I have just returned from Panama City where TI was holding its Annual Members Meeting (AMM), in which all of the one hundred TI chapters come together to discuss corruption trends, tend battle scars, share techniques for success, make global policy and gather the energy for another year fighting the inequalities and social injustice caused by corruption. Sadly, the visit to the offices of Mossack Fonsecca was thwarted when two burly security guards denied all knowledge of the company and ‘encouraged’ the TI representatives to move on.  But it was a fascinating event.  TI-UK had proposed a resolution – since we were in Panama – on transparency over beneficial ownership, which was passed unanimously.

Less clear-cut was the resolution on adopting a TI-wide policy on tax.  And key to this was the question of whether tax abuse is always corruption.  We have adopted the term ‘tax abuse’, as it’s clear that the old distinction between tax evasion and tax avoidance is difficult to sustain – there are now plenty of examples where legal avoidance is effectively evasion, especially where the law has been rigged by bribes or other methods.  TI has worked alongside colleagues in civil society on issues such as tax justice and illicit financial flows for many years; for some organisations, it is a core part of their mission (as you would expect from those with ‘Tax’ somewhere in their names,) while at TI it has never been precisely clear how far we should be involved in such issues.

For example, consider the most widespread form of tax abuse/evasion in the UK: paying cash to a builder or plumber so you can get a better price and they can avoid paying tax.  It’s bad for the national tax receipts: but is it corrupt?  Or consider the Irish government giving favourable tax treatment to Apple: it’s bad for all those countries in which Apple does not pay tax as a result, but the government thinks it’s good for Ireland because it encourages Apple to invest there and create high-quality jobs.  Is that corrupt?  In what circumstances is transfer mis-pricing by companies, when companies deliberately shift their profits to lower-tax jurisdictions, a form of corruption?

We can all agree that tax abuse is bad for society.  And it’s obviously sometimes corrupt.  But is all tax abuse a form of corruption?  TI’s Annual Meeting did not conclude they are one and the same.   There were some loud and passionate voices arguing that all tax abuse is always corruption.  There were other more reflective voices that clinically pointed out the intellectual inconsistencies in this argument.  And the result was the right one.  TI did not approve a policy that tax abuse is a form of corruption, but has approved a policy that tax abuse and corruption are ‘two sides of the same coin.’

What this reflects is the fact that in practical terms, there is a significant cross-over between tax abuse and corruption, but at the end of the day they are not exactly the same thing.  And in fact, TI’s delegates agreed on about ninety-five percent of issues related to tax and corruption, with divergent views (the remaining five percent)  on the arcana of corruption definitions.  Among the cross-over points between tax and corruption are:

• the use of financial secrecy mechanisms such as anonymous shells companies and trusts, located in jurisdictions like Jersey and the British Virgin Islands
• abusive lobbying  practices and the revolving door, which deliberately fix the tax rules in favour of clients with deep pockets
• bribing tax officials to turn a blind eye or implement rules more favourably.

The remedies are often very similar as well, and include things like country by country reporting of companies’ profits and taxes, beneficial ownership transparency and greater transparency over the revolving door between tax authorities and corporate tax advisers.

You may wonder whether this distinction between tax abuse and corruption is important.  At one level, it’s not.  Each TI national chapter chooses what issues to prioritise, based on the needs of the country, the chapter’s capacity and expertise and whether other groups are already covering an issue.  Some TI chapters already campaign on tax, where their system has been rigged by corrupt politicians, who benefit personally and use financial secrecy networks to hide and launder their money.  Some have no interest in tax, and put their energies into the issues they think are of greater importance in their countries.  Other chapters – like the UK – find there is a thriving tax justice network that does not need to be duplicated, and work alongside them on areas of mutual interest such as transparency over beneficial ownership and the continuing national shame of Britain’s Crown Dependencies and Overseas Territories.

If the distinction is important, it is to how TI is perceived as an organisation.  We are non-political and still live in the ‘truth’ age in which research and evidence inform our thinking.  We like to be seen as focussed on our unique mission, the great global cancer of corruption, not diverted by any and every ethical issue – however important in its own right – that hits the headlines.  The tax debate is highly politicised in many countries, and it is vital that TI is not seen as being aligned on political grounds with left or right; and although our emotions may lead us to think that the great social damage caused by tax abuse makes it look like corruption, passion does not trump fact in the world of evidence and research.  So tempted though many of us were to categorise tax abuse as corruption, we concluded that they are similar but not the same: in fact, ‘two sides of the same coin.’

TI’s new policy paper ‘Tax Abuse and Corruption: Two Sides of the Same Coin’ will be available soon at www.transparency.org

image: flickr.com/Alan Cleaver