The "Social Contract" between Tax Authorities and Tax Payers

Last week, I was reflecting on a conference presentation that I was lucky enough to hear earlier in the year. The speaker had some very interesting things to say about the social contract between tax authorities and tax payers. The essence of his point was that tax authorities have an obligation to assist tax payers in making the identification of their liabilities and the payment of their taxes as easy as is reasonably possible. In return, tax payers should remain compliant by accounting for, collecting and paying those taxes that they are required to manage. Having spent roughly half of my VAT career in industry, it was a sentiment that warmed my heart and left me with some hope that, with the point being so eloquently made, we might eventually see tax authorities "getting it" when it comes to the tax collector/tax payer dynamic.

However, it occurs to me that one flip side of this has been the considerable recent activity around the efforts by governments, social campaigners, the media and the public to pursue what can only be described as a moral campaign to have companies pay their "fair share" of taxes. One problem here, of course, is in defining what "fair share" means and I suspect you will get as many different responses to that question as the number of people you ask. I don't want to get into the moral aspect of paying taxes in this blog except to say that I entirely accept there is a moral obligation to do so.

However, coming back to the point about a social contract, is it not the responsibility of the tax authorities to craft legislation that adequately provides for the accounting and collection of those taxes? It is interesting to note that in all the discussions around corporate governance in the tax arena, the companies involved are never accused of any illegality in respect of their activities but are instead condemned as immoral. I hope that the accusers come to recognize that they are encouraging an environment in which some countries' tax systems now seem to be driven as much by highly subjective moral considerations as they are by the law itself. This, I would suggest, is a most undesirable situation and muddies the waters rather than making life easier for tax payers who are, after all, acting in the roles of unpaid tax collectors.

What would I like to see as an improvement to the current tax environment? First and foremost, we need certainty. As tax professionals, we are increasingly under pressure to reduce risk and increase transparency. With so much subjectivity being brought into the mix and the lack of clear guidance from many tax authorities, it feels as though the social contract is coming under threat from both ends.