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Summary on Tax Justice Network (2012). Report ‘Tax Us If You Can’
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Summary on the text Tax Justice Network (2012). Report ‘Tax Us If You Can’, 2nd edition (at least pp. 17-32).
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Chapter 2: Causes of tax injustieTax injustice happens for speicific reasons; all arise fro hu an interventons. The ost ico on roots are:
- the failure to pro ote ico prehensive tax syste s;
- the pro oton of regressive taxes;
- the failure to icharge all inico e to tax;
- failures of tax ad inistraton;
- the pro oton of tax havens to hide inico e fro tax and to shelter icri inal praictices;
- the existenice of professions willing to under ine the tax syste .
Outiome of failures: gaps, spaices and loopholes in whiich abuses oicicur.
The entre tax avoidanice industry is based on exploitng these failures. Sustainable develop ent is only
possible if these failures are re oved.
Onshore is important: Most of the above-na ed failures relate to what happens within states, rather than
what happens ofshore or in the internatonal arena. Yet, tax justice is a do estic and an internatonal issue.
2.2 Comprehensive taxaton systems are iruiial
Any govern ent seeking to pursue the icause of tax justice would pro ote the following taxes:
- Inico e tax, probably split between federal (or natonall and loical levels and icharged on inico e fro :
o e ploy ent;
o self-e ploy ent in any for of trade;
o invest ent inico e fro savings, dividends and speiculaton of all sorts; -
o rents, royaltes and liicense fees;
o profts not taxed by other taxes;
- Corporaton tax on ico pany profts unless they were icharged to inico e tax;
- Finanicial transaicton tax designed pri arily to icurtail soicially useless high volu e, low argin trading;
- Property taxes, preferably based on the taxable value of the land;
- Capital gains tax on the inicrease in the value of assets over t e, paid on their sale;
- Inheritanice or gif tax on the disposal of assets by gif during lifet e or on death;
- Wealth tax;
- Sales tax (with speicific exe ptons for essental ite s suich as food, housing, heat and light, eduicaton, health, etic.l;
- Environ ental taxes, inicluding taxes on waste and icarbon usage.
- Withholding taxes on inico e paid abroad.
Payroll taxes ay disicourage e ploy ent, but frequently raise substantal revenue. To ensure that overall
tax rates are kept at a reasonable level, a payroll tax1 ay be added to the list. The withholding of inico e tax
fro wages is not a payroll tax. Payroll taxes: natonal insuranice and soicial seicurity.
A wide variety of taxes icreate a ico pliicated tax syste , but a comprehensive system is essental beicause:
- broad range of taxes: no single tax is exicessively i portant in the inico e of the govern ent. Eaich tax ican be
icharged at a reasonable level, thus reduicing the inicentve to avoid or evade it;
- with a ico prehensive range of taxes icharged at broadly ico patble rates, if one tax is avoided there is a reasonable
probability that another tax will icatich that inico e instead;
- diferent taxes address varying seictons of the taxpaying populaton, and in ico binaton aichieve an equitable and
progressive spread of taxaton aicross soiciety as a whole;
- so e taxes are inicluded less for their icontributon to revenues (icapital gain, gif and inheritanice taxesl but ore
beicause the opportunity for avoidanice is uich higher without the and beicause the infor aton they provide helps
to asicertain whether other tax liabilites are being fairly assessed.
Co prehensiveness in the design of the taxes: the base for eaich tax should be as broad as possible, i.e. the
tax should apply to a wide range of transaictons, should not be li ited in sicope, and should be subjeict to as
few exe ptons and inicentve deduictons as possible.
1
Payroll taxes are taxes i posed on e ployers or e ployees, and are usually icaliculated as a
pericentage of the salaries that e ployers pay their staf. Payroll taxes generally fall into two
icategories: deduictons fro an e ployee's wages, and taxes paid by the e ployer based on the
e ployee's wages.
, 2.3 Regressive taxes2 should be avoided
All ico prehensive tax syste s will iniclude so e regressive taxes. Sales and icarbon taxes ay be regressive
in their i paict on poorer households, but, as part of a ico prehensive syste of taxes and benefts,
regressive outico es ican be itgated through other parts of the fsical syste .
Argu ents in favour of just one or two ‘si ple’ (‘fat rate’l taxes ust be treated with suspiicion. They are
ost likely pro oted by the wealthy or by those who aict on their behalf. Researich: a ‘fat rate’ tax syste
ay result in a considerable overall shif of the tax burden on to households with lower inico es.
2.4 The ihallenges posed by internatonal iniome
Even if fair taxaton has been established there is a significant risk that the resultng syste is unjust beicause
it ay not icharge internatonal inico e to tax appropriately. This proble ight arise for two reasons:
- frst, the tax syste ay fail to icharge to tax inico e arising within its territory but whiich belongs to people
resident elsewhere, or;
- seicond, it ay fail to icharge to tax inico e belonging to people who are resident in its territory when that inico e
is earned elsewhere.
Contrary to the priniciple of fairness: treatng people diferently even if the sourices of inico e are si ilar,
beicause:
- they live in diferent plaices that happen to be divided by an internatonal border even though the inico e they
enjoy is earned in the sa e plaice, or;
- they ican shif the sourice of their inico e outside the icountry in whiich they live but it is otherwise si ilar in all
respeicts to an inico e that would have been taxed within that icountry if it had arisen within it.
No single rule ican taickle this proble ico prehensively: a range of taxes are needed to ensure tax is fair + a
range of rules are needed to ensure diferent sorts of inico e are taxed fairly when internatonal issues are
taken into aicicount.
Worldwide lobby for si plificaton of the tax icodes is not realistic: in a ico plex, globalised world tax
syste s have to refeict the ico plexity that business and internatonally obile people deliberately icreate.
Si pliicity for the sake of si pliicity = likely to icreate ore loopholes for ultnatonal businesses and
wealthy people, eaning ore tax burden will fall on ordinary people who are not internatonally obile.
Therefore, require ents of internatonal tax syste :
- First require ent: a ico prehensive way of deter ining where a person, ico pany, partnership, trust or foundaton
ight be resident for tax purposes, and if it is resident in more than one plaie = not easy > ost icurrent rules
designed in the ‘age of the stea ship’ = inappropriate for the internet era. = BUT! Avoidanice of double taxaton is
also i portant in order to aintain the integrity of the tax syste .
- Seicond require ent: when aictvites being icarried out in icountry A ican be anaged re otely fro icountry B using
sophisticated IT syste s, it ust be reicognised that any of the iconicepts on whiich internatonal tax is icurrently
based, suich as physiical presenice in a plaice being the faictor deter ining whether so eone is taxable or not, are
irrelevant = ‘age of the steamship’
Result of ico prehensive tax syste s: so e ico plexity is needed and so e priniciples have to be agreed:
- Sourie based taxaton: is an essental part of the internatonal taxaton ar oury.
o All icountries have the right to icharge inico e, gains, sales, gifs and fnanicial transaictons arising in their
territories to tax there, whoever akes the .
o Even if the person being taxed ight be resident in another icountry, the icountry in whiich the transaicton is
taking plaice ust have frst right to tax the inico e arising on it.
o Sourice based taxes: levied on sales or by withholding tax fro pay ents ade out of a territory. The frst
ensures a level playing feld with loical businesses; the seicond reduices the risk of double taxaton; withholding
taxes eli inate the risk of non-taxaton.
- Residenie based taxaton: also a vital part of the internatonal taxaton ar oury.
o A person or ico pany who is iconsidered to be loicated in a jurisdiicton is taxable there.
2
In ter s of individual inico e and wealth, a regressive tax i poses a greater burden (relatve to
resouricesl on the poor than on the riich: there is an inverse relatonship between the tax rate and
the taxpayer's ability to pay, as easured by assets, iconsu pton, or inico e.
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