Abusive Tax Avoidance and Responsibilities of Tax Professionals

Abstract

Abusive tax avoidance reduces the effectiveness and equity of fiscal institutions, and hence contributes to significant levels of deprivation in both developed and developing countries. In the first part of this paper, we outline the main reasons for the existence and scale of abusive tax avoidance, with emphasis on factors that exacerbate the problem in the developing world. However, our main project in this paper is normative. We argue that tax professionals, such as lawyers, accountants and financial advisors, have strong obligations to help remedy the deprivation caused by abusive tax avoidance. To make our case, we present three connective grounds that serve as criteria for remedial responsibilities: causal contribution, benefit and capacity to assist. Although these criteria sometimes pull in different directions, when all three converge there are especially strong grounds for assigning responsibilities to the relevant set of actors. Applying this convergence approach, we demonstrate that tax professionals contribute majorly to abusive tax avoidance, benefit greatly from its persistence, and have significant capacities to reduce its extent. One result of this analysis is that tax professionals—especially large accountancy, legal and securities firms—ought to do much more to address tax avoidance than merely comply with existing legislation. We also argue that these responsibilities are consistent with, indeed required by, widely accepted standards of professional integrity.

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