Tax Avoidance, Tax Evasion, and Tax Fairness – the Meaning of 'Fair Share' in International Corporate Income Taxation

Abstract

Tax Scholars, tax practitioners, and tax administrators often draw a difference between tax avoidance – which is legal, but perhaps immoral – and tax evasion – which is legal and immoral. However, the concepts and definitions (though not settled) of tax avoidance and tax evasion, and their relationship to tax fairness (itself an evolving concept), has been under attack, particularly in the aftermath of the 2008 world financial crisis.

This study seeks to identify a framework that can be used to determine whether or not a corporation is paying its “fair share” of tax in a jurisdiction or not – ie. Whether a corporation meets the terms of its social licence to operate. The study merges the theories and principles being developed in the realm of Corporate Social Responsibility (“CSR”) with those laying behind the difference between tax avoidance, tax evasion, “fair share” of tax, to develop a concept of Corporate Tax Responsibility (“CTR”). This is done in relation to the international tax rules most often used – those found in the OECD’s Model Tax Treaty.

This paper starts by examining, summarily, the historical development of the concepts and definitions of tax avoidance and tax evasion, identifying the principles that support the distinction. This portion of the paper starts with the case of Duke of Westminster (cited as the legal basis for differentiating between avoidance and evasion) and ends with the Organization for Economic Cooperation and Development’s (“OECD”) Base Erosion and Profit Shifting (“BEPS”) initiative. Then, again summarily, the paper examines the principles and theories upon with the modern, developing concept of CSR is founded. After setting the background, the paper compares and contrasts the principles developed in the first two parts, in order to develop a concept of CTR and a framework that can be used to determine whether or not a corporation is paying a “fair share” of tax. The paper concludes by examining the international tax rules and identifying problem rules that may prevent or hinder a corporation meeting its CTR obligations.

Keywords: Tax Avoidance, Tax Evasion, International Taxation, Fair Share, Tax Fairness, Tax Justice, Corporate Social Responsibility, International Corporate Tax Avoidance, CSR, BEPS, OECD