When we started the Responsible Tax project I characterised the tax debate as being “men on Mountaintops with Megaphones” – people shouting views from their supposed positions on the moral or intellectual high ground with little or no constructive dialogue.

Early changes in tax policy and practice

Since then, things have moved on. People have started to climb down from their mountain and discussion is taking place. In the meantime the “activists” have been successful in motivating changes in tax policy and practice (most of it, though not all, good) and the business community has largely understood the need to adapt to a new, more tax sensitized and transparent world. However, when it comes to the serious debate about how tax policy and practice needs to evolve to meet the future needs of society, especially (but not only) in the developing world, it sometimes feels as if on the journey down the mountain we have hit a bank of fog.

Potential societal impacts

In this fog bank it seems very difficult to find the facts that are necessary for us to understand how the current tax system really works or how potential changes could impact society, either in terms of the revenues collected or in wider economic or social terms. Questions typically follow the same themes: competitiveness and the use of tax incentives, avoidance and evasion, and the role of different taxes. From a tax competitiveness perspective, if you reduce tax rates in a country does it increase or decrease the total tax collected and how does this impact surrounding countries (the “race to the bottom” argument)? If we are looking at evasion, what is the total amount of tax evaded and who is doing the evading – the globally mobile rich and/or the traditional shadow economy? Are multi-nationals really engaging in “transfer mis-pricing” to the detriment of developing economies or do the supply chain economics limit the profits allocated to these countries under existing transfer pricing rules? And finally, what is the impact of tax reliefs and incentives both on investment decisions and revenues collected and what evidence is there that they are abused? How do different kinds of taxes impact the economy and who ultimately bears the burden of these taxes? Can “sin” taxes work to change undesirable behaviour and collect sustainable revenues at the same time? I appreciate that some of these questions are not that easy to answer. There are lots of research papers and points of view out there, but sorting through them and making sense of it is all is very hard. What I do know, however, is that a lot of what is said in theory does not reflect my practical experience in the field.

This problem is not exclusive to the discussion on tax. On many subjects similar problems exist – too little fact, too much opinion. Experts who won’t express a view and “experts” who aren’t expert. “Us” and “them” moral positioning. The analysis of data and the use of statistics to prove anything someone wants to prove. And all of this resounding around an echo chamber in which the origin of a “fact” is lost and misunderstandings and hypotheses turn into “truths”.

Towards more trust and transparency in the tax system

From Responsible Tax discussions to date it seems to me that the participants share the same general objective, which can be characterised as the drive to ensure that there is trust in the tax system. There are several elements to this. Trust that the tax system will support public and private investment and development. Trust that the system will help support the poorest and neediest and allow the hardworking and entrepreneurial to feel the rewards of their efforts. Trust that taxpayers large and small will be treated equally fairly and that the tax they pay will be spent wisely for the good of society.

There was some discussion of this lack of understanding in our recent Responsible Tax roundtable in Denmark. As usual, our roundtable included people from a variety of stakeholder groups. There were themes relating to transparency and trust for us all to reflect on.

  • The calls for tax transparency from multinational businesses continue. It is likely that there will be a requirement for BEPS Country by Country reporting figures to be made public at least in some jurisdictions. However, there may well be a need to protect information which is sensitive from a competition perspective and even if this is not the case everyone appreciates that this data is not necessarily a good guide to an understanding of a group’s true tax position. Indeed, this information, particularly if it is subject to simplistic analysis may lead to even further confusion and distrust of both taxpayers and tax authorities. Given that this is the case, groups who haven’t already done so should be thinking about how they can provide meaningful information.
  • It can be difficult for tax authorities to talk publicly about their work; it is not their job to take political positions and they have an important duty to respect the confidentiality of taxpayer information. However, it would be helpful if tax authorities either individually or as a group could be more open about some issues; for example the impact on investment and tax collected of key exemptions and reliefs, the allocation of the “tax gap” to different activities (corporate tax avoidance, individual evasion and non-compliance), summary findings from transfer pricing audits.to allow greater understanding of how transfer pricing is working in practice.
  • We need more expert views. In particular, we need more economic analysis. For example; it if often said that corporation tax is preferable to VAT because the former is progressive and the latter regressive. Is this actually the case? How do international trade flows actually work and what impact to tax rates and reliefs have on investment. Also, experts from the business world, including advisors, are often reluctant to express a view or even enter a debate for fear of being charged as being self-interested or arrogant. Somehow, we need to be able to allow these expert opinions to come through.
  • NGOs and lobby groups must take responsibility for the accuracy of the data they present and the way information is used. We have seen too many examples of inaccurate, misleading or misunderstood data being recycled and presented as fact. Attention grabbing headlines may have been effective in achieving some necessary change but the use of overly emotive words backed by misunderstood or misleading “data” cannot be the way forward and destroys trust where it is most necessary to build it.
  • It is difficult to control what is said on social media except by participants taking personal responsibility and understanding that their messages can be picked up and used out of context. The mainstream media also need to take responsibility for checking their facts when repeating these messages and for ensuring that the “experts” they are relying on really do have command of the fact.

The road ahead

There is no doubt a challenging road ahead. We have already proven that we can put down our megaphones and make our way down from mountaintops. KPMG’s Responsible Tax project and our Principles for a Responsible Tax practice is one of the ways we are doing this. I am hopeful that with fact and intelligent dialogue we can cut through the fog and let the light back in.