recognise the different constraints faced by different countries.

The sheer volume of different “lists of tax havens” or “criteria for identifying a tax haven” is testament to the general confusion around the phenomenon. Today, practically every country, every NGO, and every international organisation has their own unique list with distinct criteria, for different purposes and for different audiences. When asked by a journalist recently for help to identify “the best list of tax havens”, I had to disappoint by pointing out this messiness. The reply came back: “It would be nice if we could just agree what a tax haven is”. Indeed, but alas. In the absence of anything resembling agreement at any level, people usually have recourse to their personal favourite list. This creates significant bemusement and obscures discussion.

(A brief anecdote: When I wrote one of my very first papers at university on tax havens almost ten years ago, my student colleague and I concluded that, “perfect consensus definition is not necessary in order to deal with the offshore world”. This remains true but I have certainly grown more skeptical of how much it actually hinders effective action.)

Is tax havens the right label?

The corollary to the question of what a tax haven really is, is: is “tax havens” even the proper label? While tax-related activities remain a core component of this world, it is equally a secrecy and regulatory avoidance more broadly. (And there are many detailed discussions of this definitional/framing challenge – I refer you e.g. to this piece by Cobham, Jansky and Meinzer). Should we perhaps forget the “tax haven” framing altogether? Should we rather subscribe to alternatives such as “secrecy jurisdictions”, “offshore financial centres” or “uncooperative territories”? I’d argue that these alternatives pose many of the same problems as the tax haven label, although some are certainly better than others. The “secrecy jurisdictions” framing, for instance, comes from the Financial Secrecy Index, which has contributed to dispelling the idea of tax havens as small island retreats, highlighting the problematic regimes of major global powerhouses.

However, the convenience of the “tax havens” label is unparalleled; it has instant and widespread recognition. People know what it is, or so they think. Beyond the specialist audience, the words “tax havens” have a distinct connotation that gives them unique discursive value. The framing is problematic and confusing, but popularly recognisable. As a researcher – and I suppose that goes for stakeholders more broadly – the challenge is to resolve those underlying issues whilst still using the “tax haven” or related concepts, suspect as they may be, and at the same time not feeling bound by popular framing.

Varieties of …?

While keeping these thoughts in mind, grouping or classifying havens through analysis can be of use, though one needs to be very careful in doing so. Perhaps surprisingly, there are very few systematic attempts at divvying up the world of tax havens/offshore financial centres/etc. And those that exist vary widely in their approaches. You can imagine categorising countries in a million ways – by their size, region, service industry, client type, client location, income source, and so forth. In my original question, I had thought of service specialisation, but the ‘varieties’ wording clearly means different things to different people. Let’s look at some of the existing typologies:

Citation Categorisation Examples
Garcia-Bernardo et al. 2017 Global ownership chain position Sinks (e.g. BVI, Jersey, Bermuda) and conduits (e.g. Netherlands, UK, Ireland)
Bruner 2016 Service specialization Insurance (e.g. Bermuda), wealth management (Singapore) and business entities (Delaware)
Sharman 2012 Growth trajectory Leaders (e.g. Cayman), stagnants (e.g. Vanuatu), growing (e.g. Belize), exited (e.g. Nauru), and entering (e.g. Somalia)
Avi-Yonah 2000 Value proposition Production (e.g. Ireland), HQ (e.g. Belgium) and traditional (e.g. Luxembourg) tax havens
Z/Yen Connectivity, diversity, specialty Globally connected, deep and diverse (e.g. Singapore); locally focused, emerging and narrow (e.g. Cyprus)

Most recently, the folks over at University of Amsterdam categorise offshore financial centres (although that definition includes decidedly “onshore” countries such as the Netherlands and the United Kingdom) by their function and position in global corporate ownership structures, as “sinks” (where ownership chains “end”) and “conduits” (where ownership flows through). The former includes the British Virgin Islands, Taiwan, Jersey, Bermuda, the Caymans and other such “tax havens” as popularly understood. The latter, however, features the Netherlands, the United Kingdom, Ireland, Singapore and Switzerland. The UvA paper also contains the geographical specialisation for each of these conduits. For instance, the UK conduits from Europe to Luxembourg and the Cayman Islands, while Ireland is a primary conduit from Japan and the US to Luxembourg. Finally, the paper discusses industry sector specialisation. Here, it figures that the Netherlands specialises in holding companies, while administrative entities are Luxembourg’s metier.

In another relatively recent piece, Georgia law professor Christopher Bruner also categorises offshore financial centres (in the conventional sense of small jurisdictions) based on a number of characteristics, but the one I will highlight here is (service) specialization. Bruner follows six case studies, noting Bermuda as an insurance specialist, Dubai as an Islamic finance specialist, Singapore as a wealth management specialist, Hong Kong as a mainland finance specialist, Switzerland as a cross-border banking specialist, and Delaware as a business entities specialist:


Elsewhere, Cambridge professor Jason Sharman has also categorised offshore financial centres, but based on their strategic growth trajectory in the face of the post-financial crisis tax haven crackdown. He groups countries into five: leaders, stagnants, growing, exited and entering. The leaders, long-standing havens who have fared well in the post-crisis era, include the British Virgin Islands, the Cayman Islands and Panama. The stagnants include Montserrat, the Netherlands Antilles and Vanuatu. The growers include Belize, Mauritius, Samoa and the Seychelles. The exited include Nauru and Niue. And finally the new entrants include Anjouan and Somalia.

A little further back in time, Michigan professor Reuven Avi-Yonah proposed a 3-way typology of tax havens based on their market value proposition. Avi-Yonah distinguishes between production tax havens that attract production investment through tax incentives (e.g. Ireland), headquarter tax havens that attract (virtual) ownership relocation through lax permanent establishment rules or management exemptions (e.g. Belgium), and traditional tax havens that attract mobile capital with low tax rates or secrecy laws (e.g. Luxembourg).

On the quasi-academic front, there is also the Global Financial Centres Index, published twice a year by think-tank/consultancy Z/Yen with backing from the Qatari Financial Centre Authority, which categorises financial centres (not tax havens or offshore centres) based on connectivity (to other financial hubs), diversity (the breadth of service offering), and specialty (depth of service offering). This creates a complex typology, but we can draw out some examples. Singapore, for instance, is a globally connected centre, a leader with a broad and deep service offering. Meanwhile, Cyprus is an evolving, locally focused centre with a narrow service offering.


Finally, there are all the crowd-sourced service specialisations noted by the kind people of Twitter, which has no particular systematic to it. I’ll just list them here for brevity: Jersey – real estate, Bermuda – insurance, British Virgin Islands – banking, Cayman – asset finance, Gibraltar – gaming, Delaware – shell companies, Panama – flags of convenience, Vermont – captive insurance, Ireland – tech giants, Mauritius – Indian/African assets, Cyprus – Russian assets, London – “we have favourable opinions from respected QCs” (I thought that was funny), Nevada – IP licensing, and Netherlands – holding companies.

The takeaway

So what can we take away from all of these typologies? First, while there are problems and absences in each of the analyses, together they allow us to draw out some quite comprehensive descriptions of countries. The Cayman Islands, for instance, features in almost all of the above contributions. Based on that, we can say that the Cayman Islands is:

  • A global corporate ownership conduit, in particular from and to Asian hubs (Taiwan, Hong Kong and China)
  • A leader in the offshore financial services centre pack
  • A traditional/headquarter haven type
  • … with an international (not global) specialisation and a relatively deep service offering, in particular asset finance.

Similar descriptions could be extracted for many other countries. In sum, these “varieties of”-analyses allow us to construct a more holistic picture of the characteristics and specialisation of various tax havens/offshore financial centres/etc. compared to conventional binary labeling.

However, the analyses also illustrate the reflection on structural inequalities and confusion surrounding “tax havens” that started this post. The North v. South or rich v. poor country element is prevalent, as most typologies focus on the latter while rarely reflecting systematically on structural inequalities. When discussing and analysing tax havens, these nuances are crucial to keep in mind if one wants to avoid wholesale propagation of global power and inequality dynamics. While existing “varieties of” can be useful to help us understand certain countries’ make-up, more work is needed that takes account of the dynamics underlying financial and tax-related national and local strategies and how they are shaped by political and economic constraints. And, importantly, what the global effects are. Some “tax haven” activities are more harmful to other countries than others. (On that, I lean towards Peter Dietsch’s ethical discussion of tax competition). The work is definitely cut out for researchers, practitioners and other stakeholders alike. So, I’ll get to work then…

The Great Rise of Corporate Tax Avoidance?

“Perception is reality”. A simple and yet powerful idea.

It came to mind this week after I had conducted a complete unscientific yet exceptionally telling Twitter poll on the evolution of corporate tax avoidance over the past decade. Thanks to those who voted and retweeted.

89%(!) – a crushing majority – of around 1400 voters believe that, in terms of the tax lost to nation-states, corporate tax avoidance has become worse since 2007. Caveats abound – as noted, this is not a scientific poll: it is based on a convenience sample of followers of myself and my followers (in particular barrister Jolyon Maugham, who was the most prominent retweeter of the poll), who I’d wager are, on average, more critical towards corporate tax avoidance than the general population – but I believe nonetheless that it is a useful result for starting a reflection.

One reason why this is a good starting point is that it is backed up by other (and more scientific) work. Corporate tax avoidance has, if nothing else, seemed to get worse to many. For instance, while in 2011 corporate tax avoidance did not feature as a key concern around UK business ethics (per lists published by the Institute of Business Ethics), it has been the top issue every year since 2013. Another recent study has also shown that the public salience of corporate tax avoidance exploded in the wake of the global financial crisis, around the same time as investigative media reports began regularly scathing the tax planning of major multinational corporates like Amazon and Starbucks.

Okay, so attention by the public and by the media to corporate tax avoidance has risen in the past years. That doesn’t mean that corporate tax avoidance actually has risen. Bingo! This is one element that fascinates me about this – there is very little, if any, discernible, tangible, hard evidence to suggest corporate tax avoidance has in fact “gotten worse” in terms of tax lost to nation-states. To the best of my knowledge, there exists no longitudinal academic research that sheds light on the evolution of corporate tax avoidance, in terms of tax lost, over the past decades. (If you are reading this and know of some, please let me know!)

A number of tax administrations publish annual estimates of tax gaps – the difference between the amount of tax that should, in theory, be collected, and what is actually collected – on corporation taxes (thanks to Heather Self for nudging me to include this point). The British HMRC is one such example, with its “Measuring Tax Gaps“. Although I generally believe that most tax administration’s tax gap estimates on corporate tax avoidance are woefully cautious and inadequate (they are generally based on limited random samples or simple models based on immediately available information, and they have strong political motivation to underestimate the problem), at least they are usually consistent over time. In the case of HMRC, their most recent estimates (2016) find that the CT (corporation tax) gap has been slowly declining over the past decades.


More broadly, we have a vast range number of point estimates on corporate tax avoidance, with the OECD’s estimate of an annual global $100-240bn gap probably the most well-known. But in terms of longitudinal academic research, the only even remotely relevant hard indicators we have (that I know of) are studies by Niels Johannessen and Gabriel Zucman and Lukas Hakelberg and Max Schaub, respectively, which both use data from the Bank of International Settlements to investigate the evolution of offshore bank deposits. (I should note that I posted this blog just before Johannesen, Zucman and colleague Annette Alstadsæter published a new paper with more extensive and time series data in this vein.) The former conclude that the international crackdown on bank secrecy circa 2009 had no noticeable effect on offshore deposits; the latter conclude that the second crackdown a few years later had some effect, but only insofar as individuals shifted tax haven deposits to the USA. Importantly, these studies concern bank secrecy and individuals’ bank deposits, not really corporate tax avoidance. There are some arguments that the two might be correlated, but there are also arguments that they aren’t, and once again we have no systematic research to substantiate it either way. In short: we still don’t really know whether corporate tax avoidance has really gone up or down.

In the way of softer indicators, my own research has given some tentative answers. I spend a lot of time interviewing and observing tax professionals – corporate tax advisers, in-house counsel, policy-makers, bureaucrats and others. One sentiment that has been reoccurring is that recent developments, around the world, have effectively addressed many historical opportunities for avoidance – both in terms of purely legal innovations in shutting down loopholes and such, but also in terms of changing conventional understandings of what is and what is not acceptable corporate tax planning. This aligns with the indications given by HMRC above, whose staff of course fall into this category of professionals.

So what are we to make of these huge discrepancies? The general public seems to perceive corporate tax avoidance as a growing problem, media attention and political momentum is up, but research does not offer anything in way of substantiating this perception, and the perception is exactly the opposite among many professionals, who believe that corporate tax avoidance has been addressed effectively (although certainly not entirely).

Clearly, the varying sources of information play a key role. Rising media attention has correlated with political action and public concern, while increasing exposure to regulatory shake-up and criticism quite possibly shape practitioner views. Another factor is likely to be the post-crisis environment, which has been more open for political innovation, new ideas and new villains. But in general the massive divergence in perceptions is a very intriguing and somewhat perplexing state of affairs.

This polarisation of perceptions has a number of key implications. Most immediately, it draws attention to the monumental gap in the academic literature on the evolution of the scope and scale of corporate tax avoidance, where systematic longitudinal research is sorely lacking. More broadly, it has implications for the general debate on corporate tax and potentially for political progress. As I have written elsewhere with Maya Forstater (final paper coming soon), this kind of polarisation of perceptions amongst people is not necessarily conducive towards effective, sustainable, long-term progress in terms of policy and practice. Reality is perceptions, indeed, but massively diverging perceptions (and thus massively diverging realities) can create an unstable, conflictual and potentially counterproductive environment. If we are to really address the current problems in the international corporate tax system, there is a need for fundamental change to perceptions and material realities, which must encompass all relevant stakeholders, both inside and outside practice – and it is doubtful that polarisation of perceptions will contribute positively towards that end.

Taking stock at six months

If you’ve come here for another post about interesting new research on international taxation, I’m afraid this is going to disappoint you.

As I turn the page on the first six months of my PhD Fellowship at Copenhagen Business School (CBS), and as I roll into summer relaxation mode (see you in August!), I wanted instead to take stock of my experience so far and the outlook for the next two-and-a-half years before I (hopefully) finish my dissertation.

I’ll touch upon three topics in particular: Sources of inspiration, work environment, and life as an academic.


A political economist by education, the first things I read back in 2010 about international taxation was focused on “offshore”, texts by renowned scholars in International Political Economy (IPE) such as Ronen Palan and Jason Sharman. Along with fantastic lectures by Duncan Wigan at CBS, the topic really caught my attention. How could small island states with no power, in the conventional sense, play such an important role in the global economy? Palan and Sharman provided (some of) the answers.

As my interest grew, so did the sources of inspiration. Thomas Rixen and Philipp Genschel provided classical political science perspectives on the international tax system, explaining it in terms of rationalist games and state-centrism. Other, more critical scholars, such as Claudio Radaelli, Gregory Rawlings and Michael Webb weren’t mainly focusing on tax or offshore in their research, but had interesting views that stressed more institutional, ideational and transnational power angles. And others again, such as Richard Woodward and Richard Eccleston highlighted the organisational cultures of international organisations involved in regulation the international tax system. I also discovered a host of non-IPE literature on international taxation from law, economics, accounting and sociology.

Later, my eventual supervisors Duncan Wigan and Leonard Seabrooke would provide important inspiration through a fresh perspective on international taxation, stressing the key role of activists and groups of professionals in shaping the international tax system. I built on their work and others to complete my master’s thesis on professional competition in the OECD/G-20 BEPS project.

The point of this listing is to emphasise the stark contrast to what I have been doing for the past six months (and to some extent also before that). While the political economy of international taxation remains my ‘home ground’, the majority of my inspiration since commencing the PhD project has come from sociology.

I have found myself drifting – in terms of my thinking, my readings, my interest – a lot towards sociology, in particular economic sociology, political sociology, sociology of the professions, of expertise, and of knowledge. Questions about the social causes of the economy, political power relations in groups, the dynamics of knowledge-based occupations, and the social context of expertise have intrigued me.

The readings that have most fundamentally shaped my thinking recently have come from Andrew Abbott, the prominent American professions sociologist and proponent of ecological theory and process sociology; Pierre Bourdieu, the famous French political and relational sociologist; and Emmanuel Lazega, another French sociologist working on the sociology of networks and knowledge; as well as many scholars that have contributed inspirational insights building on or challenging these predecessors. Of course, there’s also the true ‘grandfathers’ of the discipline, Max Weber, Emile Durkheim, Karl Marx, George Simmel and others. I want to read more of their original works. While Abbott, Bourdieu, Lazega and others rarely touched upon international taxation, their insights, I believe, are extremely relevant for the topic.

What fascinates me about these sociological works is that there seems to be a greater emphasis on asking interesting questions as opposed to providing the “right” answers (thanks to a colleague in Amsterdam for that particular phrasing). That doesn’t mean sociology isn’t “scientific” nor that political science isn’t “inquisitive” but I sense the balance between the two is different. Political science, in particular the American political science that dominates IPE, has always been more aligned with economics, emphasising quantitative regressions and positivist scholarship.

That’s not to say I haven’t been reading IPE work on tax. Indeed, I have enjoyed (and reviewed on this blog) recent books by Thomas Rixen, Peter Dietsch, Thomas Pogge and Krishen Mehta and Gabriel Zucman. Of course I’ve also read the research of many others that have written on international tax issues. And beyond tax, I try to study broadly, keeping up to date with recent theoretical and empirical developments in the international political economy and other relevant areas.

My aim is, eventually, to bridge the disciplines, bringing perspectives from sociology and political science (and other areas) together in studying the dynamics of change and stability in international tax governance. I truly believe such a program has the potential to foster a better understanding of how and why global economic and fiscal governance structures emerge and transform.


Studying for a PhD can be a lonely endeavor. Most of the time, PhD students are resigned to their own thoughts, in their own world of study. As I was told before I started the project, the biggest challenge of completing a PhD is mental health.

Therefore, I can count myself fortunate to be doing my PhD in a very supportive, collective and caring environment.

Most immediately, the work environment at CBS is fantastic. We have a group of around 15 PhD students at the Department of Business and Politics, who are collegial, social and helpful. I have been able to share frustrations, receive feedback and discuss ideas and progress in a constructive manner. The same can be said of the Department itself, of around 40 researchers, whose camaraderie and feedback continue to help me and challenge me (sometimes also to my frustration). The Department also houses at least six researchers whose main topic of interest is international taxation – it is nice being able to ping-pong with like-minded colleagues on my own topic of interest. Finally, I am blessed with outstanding supervisors, who always open new doors, enabling and encouraging me to do things I would have never thought of.

Beyond CBS, I am part of COFFERS, a European Union-sponsored research program with ten universities and civil society partners around Europe, all focusing on current challenges in international taxation and fiscal affairs. The funding from COFFERS has allowed me to carry out research that wouldn’t have been feasible otherwise, and has also allowed me to meet peers from all around Europe and learn about interesting work done elsewhere.

Of course, I have to mention Twitter as well. Twitter offers a constant stream of new information about tax and research – often hard to keep up with – but it is a uniquely valuable resource in that respect, bringing information to me that I would have otherwise had to dig for. It also provides a forum for discussion and dissemination of ideas and news, where others can comment and discuss my work and thoughts, making learning opportunities possible in a completely open and decentralised manner. It allows me to discuss my views with people I would have never otherwise encountered. 

Most importantly, of course, Twitter supports a broad community of professionals, academics, activists and others with an interest in tax and beyond, of which I am lucky to be a part. #TaxTwitter in particular has allowed me to foster relationships with a range of different people, many of whom I have also fruitfully met in real-life. It has led to many instances of international travel, interviews, coffee, breakfasts, dinners, engaging conversations, even research projects, and of course new ideas.

Finally, this very blog has been a useful outlet. As I am constantly submerged in research and thoughts about tax and other topics, the blog has been a valuable tool to ‘get things out’ that perhaps weren’t specifically relevant to the PhD project, but which were still worthwhile to reflect upon and write down for others to see. The feedback I get on blog posts offers another valuable route to learning and thinking and discussing. But even if no one was reading, there would still be some value for me personally in, simply, writing things down in an informal format.


I want to also note the life-changing experience of ‘becoming an academic’. It entails so much more than merely conducting research, reading and writing. It is a fundamental transformation of life-style.

At first glance, being an academic entails more ‘freedom’ than most people have in their jobs. Although the extent varies, academics generally play a more significant role in determining their own tasks, their own topics of work, and the design of their workdays, compared to most other occupations. However, that degree of freedom requires correspondingly more self-organisation, a challenge in itself which is compounded by the aspirations held by most academics to, essentially, change the world. Whilst juggling administrative duties, teaching, supervision and so forth, finding the time to ‘make your mark’ can be difficult. Of course, as a PhD student I am able to prioritise ‘making my mark’ more than most academics, but there is still no escaping perpetual self-doubt (“am I doing enough?”). Constantly surrounded by and reading people who are doing exceptional work, the ‘imposter syndrome’ is never far away.

Being an academic also requires adjustment to an entirely different ‘game’ than is played in other workplaces and occupations. “Publish or perish”, as they say, there is a tacit and also explicit requirement to get published in the right journals, bring forward groundbreaking new ideas, get cited, get funded and so forth. Again, I am in no position to complain about this; as a PhD student, in particular as a recent one, I am spared from most of these demands (for now). But socialisation into academia means these thoughts are inevitably on my mind, and it is important to learn to deal with them. I have already experienced the disappointment of a rejected journal submission after a revise-and-resubmit, a well-known irritation to established researchers.

At the more practical level, my everyday as an academic is wildly different from my previous jobs. Most of my time is spent reading and thinking by myself, with department meetings, interviews and fieldwork, data analysis and conferences sprinkled in. My research is rather ‘outward oriented’, in the sense that I spent quite a lot of time with fieldwork, interviews, and conferences, but it remains a fraction of my overall work life.

Taking stock

Taking all of these new benefits and challenges into account, I am happy with the progress I have made so far. Since I started my PhD, I have read countless pages of research, conducted around 25 structured interviews and roughly 150 hours of field observation, presented my research at seven different events and workshops, and finished one training course. And, aside from the journal rejection, I have submitted another journal paper and completed first(!) drafts of three more papers/chapters, with lots of other scattered writing. Most importantly, I have learned a lot and met many great people. I hope that continues.


Why do people evade taxes?

A much talked-about recent paper by economists Annette Alstadsæter, Niels Johannesen and Gabriel Zucman has re-ignited popular attention to tax evasion and inequality.

While discussion of reliability and methodology have prevailed in some corners of social media, the broader questions raised by the fascinating new study should remain at the fore: Why do people evade taxes? Who evades taxes? How can they do so? And what are the effects – on our societies, institutions, political systems, and so forth?

In this post, I will look at what the existing academic literature has to offer on these questions related to tax evasion, in particular the former: Why do people evade taxes? And I’ll zoom in on how recent contributions, such as that by Alstadsæter et al. and others, adds to this scholarship.

What shapes tax compliance?

Existing work on tax compliance is abundant, in particular within behavioural economics, sociology and psychology (see reading list at the bottom of the post). This scholarship has highlighted five central factors that particularly shape tax compliance in the national context:

  1. Levels of wealth
  2. Tax rates
  3. Audit probability and penalty
  4. Tax morale
  5. Institutional environment

Firstly, wealth typically enhances the probability of tax evasion. Wealthy people simply have more ability to evade. They have more and more flexible sources of income, allowing for manipulating and escaping of national regulatory and administrative powers. Think of the Ultra-High Net Worth Individual (UHNWI), who can offshore his financial assets and the accruing gains or move artworks stealthily across the globe – as opposed to the carpenter or teacher, whose main income (salary) is typically taxed at source.

Second, relatively higher tax rates foster relatively more evasion. Because taxes are often perceived as an undue burden (rightly or wrongly), the willingness to evade rises with the tax burden. As I have written elsewhere, this is extensively discussed in the economic literature. Even though taxes also pay for public spending (the fiscal coin), there may be a reasonable expectation by wealthy taxpayers that any evasion on their part will not lead to a deterioration in public spending in relation to the public goods from which they benefit, or that the benefit received from corresponding taxes simply does not provide sufficient value.

However, it is worth noting that it is mostly large differences in tax rates, and at the margins, that foster tax evasion. As an indicator, a number of experimental studies have found that increasing tax rates e.g. from 30% to 50% had little or no effect on compliance, whereas raising from 5% to 25% or from 5% to 60% does have an effect. Related, recent economic modelling on optimal corporate tax rates also suggest that only very high tax rates inhibit growth.

Third, potential tax evaders assess the risk of getting caught through audit probability and penalties/punishment, adjusting their behaviour accordingly. If a taxpayer perceives a high risk of being audited (and thus caught) and/or a substantial penalty (economic or personal), they are simply less likely to engage in tax evasion. This is as much about the perception of audit risk and penalties (which can be fostered in various ways) as it is about the actual probability of audit and penalty.

Fourth, the individual taxpayer’s tax morale is a decisive factor in tax compliance. Tax morale encompasses the social and cultural norms, and individual allegiance hereto, shaping compliance motivation. Tax morale itself is a highly complex phenomenon, dependent on a host of factors. The ‘morale fibre’ of each individual – the dispositions one is ingrained with given a life history of events and perceptions – is obviously instrumental. The extent to which people perceive taxes as part of a valuable quid-pro-quo is also central. As noted above, when the cost of taxation is viewed as too high compared to the benefits received, people are more likely to engage in evasion. Finally, the social environment matters: where people trust each other and perceive high tax morale in each other, it will deter evasion.

Fifth, the institutional environment determines the taxpayers’ willingness and ability to comply. Formal (such as political organisations) and informal (cultural ‘rules of the game’) institutions associated with the tax system shape tax compliance. On the former, trust in public institutions is a well-known determinant of taxpayers’ willingness to pay; if we trust our democracy, if we perceive the tax system as fair, if we believe the political system is efficient, we are more likely to pay our taxes. This is why revelations of corruption or scandal are likely to negatively affect tax morale. For instance, in the Danish context, recent revelations of massive dividend withholding tax fraud have been found to harm societal tax morale. On the latter, socio-economic and psychological factors can help explain tax morale, such as interpersonal trust and belief in fiscal cost-benefits.

Recent contributions 1: Tax evasion and inequality

Now let’s circle back to the first paragraph of this post: the new Alstadsæter-Johannesen-Zucman paper. This is a contribution mainly to point 1 above, i.e. levels of wealth as a determinant of tax evasion. But it also raises questions more broadly about the structure of evasion and the effects on our societies. There have been plenty of media stories about the paper, so let me just highlight three particularly relevant contributions in the context here:

First, the AJZ paper illustrates the progressiveness of tax evasion by wealth more clearly than perhaps any paper before it. Using data from the HSBC SwissLeaks, Panama Papers, Swedish and Norwegian tax amnesties, as well as data from the Scandinavian tax administrations, they show a remarkably clear trend of increasing probability of hidden funds (which are likely to correlate with evasion, although this is an assumption up for challenge) with wealth. It indicates that it is the utmost wealthy, in particular the top 0.01% (owning more than $40m in assets), that evade taxes via offshore structures (which is likely to cover a similarly increasing proportion of evasion mechanisms by wealth due to fluidity of income and assets, as noted above).

Second, the paper indicates that tax amnesties may be a more effective tool to combat tax evasion than previously thought. While tax amnesties are typically criticised for merely offering a one-time free lunch to wealthy tax evaders, the study finds that tax amnesties in Sweden and Norway have had positive, lasting effect on tax payments, and reported wealth and income, by taxpayers using the amnesty. However, it is important to caution the interpretation with some key points. Firstly, the data utilised here relates largely to the mid-2000s, where we did not have FATCA, the CRS, or today’s levels of international tax administration cooperation. The presence of new modes of information exchange are likely to squeeze scope for tax evasion (and avoidance) by wealthy taxpayers, thus potentially eroding the benefits of tax amnesties. More broadly, while tax amnesties may have a positive effect on the tax compliance of individuals with a history of evasion, we know little about its societal effects. From the literature reviewed above, we might hypothesise that the presence of amnesties deteriorates trust in political institutions, belief in a fair tax system, and perceptions that others are compliant – all of which would decrease societal tax morale.

Third, AJZ touch upon the implications of their findings, in particular as it relates to inequality. Ever since Piketty, inequality has been at the top of national and global political agendas. This paper, alongside other work by the authors (and others), shows that unrecorded offshore wealth substantially skews national inequality and tax burdens, leaving national statistics incomplete. The paper estimates that the top 0.01% hide about 25% of their true wealth, and that counting hidden offshore wealth increases the wealth share of Norway’s top 0.1% from 8% to 10%. You can easily imagine what this does to national (and global) inequality statistics. Given that tax compliance is generally higher in Scandinavia than anywhere else, it is likely that the inequality skew shown from Scandinavian data provides a lower bound for the rest of the world.

Recent contributions 2: Comparative experiments in tax compliance

Another stream of scholarship that has contributed important recent insights is comparative experimental work on tax compliance. This scholarship provides insights mainly for points 4 and 5 above, i.e. tax morale and institutional contexts of tax compliance. Here I’ll highlight recent work by a group of mainly Italian-based scholars, with two recent pieces (1, 2), though I must also mention that my colleague at Copenhagen Business School, Alice Guerra, has embarked on a fascinating 2-year post-doc project to build on and strengthen this line of work. Using controlled experiments involving Italians, Swedes and Britons, the Italian-based scholars are able to gauge differences in tax compliance and its sources across national contexts. Here I’ll highlight two particularly relevant contributions for this context:

First, while Italians (and Southern Europeans more generally) are typically viewed as having low tax morale compared to Britain (Northern Europe) and in particular Sweden (Scandinavia), the studies in fact showed surprisingly little variation in the intrinsic motivation of subjects to comply, when facing similar circumstances. In fact, Italians were even showed to have higher propensity for tax compliance than Britons given identical institutional environments (simulated in the experiments). This is despite consistent measures of relatively lower trust and honesty (factors that we would think lead to higher evasion) in Italy, and a general perception of Italians as less moral. This indicates that it is not, as conventional wisdom holds, the lack of intrinsic motivation on the part of Italians that hinders tax compliance.

Second, the national “style” of evasion is important in determining tax compliance. While Swedes for instance are more likely to comply in full than Italians, they are also more likely to not comply at all. It seems that in Sweden, there is a “either or” dynamic to tax evasion. In Italy, in contrast, there is a much more significant propensity to fudge (i.e. “cheat by a small amount”). Although the overall effect is that Swedes and Italians’ tax morale is relatively similar, the structure of national tax morale varies significantly.

Policy implications

While these studies and all of their contributions are valuable in themselves, enhancing our understanding of tax compliance and evasion, we would be foolish not to look at potential policy implications. I would not recommend full regulatory overhauls based on individual studies, but taken in context of wider bodies of literature, we can sketch out some preliminary lessons.

From the tax evasion and inequality literature, it is clear that tax administrations and legislators must pay particularly close attention to evasion by wealthy people, designing and implementing targeted policies to combat offshore evasion. This realisation has not been lost; it is behind much of recent years’ surge for automatic exchange of information and tax transparency at the global levels. The emergence of FATCA and CRS, while shortcomings remain, are likely to make a substantial impact on offshore tax evasion by wealthy individuals, deterring some avenues of evasion whilst channelling illegal activity toward other vehicles (such as trusts), where new regulatory innovation must then focus accordingly.

It also points to tax amnesties as a potentially useful tool to instil lasting tax compliance in prior evaders. However, this must be balanced against any deterioration in wider societal tax morale due to perceptions of injustice. Perhaps a useful approach would be to utilise the revenue brought in from tax amnesties specifically to raise societal tax morale, such as via broad-based campaigns or strengthening the integrity of public institutions.

Finally, there is a need to recognise shortcomings in national wealth and inequality statistics. Putting offshore wealth in the spotlight provides an opportunity to gain a more real picture of inequality and wealth in national and international contexts, which should be to the benefit of polities and citizens alike – no one is better off with continuing concealment of actual wealth distributions, except for tax evaders.

Based on the experimental tax compliance literature, we would do well to start questioning prevalent narratives of a “moral North” and an “amoral South”, certainly as it relates to tax compliance. Italians are no less willing to pay taxes than Britons or Swedes.

Rather, recent studies tell us that we should focus on the institutional context in which tax compliance happens. There is no denying that tax evasion is more widespread in Southern Europe than in Northern Europe, but the literature indicates this is not due to varying individual intrinsic motivation. Instead, there is a need for policy-makers to focus on implementing policies that eliminate formal opportunities for evasion. As an example, 95.9% of Danish personal income taxes are levied based on third party reporting (from banks, employers, unions, etc.). This makes it difficult to evade taxes. Similarly, the development of expansive networks of automatic exchange of tax information is likely to contribute to this end.

Finally, we must recognise the differing national “styles” of tax evasion. For instance, given that tax evasion for Swedes is very much an “either or” question, there is a need to focus deterring efforts on the initial decision to evade or not, as compared to Italy where focus should rather be on the culture of “fudging” (‘cheating a little bit’). This may foster differing policy initiatives that emphasise intensive and extensive decisions to evade taxes, respectively.

As a very last note, I must also emphasise that, although tax evasion is certainly a serious problem in many countries, North and South, as evidenced by the literature reviewed here, all the studies discussed here found that most people are honest and want to pay their taxes correctly. While Alstadsæter, Johannesen and Zucman estimate that many of the wealthiest taxpayers hide substantial fortunes offshore, most taxpayers clearly did not. The cross-cultural experiments also found that the vast majority of people genuinely do not look to evade taxes, (almost) no matter the circumstances. This is a lesson not to be forgotten.

Reading list on tax compliance

Alm & McKee, 1998. Extending the Lessons of Laboratory Experiments on Tax Compliance to Managerial and Decision Economics. Managerial and Decision Economics, 19(4/5): 259-275. Link.

Cullis, Jones & Savoia, 2012. Social norms and tax compliance: Framing the decision to pay tax. The Journal of Socio-Economics, 41(2): 159-168. Link.

Cummings, Martinez-Vazquez, McKee & Torgler, 2009. Tax morale affects tax compliance: Evidence from surveys and an artefactual field experiment. Journal of Economic Behavior & Organization, 70(3): 447–457. Link.

Fonseca & Myles, 2012. A survey of experiments on tax compliance. HMRC Research Report 198. Link.

Hashimzade, Myles & Tran-Nam, 2013. Applications of behavioural economics to tax evasion. Journal of Economic Surveys, 27: 941–977. Link.

Onu & Oats, 2016. ‘Paying Tax Is Part of Life’: Social Norms and Social Influence in Tax Communications. Journal of Economic Behavior & Organization, 124: 29–42. Link.

Pickhardt & Prinz, 2014. Behavioral dynamics of tax evasion – A survey. Journal of Economic Psychology, 40: 1–19. Link.

Torgler, 2002. Speaking to Theorists and Searching for Facts: Tax Morale and Tax Compliance in Experiments. Journal of Economic Surveys, 16(5): 657-83. Link.

Torgler & Schneider, 2007. What Shapes Attitudes Toward Paying Taxes? Evidence from Multicultural European Countries. Social Science Quarterly, 88(2): 443–470. Link.