Restoring trust in the ‘fairness’ of corporate taxation: Increased transparency and the need for institutional reform

This chapter examines the relationship between trust and transparency in the context of corporate taxation. It draws on the work of philosopher Professor Onora O’Neil to show that transparency will not always increase trust and might even undermine it. Sometimes this loss of trust will be deserved and might help to bring about change that is needed, but at other times transparency can lead to misunderstanding and inability to absorb or utilize the information that is being made available, with a consequential unjustified and unfortunate loss of trust. In such cases, increased transparency can actually lower tax morale and the willingness of taxpayers to pay their taxes voluntarily, with little or no corresponding benefit. The pressure for increased transparency to the public in the tax world arises largely from lack of trust not only in large multinational companies (MNCs) but also in governments, institutions generally and tax authorities in particular. It has become clear in recent years that bilateral tax treaties are inadequate to ensure that tax is collected in a way that the public (and many experts) perceive to be ‘fair’ and this has further undermined trust in the taxation of MNCs. This chapter argues that this widespread lack of trust in our tax system needs to be addressed through improved institutions and fundamental reform. There may be many views of what a ‘fair’ corporate tax would look like, and there should be public debate on this, but ultimately it is essential for trust to be restored in governments and tax authorities to design, impose and administer taxes on businesses in a way that the public perceive to be procedurally and administratively fair, whatever system is ultimately chosen for this purpose. It is institutional reform rather than increasingly detailed information in the public domain that is needed to achieve this. This is not antidemocratic – there should be debate and input – but democracies also need wellfunctioning, trustworthy and trusted institutions to serve them.