Once upon a time, courts in Canada and the United Kingdom were adamant that there was no room for equitable principles when applying the tax rules. In a 1956 decision the Supreme Court of Canada cited an English case (with approval) as follows: “…in a taxing Act one has to look merely at what is clearly said. There is not room for any intendment. There is no equity about a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.” As recently as 1996, the Federal Court of Appeal observed: “Subject to provisions such as section 245, it is neither illegal nor immoral … (to engage in tax planning)…. some of the best legal minds in Canada are devoted exclusively to this enterprise.” Section 245 is the general anti-avoidance rule. It doesn’t make tax planning immoral in any legal sense, but does permit the CRA to challenge tax planning that results in an abuse of the provisions of the Tax Act. That was once upon a time; how things have changed!
In a note in the December 12, 2012 edition of The Globe And Mail under the heading “Britons outraged by corporate tax avoidance” (p. 15), the London correspondent notes the firestorm surrounding the publication of the extremely low rates of UK corporate tax paid by Starbucks, Amazon and Google, despite the fact that each corporation reported substantial gross revenues from their operations in England. A Labour MP (Margaret Hodge), chair of the public accounts committee, is quoted as saying: “We are not accusing you of being illegal; we are accusing you of being immoral.” Starbucks reportedly responded by promising to pay $32 million in taxes over the next two years, regardless of whether it makes any money in Britain or not. I’m not aware that anything similar has surfaced in Canada (yet), but I have to think it won’t be long before we hear similar cries in this country.
A growing number of people today feel it is somehow “immoral” that others are not “paying their fair share of taxes.” (“Other” in this context usually means big corporations and wealthy individuals.) It’s not a question of legality, they say, but of basic fairness. Governments ought not to repair their finances on the backs of the average citizen while the “others” take advantage of tax loopholes to minimize their tax bills. I don’t have the space here for a detailed response, but I do have a few words to say about the implications of this sort of thinking. To me, it is premised on two misconceptions.
The first is the notion that it is possible to determine on a rational basis the “fair share” a person ought to pay in taxes apart from the amount determined by applying the rules in the Tax Act. By conceding that the planning complained about is legal, the protesters admit that the tax laws have been complied with. That leaves them with a subjective (and therefore arbitrary) measure of what constitutes a “fair share.” I confess to being prisoner to the notion that the only fair share of tax that I should have to pay is the amount determined by applying the existing rules. If, instead of doing that, I choose (like Starbucks is apparently going to do) to pay more tax than the rules require, how do I determine how much more is “fair”? I don’t think anyone can provide a rational answer to this question.
The second misconception here is the assertion that if on somebody’s subjective measure I’m not paying enough “more,” then my conduct is somehow immoral. This way of thinking is dangerous because it undermines our basic agreement to be governed by the rule of law and not some subjective or other arbitrary standard. The proper response to a perceived misuse of the tax rules is a campaign to change the offending rules, not a moral crusade to demonize the alleged offenders for following the law as it stands.
Now depending on your view of the world, being charged with acting immorally may not be too much of a burden to bear. But for persons (individual and corporate) with a high public profile, the charge can hurt. Social media is a powerful tool, for bad as well as good. What, pre-internet, may have been an isolated complaint today can morph into an angry chorus thousands of voices strong. When the chorus is ill-informed, it can do serious harm that is not easily undone. It’s a brave new world alright, but I’m not a fan of this aspect of it.