Tax Analysts Blog

A Moral Obligation to Aggressively Lobby

Posted on Mar 1, 2013

In the United Kingdom a great debate is taking place about aggressive tax avoidance. On one side, David Cameron, the Conservative prime minister, says it is immoral. On the other side, most executives say they have a duty to their shareholders, and most practitioners say they have a duty to their clients, to minimize taxes as long as they do nothing illegal. As one UK accountant is quoted as saying: “Directors have a fiduciary duty to minimize tax bills provided they are acting ethically and not inviting legal or other enforcement risks.”

There is little doubt that over the last few years multinational businesses have achieved unprecedented tax savings through their tax planning. An OECD report released just last month stated: "A number of indicators show that the tax practices of some multinational companies have become more aggressive over time, raising serious questions about compliance and fairness issues. (p.49). In the UK, press reports about low levels of tax paid by Google, Amazon, and Starbucks have stirred up an uproar among the public that is hard pressed by the government’s austerity measures.

Despite the tremendous benefits it is getting from gaming the system, I have to side with business on this particular issue. As a practical matter, how on earth are tax directors supposed to conduct their affairs except by reference to the tax law? Why did we spend decades developing all those statutes, regulations, rulings, and court decisions anyway? Is there some set of shadow statutes out there that can tell them they are being a little too aggressive? And even if corporate officers had some moral qualms about paying too little tax (which they shouldn’t because it violates their responsibility to shareholders), are they supposed to sit on their hands while their competitors help themselves to generous tax relief?

If government thinks business is not paying enough tax, it is up to government to write tougher tax law. Plain and simple. I agree with Ernst & Young's Mark Otty who commented in response to Parliamentary criticism: "stop banging on about morality and change the law." Representatives of the Big Four accounting firms repeated this argument when they testified at a parliamentary hearing on Jan 31.

Now we come to the main point of this post. The problem is not that business is not complying with the law, but that it has undue influence in shaping the law. In the United States businesses endlessly and aggressively lobby Congress when it writes statutes and--much less well known, but perhaps more importantly--they lobby the IRS and Treasury when they write regulations implementing those laws. It is the relentless lobbying of transfer pricing rules and of anti-abuse rules of Subpart F that has created the myriad loopholes that make widespread offshore tax avoidance possible.

When government is making law, it must be fully cognizant that business lobbyists—and, in the UK, business representatives that sit on advisory committees—do not always have the public interest at heart. When the public interest and business interest are in conflict—and they often are—business has a moral obligation to put its own interests over that of the public. The same duty to shareholders that applies at corporate headquarters when they are minimizing taxes through expert planning applies just as well when they are on Capitol Hill minimizing taxes with expert lobbying.

As the United States tax-writing committees appear to be gearing up for a major tax reform effort, legislators and their staffs must be careful not to get too chummy with the business lobby. That does not mean they should be hostile, but just recognize that everybody has a role to play, and that business and their army of lobbyists, if given half a chance, will gladly let Congress write bad tax law if it helps them increase their profits. It is, after all, their duty.

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