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Mounting criticism of national and multinational corporate tax avoidance has seen the introduction of a raft of new disclosure requirements in recent years. These include widely adopted country by country reporting legislation and mandated public disclosure of corporate tax strategy, as in the United Kingdom. Such initiatives are largely premised on the assumption that transparency is inherently a good thing.

In our recent paper, we question whether this really is the case.

Of course, when thinking about whether increased transparency can serve as a corrective to corporate tax avoidance, we stumble at the first hurdle, namely achieving consensus about what tax avoidance is.

Tax avoidance means different things to different people

In its most basic form, tax avoidance is simply making a choice that leads to a lower tax liability than would arise under an alternative choice. Importantly, tax avoidance involves a choice made before a tax liability crystallises, which is why we spend so much time and energy trying to distinguish tax avoidance and tax planning.

In recent times, however, the term ‘tax avoidance’ has taken on more sinister overtones, often having different meanings depending on who is using the term and for what purpose. We argue that tax avoidance has ‘morphed from being an arcane phenomenon… to something more politically charged with a proliferation of definitions, variations, interpretations and understandings’.

Let us assume, for now, that tax avoidance is a coherent phenomenon and that we can identify particular ‘unacceptable’ avoidance practices which are capable of being ‘tackled’ by transparency. What then do we take transparency to be, and what purpose do we expect it to serve?

We tend to assume sunlight is the best disinfectant

Tax transparency has become a fast-moving field in which proponents and opponents jostle for dominance. In our paper, we attempt to unpick the concept of transparency in order to further consider whether it is a useful tool to deal with tax avoidance.

Like ‘tax avoidance’, however, ‘transparency’ is polysemous and can refer to a wide range of things.

In the context of the behaviour of companies, it is often thought to provide the information necessary to allow us to judge them, that is, as a tool to provide accountability. In this view, transparency entails providing information that may help the user understand what decisions are being made and why they are being made.

When thinking about transparency in such terms of verifiability, both the quality and the quantity of the information is important, although it is worth remembering that this can very easily be manipulated by those providing the information.

Nonetheless, this is an optimistic view of transparency that tends to assume it will have positive effects: more information must be beneficial, sunlight is the best disinfectant.

Transparency is a more sophisticated social process

Pushing against this view is one that suggests a darker side to transparency.

Transparency is arguably a more sophisticated process that is capable of producing socio-material effects. It is more than just a passive flow of information.

In this more cynical view, transparency does not equate to visibility; information is not neutral and may obscure more than it reveals. Maybe more information is not always good, the provider of the information, regardless of their willingness to being exposed to scrutiny and being judged accordingly, may still be viewed with suspicion.

More information may actually lead to less understanding. Let’s not forget that while sunlight may well disinfect, too much sunlight can fade things and even worse, do a lot of damage.

Without trust, discernment or understanding, transparency may not achieve what we expect 

We conclude that the costs and benefits of transparency are not well understood, or at best, not well articulated. Enforced transparency is a costly regulatory strategy for all concerned, and even when demanded with good intentions, can result in unintended side effects.

We argue that burdening both tax authorities and taxpayers with additional costs at this point in time may not be a smart move, partly because we don’t know enough about how these additional costs filter through to wider society.

Both country by country reporting and the publication of tax strategy statements, which we consider in our paper, seek to shift the balance of power away from multinationals, tilting it towards beleaguered tax authorities and the wider public, but ultimately may only produce an illusion of regulatory control.

We might agree that aggressive tax avoidance (whatever that is) needs to be curtailed. We might also agree that companies should be more open about their tax affairs and make themselves accountable for the choices they make. But we must not forget that not all proponents of transparency are motivated by a desire to make the world a better place. And transparency without trust, discernment or understanding may not achieve what its proponents expect; the performativity of transparency initiatives may lead to behavioural change, but not necessarily in desirable ways.


Further reading

Oats, L & Tuck, P 2019, ‘Corporate tax avoidance: is tax transparency the solution?’, Accounting and Business Research, vol. 49, no. 5, pp. 565-583.

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