On 26 January 2016, I had the pleasure of joining a panel discussion in De Balie in Amsterdam. The theme of the evening was the present debate on aggressive tax planning and the widespread loss of public confidence in the international tax system. The keynote speaker was John Christensen, who is basically the CEO of the Tax Justice Network (TJN). Various NGO’s, academics and a leftwing euro-MP also graced the stage.*
The speakers covered various facets of the tax debate: BEPS, the Netherlands (which may or may not be a tax haven), the publication of tax rulings, Antoine Deltour (the LuxLeaks whistleblower who is facing jail time), State aid, developing countries… I’m not convinced that we were the hottest gig in town, but the venue was sold out and the bar was busy afterwards.
Democratising international tax
It was refreshing to have a debate on a specialist topic like international taxation with people who do not come from a traditional tax background. Having public scrutiny of the taxation of multinationals and other powerful parties is essential in any serious democracy. Corporate tax structures have not previously been at the forefront of public debate. Isn’t it interesting then, that now the issue has been put under the spotlight, the general public has basically gone bananas? There is clearly a gap between the expectations of the public and the reality of tax. This gap needs to be closed.
In the BEPS debate, everybody has a role. We have the villains (big business and States), the heroes (NGO’s and the OECD) and Margrethe Vestager hovering above the discussion like a Danish Archangel of Death (I do actually mean this in a nice way). As for the tax profession, it is hardly possible to overestimate the extent of public distrust and disdain. Whilst this is not entirely without grounds, there is one uncomfortable truth: we do actually need the tax community. This is because most of the work done by tax people is basically jazzed-up compliance: doing the tax returns, submitting bits of paper, transfer pricing documents, ensuring taxpayer compliance with difficult and ever-changing rules, figuring out what those rules mean and preventing companies from breaking them. Without people to study, interpret and apply tax rules, there is no tax system.
Positive attitude or dragging the feet?
I believe that the attitude of the tax community in the coming years can make or break BEPS. Why? Well, because once the statutes and treaties have been signed and the politicians have gone home, it is the tax people who will have to put these rules into practice. They must breathe life into the legislative framework set out by BEPS. I’m thinking of the practitioners and the tax authorities, tax scholars, and of course of the judiciary. Tax law is a living entity which does not rely solely on written text. Other factors also come into play, such as (unwritten) principles, general anti-abuse doctrines and methods of legal interpretation. If we approach the challenge of BEPS with a “can do” mentality, the chances of finding solutions which do justice to the objectives of preventing base erosion and profit shifting are considerably greater than if we (I mean the tax community) drag our collective fiscal feet, and try to undermine the new rules at every turn. Unfortunately, the temptation and commercial pressure to do precisely the latter will be considerable.
Application of BEPS measures: A matter of national law
I’ve given a some thought to the question of the types of approaches which could be helpful for getting BEPS measures to “work” in cases where there turns out to be an unintended loophole in new (national) measures. Two ideas spring to mind. The first is the use of general anti-abuse doctrines (e.g. the Dutch doctrine of fraus legis) which have been developed in case law and scholarship. There is an interesting question as to whether such doctrines can be developed further to address BEPS-style abuses more effectively. Secondly, perhaps the methods of legal interpretation can also be helpful in this context. It is rare that the ‘correct’ application of fiscal rules is immediately apparent. This means that statutes and treaties need to be interpreted, where possible avoiding outcomes which are clearly wrong (see below).
The “Dutch loophole case”
A great example of “loophole killing” via legal interpretation was given to us by the Supreme Court of the Netherlands back in November 2015. The case involved a taxpayer, who sought to use a textual loophole caused by sloppy drafting. When I say “sloppy”, I mean that the drafting error was so blatant that all concerned must have known that the loophole was unintended. Notwithstanding the wording of the provision (which was in my view clearly wrong), the Supreme Court came to a decision based on the object and purpose of the Dutch rules and also on the parliamentary proceedings and ruled against the taxpayer. This judgement has been criticised on the grounds that it goes against the legal certainty of the taxpayer.
Without wanting to take a position on this specific case, more generally: if a taxpayer is basically acting in bad faith, I don’t see why his expectation that he could benefit from a loophole should be respected. This may seem glaringly obvious from the perspective of other jurisdictions (in which case, please let me know!), but in the Netherlands, there is a serious debate on this matter. Even progressive scholars have been unhappy with the outcome of the Dutch loophole case as a matter of principle. In a wonderful bout of Alice in Wonderland reasoning, the very fact that the loophole was obvious is seen as the reason why the taxpayer should get to benefit from it. I don’t get this on a number of levels, including natural justice.
Just to be absolutely clear, I am not calling for criminal sanctions or fines or anything like that. My point is simply on the issue of legal interpretation in cases involving obvious loopholes (we can have a discussion on what “obvious” means a different day).
We can’t afford to be cynical
In the run-up to the debate in De Balie, I received several messages and texts. Half of these were to wish me strength in what was assumed to be a hostile environment (it wasn’t). The other half were the requests to make comments along the lines of: “States are hypocritical”, “the OECD is out to steal our jobs”, “TJN doesn’t understand taxes”. Given that I’m not a politician and that most people are already aware of the many problems in this debate, I don’t consider this sort of thing to be especially helpful. It’s so tempting to be cynical about BEPS (I too am prone to a late night wallow in tax related misery), but I feel very strongly that we as tax professionals do have a duty towards society either to justify the existing system or to change it for the better. It’s time to step up to the plate!
* Artikel104.nl is normally a Dutch language website. I’ve written this in English so that the TJN people can read it too.
* The term “tax community” loosely refers to anybody involved with tax law: lawyers, in-house people, judges, academics, etc.
My thanks to Jan van de Streek for the cover photo.