www.cristianismeijusticia. Cristianisme i Justícia (Lluís Espinal Foundation) is a Study Centre under the initiative of the Society of Jesus in Catalonia. It consists of a team of university professors and experts in theology and different social and human sciences, who are concerned with the increasingly important cultural interrelations between faith and justice.

The collection Cristianisme i Justícia introduces some of the findings of the seminars held by the Centre as well as some of the essays of its staff and contributors. The Foundation sends its booklets free of charge to those who ask for them.

149. J. F. MÀRIA, E. DEVUYST. King Leopold’s Mines; 150. V. CODINA. Fifty Years ago There Was a Council…; 151. A. BLANCH. Leo Tolstoy, TAX JUSTICE, Political Prophet and Evangelical Anarchist; 152. J. I. GONZÁLEZ FAUS. A New Church for a New World; 153. A. CALDERÓN, L. SOLS. Europe at A GLOBAL STRUGGLE the Crossroads; 154. S. HERRERA. Trapped in Limbo, Women, Migration and Sexual Violence; 155. J. CARRERA. The Revolution of Every Day. Christianity, , and Post-modernity; 156. O. MATEOS. From «Tragedy» to «Miracle»? Africa in the New Multipolar Context; 157. J. I. GONZÁLEZ FAUS. God?; 158. X. ALEGRE SANTAMARIA, J. I. GONZÁLEZ FAUS, J. MARTÍNEZ GORDO, A. TORRES QUEIRUGA. Rebuilding Lives, Divorce, Welcome, and Communion; 159. J. FLAQUER. Islam: The Crescent Moon… Waxing; 160. M. GONZÁLEZ MARTÍN. From Hostility to Hospitality; 161. SEVERAL AUTHORS. New Frontiers, the Same Commitment; 162. J. LAGUNA. Steepping on the Moon; 163. C. M. TEMPORELLI. Friends of God, Prophets of the People; 164. J. I. GONZÁLEZ FAUS. Inhuman and Subhuman; 165. J. CARRERA, L. PUIG. Toward an Integral Ecology; 166. J. SANZ. How to Think About Change Today; 167. J. BOTEY. The Protestant Reformation at 500 Years; 168. A. ARES. Sons and Daughters of a Pilgrim; 169. J. MORERA. Dismantling the Hells; 170. X. CASANOVAS. Tax Justice, A Global Struggle

All booklets can be downloaded from internet: www.cristianismeijusticia.net/en/cj-booklets

N. 170, December 2018

Cristianisme i Justícia Roger de Llúria, 13 - 08010 Barcelona +34 93 317 23 38 - [email protected] www.cristianismeijusticia.net cristianismeijusticia cijusticia CristianismeiJustícia 170 Xavier Casanovas

TAX JUSTICE, A GLOBAL STRUGGLE

Xavier Casanovas

1. Tax Justice and the Model of Society We Want ...... 3 2. Inequality and Tax Policy ...... 8 3. Reasons for a More Just Tax Policy ...... 19 4. Proposals for Advancing Toward a More Fair Taxation ...... 24 5. Conclusion ...... 29 Notes ...... 31 This booklet would not have been possible without the work that has been done during the last four years by the Plataforma per una fiscalitat justa (www.fiscalitatjusta.cat). This network brings together more than twenty organizations and individuals in Catalonia concerned about our tax system and the model of society which it produces. At an international level you can find the (www.taxjustice.net). I offer my profound gratitude to all those who form part of our team.

Xavier Casanovas has a licentiate degree in mathematics and a master’s in business administration. He is the director of Cristianisme i Justícia and the coordinator of the Plataforma per una fiscalitat justa (Tax Justice Network) in Catalonia

Publisher: CRISTIANISME I JUSTÍCIA - Roger de Llúria 13 - 08010 Barcelona +34 93 317 23 38 - [email protected] - www.cristianismeijusticia.net Printed by: Ediciones Rondas S.L. - Legal deposit: B 28646-2018 ISBN: 978-84-9730-431-3 - ISSN: 2014-6566 - ISSN (virtual edition): 2014-6574 Editor: Santi Torres i Rocaginé - Translated by Joseph Owens Cover drawing: Ignasi Flores - Layout: Pilar Rubio Tugas Printed on recycled paper - December 2018

Data protection: Personal information of the recipients of this communication has been obtained from Lluis Espinal’s Foundation historical data- base (Cristianisme i Justicia) and has been incoporated either with the previous consent of the persons concerned or directly on the basis of legal relationships maintained with the foundation, as required by article 6.2 of the spanish Organic Law on Protection of Personal Data and article 21 of the Law on Information Society Services. The purpose of this data storage is to keep our subscribers and other interested persons informed about our services and activities in which they can participate. This information will not be made available to third parties but may be used in external platforms in order to facilitate email sending. For more detailed information please consult the “Legal Notice” published in our website https://www. cristianismeijusticia.net/avis-legal. Regarding personal information, any user can, at any time, exercise the right to consult, access, modify, cancel, limit future processing, request the portability, forbid automated individual decisions and object to the processing or storage of any personal data by Luis Espinal’s Foundation via email to [email protected] or by written request to c/ Roger de Llúria n.13, piso 1º, Barcelona (08010). 1. TAX JUSTICE AND THE MODEL OF SOCIETY WE WANT

Talking about taxes is not easy. Everybody pays them, but they are not popular. Do we pay too much? Are they truly put to good use, or could we save on them? Are they levied fairly? Does it make sense for me to pay taxes when there is so much governmental corruption? Are governments doing enough to fight against fiscal fraud?

These are questions we often ask our- be outside of democratic control? Does selves, and the truth is that we are mov- it not make sense for us to work for a ing toward societies where the richest more just tax policy, with the aim of persons easily escape paying taxes, building a society with greater human where the poor don’t pay any because solidarity? they can’t, and where the welfare state Cristianisme i Justícia has already is financed mostly by taxes on labor dedicated the Cuaderno number 36 to and consumption. We are becoming this question. Written in the 1990s and societies in which governments are titled ¿Pagar los impuestos…? (Should fearful and lack the tools they need. We Pay Taxes...?)1 it dealt with the They yield to the pressure of business growing tensions around and questions by lowering taxes or by claiming that about a fledgling Spanish tax system, taxes induce the flight of capital. As one that lacked consolidation and need- a result, capital ends up imposing its ed to fit better into the European frame- own rules. Is it the case that our power work. It is significant that we have to tax will progressively disappear and waited 27 years before returning to this

3 topic. For a long time the question of tion was focused on the expenditure part tax policy has been left out of political of the budget. To justify the cutbacks, and social debate. Only in recent years, the Spanish government launched a po- with the impact of the economic crisis litical campaign on the media with two and , are we again focus- familiar slogans: “We have been living ing on this question that is crucial for beyond our possibilities,” and “We have maintaining our welfare states. a welfare state that we cannot afford.”4 In response, some organizations de- cided to examine the other side of the 1.1. Spain as an “example” government budget, the revenue side. If we again take Spain as an “example,” during the years we can point out a very significant fact: 2000-2007 produced in countries like with respect to public expenditures, Spain annual increases in GDP of more Spain is well below the Euro-zone av- than 3%. On the one hand, this growth erage (4.6 points lower, in fact, with led to a notable increase in tax reve- expenditures at 43.3% of GDP, while nues, and on the other, it gave rise to the EU average is 47.9%), but with re- considerable discussion, even among spect to revenues, Spain is much lower some parties on the left, about the need still than the Euro-zone average (7.3 and the benefit of reducing taxes.2 The points lower, with government income global financial crisis which began in at 38.2% of GDP compared to 45.5% 2008 caused a sharp economic reces- in the EU generally).5 sion and a series of budgetary deficits So is the difficulty of financing our in the public sector that caught us com- welfare state a problem of expendi- pletely off guard. Countries with poorly tures or a problem of revenues? Is it designed tax policies saw their public necessary to keep cutting away at gov- revenues drop sharply, and the deficits ernment spending, or should we rather kept increasing. The Spanish case was be considering how best to increase especially serious. Spain experienced and improve government revenues? a 5.1% decline in GDP between 2007 While we are fully aware of the im- and 2013, and it saw its public income portance of good government in mat- drop twice as much, about 10.6%.3 To ters of spending, and we realize that reduce the deficit a series of reforms some awful abuses have been com- was introduced in 2010 in most of the mitted with public monies, what we countries of southern Europe. Direct- want to do in this booklet is place the ed by the famous “troika,” the reforms emphasis squarely on the problem of prescribed austerity and large cutbacks revenues. As public finance professor that fell most heavily on a public sys- Ignacio Zubiri informs us,6 our current tem and a welfare state that were al- problem is the result of badly designed ready in a weakened condition. fiscal and tax policies, which are based When this happened, civil society not on a sense of collective effort and began to take action, demanding that so- responsibility but on an ethos of indi- cial spending be maintained and that the vidualistic responsibility and a mind- cutbacks be reversed. The most atten- set of “everyone for himself.”

4 1.2. What model of society be the European standard, the one we do we want? have known in recent decades. It is an expensive “common fund” model, One factor which has prevented people based on criteria of collective respon- from participating in political debates sibility which attempt to guarantee an is the excessively technical language equality of results. It is a model that often employed. That is precisely what provides a minimal base on which we is happening with taxes. The technical can build a humane society: free uni- aspect gets combined with the already versal education, guaranteed health complex tax system, so that the whole care, essential social services. The sec- debate ends up in the hands of experts, ond model, which exists in the U.K. who see the improvement of a better and the U.S., is much cheaper and has tax system as mainly a problem of ef- much less of a safety net, depending ficiency. They discuss the matter as if as it does on purely individual respon- they were dealing with a mathematical sibility. It guarantees certain mini- equation for which there is an ideal mums which allow for an equality of solution. But should it be this way? opportunities, but it in no way seeks If we ask, “What is the ideal level of an equality of results. It is a model in taxation?” the answer is that there is no which those who fall by the wayside abstract ideal level; ideal is whatever are not given much help by anybody. covers the desired levels of govern- So we must first decide about the ment spending. And what is the ideal model of the society we want, and then level of government spending? This is we can build a tax system that allows a matter of politics, and we must an- us to sustain such a model. It cannot swer the question in political terms, not be done the other way around. To cite in economic or juridical terms. Ignacio Zubiri again: “If we desire a robust welfare state, the first require- ment is a tax system with substantial We must decide about revenue capacity. For this to be pos- the model of the society sible, the tax system needs to be well designed (free of loopholes) and well we want, and then we can managed (free of fraud), and it also build a tax system that needs to be seen as fair and just by the allows us to sustain such a contributors. Otherwise, contributors model. It cannot be done the who can will avoid paying taxes, and other way around. those who cannot will demand that the tax rates be lowered.”7

Behind the debate about a tax sys- 1.3. What is the purpose of taxes? tem we find the debate about the model of the society we want, and we have We would do well to pause at this to choose between two proposals. The point and reformulate the question: if first model is the one that has come to taxes are so unpopular and politically

5 unpalatable, and if they have negative is, taxes should be imposed on bases from an electoral point of view, sufficiently broad to finance what we why do we want to impose them? Are want. We cannot hope to pay for pub- they really necessary? lic health services by taxing just tobac- The tax system has only one pur- co; it would be necessary to tax income pose: to provide the state with the re- or consumption in order to obtain suffi- sources it needs to carry out its public cient resources. It is also necessary that policies. In a social market economy the system be equitable; that is, the tax we hope that the state will be able to system should treat equal incomes in act, simply because we know that the the same way: if my neighbor earns the market is often wrong and private in- same amount from the return on her itiatives do not always reach where as I do from the wages for my they should. There are three principal labor, he should contribute the same functions we expect of government. amount I do (but this is not what hap- The first is an assigning function: we pens now, as we will explain below). want the state to provide resources for A third characteristic of the ideal tax work in areas where private initiatives system is efficiency; if we establish an do not reach –trash collection, street excessively high income tax on labor, lighting, etc.– and we want the state to people might end up not wanting to intervene wherever the market produc- work for a certain wage. Fourth, the es monopolies. The second function is system should be administratively sim- redistribution: the market distributes ple: payment of taxes should be made wealth, but it does not do so equitably. as easy as possible, and the cost of col- The state should correct the market lecting them should not be higher than by directing resources to where they the revenues they generate. Fifth, the are needed; it does this by providing system should be transparent to the universal public education, adequate citizenship; there should be a clear re- health care, and direct subsidies to the lation between what people contribute most disadvantaged groups. Finally, and what they receive in return, thus we hope that public policies will ex- generating confidence and motivat- ercise a stabilizing function; that is, it ing people to pay. Finally, the system should cool down the economy during should be flexible, that is, capable of moments of high volatility and stimu- adapting well to the different econom- late the economy during times of re- ic cycles. cession. The principle of the common good requires that funds be provided for ad- 1.4. Taxes: at the center of the ministering resources. If we agree that political debate it is necessary to provide the resources by means of taxes, what would be the If these characteristics were heeded characteristics of the ideal tax system? and respected, then we could simply Professor Maite Vilalta lists six center the political debate on giving basic characteristics.8 First, it is neces- final definition to the tax system and sary that the system be sufficient; that to the model of society we want. But

6 unfortunately that is not the case. Tax- creed and contrary to what they prom- es are too often utilized for electoral ised in the campaign, become aware of purposes, and in most cases quite ir- the difficulties of balancing a budget; responsibly, thus creating tremendous they then carry out small fiscal reforms confusion between the technical de- which raise taxes and increase reve- bate and the political debate and con- nues –at least until a new electoral cy- verting both of them into fodder for cles begins. electoral campaigns. Such political ploys produce tre- When elections draw near, lower mendous resentment toward the tax taxes are announced. Lowering the system. The people see no clear option income tax gives workers the sensa- for a humane social model, and they tion of a wage increase, thus produc- are made to believe that the resources ing “economic euphoria.” But once do not exist to make their political de- in power, the parties, whatever their sires a reality.

7 2. INEQUALITY AND TAX POLICY

We have seen that taxes are not an end in themselves but are rather a means that allows us to build more just societies. The objective, there- fore, is not to reap revenues in order to inflate the state as much as possible; it is rather to be able to implement redistributive policies that will help prevent the steady growth of inequality.

Reducing inequality is part of the cur- much less equally distributed than they rent agenda of governments and civil were in the decade of the 1990s.”9 society around the world. In 2015 the Recent years have produced an U.N. agreed on a set of sustainable de- abundance of economic literature velopment objectives, which are stra- which explains the causes of this ine- tegic priorities for global efforts until quality and the consequences it has on 2030. The tenth objective is to “reduce our society and the economy. Joseph inequality both between countries and Stiglitz in his book, The Price of In- within them.” It should be observed equality: 1% of the Population Has that between 1990 and 2010 “income What the 99% Needs,10 explains how inequality increased 11% in develop- the market tends to create ing countries, with the result that the and to accumulate wealth in very few great majority of people in those coun- hands, and how government policies tries –more than 75% of the world’s and international institutions often ac- population– now find themselves -liv centuate this same tendency. Stiglitz ing in societies where incomes are concludes that inequality does harm to

8 the itself because it generated by the economic system. impedes growth and puts democracy at But can we truly claim that our current risk. Writing in , tax system is helping to correct ine- another Nobel prize winner, Paul qualities? Krugman, calls the extreme increase in inequality, especially in the U.S., the “.” 2.1. An ever more regressive Since the start of the crisis in Spain tax system the number of the very rich11 –those having assets of more than a million Let us look again at the Spanish case. dollars, excluding their principal res- Article 31.1 of the Spanish Constitu- idence– has grown by 40%. At the tion established the following: “All same time the number of persons liv- persons, according to their economic ing under the poverty threshold –those ability, will contribute to the mainte- who cannot cover their basic needs– nance of public expenditures by means has increased to one in every four of a just tributary system based on persons. High-ranking executives of progressive principles of equality that companies on the IBEX 35 have in- should never have confiscatory aims.” comes 104 times greater than the av- At the very center of our tax system, erage income of all workers. In 2013 then, is the principle of equality and the incomes of executives were only progressivity. This principle means 74 times greater.12 Warnings about that those who have more are asked to this increase in inequality come not contribute more to the fiscal effort. At only from social organizations but also the same time, taxes should never be from the International Monetary Fund, confiscatory, but the line dividing what which stated in a recent report: “The is confiscatory and what is not is very genuine engine of economic growth is fine; the distinction is difficult to define the improvement of the living condi- and is constantly debated. tions of persons of the lower and mid- dle classes.”13 There are two ways to fight against At the very center of our such inequality: by “predistributive” tax system, then, is the measures and by “redistributive” meas- ures. The former are those that act principle of equality and before the market distributes wealth; progressivity. they include labor policies, minimum wages, occupational programs, etc. The latter are those that act after the The principle of progressivity market has distributed wealth, by try- need not apply to every type of tax ing to palliate the negative effects. Fis- but should apply to the tax system as cal policy plays a key role in financing a whole. If we examine the current tax redistributive measures. It is therefore system, we see that in recent years we evident that we need a just tax system have enacted increasingly regressive that reduces the inequalities now being taxes for a number of reasons.

9 The weight of the middle and lower poorest 20% of –those earn- classes in our tax system ing less than 11,584 Euros a year– pay 28.2% of their income in taxes and fees. At the present time, some 73% of tax All the households with higher incomes revenues come from two types of tax- have rates lower than that. The only es: those on the incomes of individu- households having a higher tax rate are als and those on consumption (VAT). those earning more than 62,447 Euros The remaining 27% of revenues comes a year: these are the wealthiest 10% of from taxes on corporations (11%), households, and they pay at most 33.1% special taxes (also 11%), and various of their income in taxes. other taxes. The report goes on to confirm what The personal income tax is a direct we were saying: “All the indirect tax- tax; that is, it is adjusted to the econom- es are in effect regressive. These taxes ic levels of those who pay it and so can have in general increased the inequal- be defined by progressive criteria. The ity of households by 4.02%. Among VAT is an indirect tax; that is, it does the indirect taxes, the VAT is the one not consider whether those who pay that has the most disequalizing effect. it have high incomes or low incomes Because of its high volume this tax but depends solely on the consumers’ increase the inequality of purchasing power. The VAT is con- incomes by some 3.1%.”17 sequently a regressive tax since mid- The VAT stands in stark contrast dle-income people dedicate almost all with other taxes. For example, both the their income to consumption, whereas tax on wealth and the tax on inheritanc- high-income people dedicate a good es and donations are highly progressive, part of their income to savings.14 In but the revenues produced by them are Spain the revenues from indirect taxes small since they affect only the very –among which we include the special rich. The was eliminated in taxes, such as those on tobacco, alco- 2008 and then partially restored in 2011, hol, fuels, etc.– increased 10 points but with different applications in differ- between 2007 and 2015, passing from ent regions. In Catalonia, for example, 36% to 46% of total tax revenues.15 revenues from it dropped 72%, and A recent study on taxes paid by communities like Madrid were totally Spanish households states that “for the exempt from the tax. In 2010 the tax on population in general, the effective av- and donations was elim- erage tax rate –that is, the proportion of inated and then partially restored four gross income paid in taxes– increases years later. In Catalonia, revenues from with income, but there is one excep- the tax dropped by 80%.18 tion: the rate paid by the poorest 20% of households. This rate paid by this group is surpassed only by the rate paid by the Corporate taxes richest 10% of households. This unusu- al situation is basically due to the weight Special mention should be made of of indirect taxes (especially the VAT) the tax on business profits. In the past and social fees.”16 In other words, the ten years we have gone from having

10 a nominal general tax rate of up to This difference runs counter to the 35% for large businesses and 25% for principle of equity in the tax system: small- and medium-sized businesses to that equal incomes should be taxed having a single rate of up to 25% for exactly the same amount. An exam- all businesses irrespective of size, with ple may help to clarify the difference: a few exceptions. The if I meet my neighbor in the elevator, enacted the first tax reduction, and the and he tells me that he receives 20,000 Popular Party the second. In the former Euros a year in dividends produced case the slogan was “Lower taxes is by stock shares, then I would hope what leftists do,”19 and in the latter the that my neighbor would pay the same cant was: “Since effective revenues are amount of taxes as I do on the 20,000 not going up, we are lowering tax rates Euros I earn for my labor. As many so that they’ll be closer to the actual studies show, however, the reality is revenues we’re getting.” quite different.22 The result is that the corporate tax There are many arguments for and has gone from producing 21% of total against different taxation of incomes tax revenues in 2007 to producing only depending on their source, but as A. 13% in 2015. In 2007 Spain collected Durán-Sindreu states: “Favorable treat- 4.5% of its GDP in corporate taxes, ment is one thing, but serious violation partly because of the real estate bub- of fairness is quite another. A difference ble, but in 2015 it collected only 2.3% of 24.5 points between the maximum of GDP, relegating us to last place in marginal tax rates on savings income Europe.20 and other tax rates is without a doubt an As a result, even though corporate unjustified violation of fairness.”23 profits have already returned to the The principal argument used to de- pre-crisis levels of 2007, the revenues fend this difference in treatment is that generated by the corporate taxes has there is double taxation: the returns on fallen to half of what it used to be.21 capital have already been taxed by the prior levy of the corporate tax. How- ever, the present design of Labor income versus investment vehicles allows the payment of corpo- income. The unfairness of the dual rate taxes to be put off with great fa- income tax. cility. Another reason adduced is that capital is always able to go elsewhere. Starting in 2006 Spain began to differ- This point is also addressed by A. entiate between income from capital Durán-Sindreu: “Accepting this argu- –the economic returns on savings– and ment means also accepting the unjus- income from labor, that is, wages and tified penalization of incomes that can- salaries. The nominal rates of tax on not easily ‘go elsewhere,’ especially these two types of income are totally incomes from labor.”24 different. Since the last tax reform, in- A final proof of unfairness is that, come from savings is taxed at a rate of while taxes on labor are 100% de- only 21% while income from labor is clared and paid (that is, there is no tax taxed at a rate of up to 45%. evasions), the average percentage of

11 declaration and payment of taxes on income tax revenues. Corporate tax other incomes, including the income deductions amounted to 3.8 billion Eu- from savings, oscillates between just ros, some 15% of total corporate tax 44% and 55%.25 revenues.26

The colander of tax deductions Summing up...

Tax deductions are legal mechanisms Because of the complexity of the tax which allow taxpayers to lower the system, we have left many elements amount they pay by means of exemp- out of our analysis, but the conclusion tions and allowances. These deduc- is clear: the most recent economic cy- tions make the tax system into a type cle has produced a steadily more re- of Swiss cheese, full of holes: it gives gressive tax system, and it is putting the impression of being massive, but strong pressure on the middle and low- the amount of cheese is less than it er classes. To build a more just tax sys- seems. tem we need a profound fiscal reform, For example, investing in a pension one that eliminates exemptions and fund allows a taxpayer to reduce the allowances and revises tax structures income tax he pays. But who benefits so that those who have more pay more. from a measure such as this? Studies This clearly national scheme run by show that the wealthiest 10% of Span- the government is of course affected ish taxpayers reaped 77% of the ben- by other important factors which great- efits of the pension fund deduction in ly influence many economic decisions 2014. today: these factors are globalization, While government expenditure pol- the lack of fiscal coordination at the icies –for example, guaranteeing min- global level, and declining competi- imum incomes– are constantly under tiveness. We will treat these topics in examination and subject to accusations the following sections. of misuse, there is no clear and trans- parent procedure for establishing the criteria for authorizing tax deductions. 2.2. Globalization as the origin There is a certain consensus that it of the change of cycle would be much fairer to eliminate most of these deductions in order to collect Nowadays it is generally recognized more revenues, and then to distrib- that tax systems played a key role in ute that , if necessary, through helping the Western countries recov- public assistance and other transfers, er from the aftermath of the Second which can be more focused and so . The new social contract would allow better control of the use of that arose from postwar agreements, available resources. the need for resources, and a strong In 2016, personal income tax de- sense of solidarity –all these gave rise ductions amounted to 14.8 billion Eu- to the magnificent thirty-year period ros, representing 18.6% of the total that saw the greatest growth and redis-

12 tribution of wealth that we have known all exist at the same time. When we in recent history. During the 1980s, have democratic systems based on the after the petroleum crisis, there was sovereignty of nations that regulate a reduction of overall tax rates: even and decide their own affairs, economic though the more regressive indirect integration at the global level becomes taxes (like the VAT) were increased, impossible. The alternative is for na- direct taxes (for example, on income) tions to cede their sovereignty to su- were lowered. pra-national bodies which create reg- ulations and set the rules of the game democratically in the new context of To build a more just globalization. Despite efforts to main- tax system we need tain national sovereignty in the context of globalization as it now exists, there a reform that eliminates is clearly a loss of national control over exemptions and allowances regulatory decisions. We have seen and revises tax structures clear examples of this tension in the so that those who have present European political crisis. more pay more. It seems, then, that in the context of globalization the only way to over- come this trilemma is to require a fiscal union or some type of coordination at However, what shook the world’s the global level which allows the three tax system most severely was what we concepts to coexist. Unfortunately, our call globalization. Studies show that present reality is something very dif- between 1994 and 2007 the OECD ferent. countries responded to globalization by increasing taxes for the middle classes and reducing them for busi- Tax nesses and high-income individuals.27 Tax between countries is leading to what has been called the The impossibility of tax “tax race to the bottom,” in which harmonization in the face of reduced each country seeks to attract capital national sovereignty and talent by offering tax policies that are more attractive than those of com- The so-called trilemma of Rodrik has peting countries. Such competition become very well-known.28 Harvard is bound to end up with minimal tax University professor has rates, resulting in sharply reduced rev- demonstrated the paradoxical tension enues for the public treasury. The only created when a society tries to main- ones who benefit from such competi- tain simultaneously three key elements tion are the capitalists. of the modern nation-state: democra- There are two taxes that figure most cy, sovereignty, and economic glo- prominently in this tax race, the one balization. The three elements cannot levied on the profits of corporative and

13 the one levied on the financial returns 2.3. Evasion, avoidance and havens from the of individual per- sons. The tax on corporate profits has a If there is any key element in the strug- very clear trend: the average business gle for a tax justice, it is the condemna- tax rate in EU countries during the tion of fiscal fraud and tax avoidance. 1980s was almost 50%. However, by We want to make it clear that these two the year 2000 the EU-28 countries had terms refer to two different things even an average tax rate on corporate profits though they are often used indistin- of only 32%, and by 2016 it had de- guishably. scended to 23%. In Spain the corporate tax has dropped from 35% to 25% over the last ten years. The most excep- Tax Evasion tional case in the EU is Ireland: with a corporate tax of only 12.5%, it has We understand fiscal fraud or tax eva- become the favorite destination for all sion to mean all illegal behavior which the technological multinationals that seeks to escape from payment of taxes. want to operate in Europe. To a large extent, fiscal fraud is related While this general panorama may to the size of a country’s underground follow a clear economic logic, it will economy, which is made up of all the lead to disastrous results. Almost all economic transactions that are not de- studies conclude that a 10-point re- clared to the public treasury. In the duction in the corporate tax in a giv- case of Spain, various reports calculate en country will produce an increase in the underground economy to be about investments that can reach 33%.29 The 20% of GDP, resulting in fiscal fraud evidence is clear that this logic of tax of somewhere between 60 and 90 bil- reduction will inevitably lead to a re- lion Euros a year. If we consider Eu- duction in tax revenues in all countries. rope as a whole, countries in the south Another example is what happened like Greece and Italy have a similar after the U.K. voted to leave the EU. level of underground economy, where- For weeks afterward, we could hear the as countries like and Germany declarations of EU economy ministers estimate their underground economy offering tax reductions to financial com- to be about 12%.31 panies located in London but desirous of , of UC moving to another EU country. Speaking Berkeley, calculates that some 6.3 tril- to various media, some investment-bank lion dollars circulate in the world out- spokespersons were almost cynical in side the control of public treasuries; their judgments: “It’s almost an auction that is the equivalent of about 10% of to see which country can offer the most total world GDP.32 A recent study of tax benefits within the European - regu developed countries, using data from latory framework. The problem is how the documents recently leaked in Swit- to explain why this is happening, given zerland and Panama, estimates that the context of a general increase in taxes countries like Sweden, Norway, and and severe cutbacks in social spending Denmark have an average tax evasion in those same countries.”30 of 3% for all income groups, but that

14 the evasion jumps to 30% for those Tax avoidance is currently a ma- belonging to the richest 0.01% of the jor problem in many countries, which population.33 have seen their revenues decline but Fiscal fraud is one of the principal have been unable to do anything to ways by which African governments prevent it. lose revenues. Two years ago the High-Level Panel on in Africa concluded that some Tax Havens 40 billion dollars disappear annually on this continent through illicit finan- Both tax evasion and tax avoidance are cial flows of large companies.34 If these made possible by the existence of the corporations had paid the taxes incum- . Once again, we are discuss- bent upon them, the national treasuries ing a concept that is used a great deal would have received an additional 6 but is very controversial. Juridically a billon dollars. tax haven is able to operate because of its opacity; that is, it is a country which offers little or no information about -fi Tax Avoidance nancial transactions, or which refuses to reveal the identity of the owners and Tax avoidance is a more diffuse term administrators of accounts and busi- than fiscal fraud; there is no good ju- nesses. A country may also be consid- ridical definition. What we mean by ered a tax haven if it levels little or no tax avoidance is all those practices taxes. Still, there is no unanimity with which corporation use to pay the min- regard to the juridical definition. Every imum possible amount of taxes while nation draws up a list of the countries remaining within the limits of legality. considered tax haven and determines Such practices are technically legit- the fiscal regimen that will applied imate and therefore difficult to -pros to persons or business that have in- ecute, but their legitimacy becomes vestments in them. But each country questionable when companies take does so according to its own criteria, full advantage of all the many lacunae, which often relate more to diplomatic clauses, and exemptions permitted by questions or commercial relations than the law. The behavior of companies is to any real determination to forbid or also questionable when they advantage restrict forms of fiscal fraud and tax of different fiscal regimes at the inter- avoidance. national level, creating extremely com- Often a company based in a tax ha- plicated corporate structures designed ven is called an “offshore” company to minimize tax payment or, in some because many of the territories offering cases, to pay no taxes at all. These such special advantages are islands. maneuvers have been called “optimi- In the case of Spain, the inclusion zation practices” or “aggressive tax of a country on the list of tax haven planning,” and they have been widely depends on whether an agreement ex- denounced since they are a clear abuse ists not to impose double taxation and of the law. whether there is transparency of infor-

15 mation. In the case of Panama, for ex- consists of loans of parent companies ample, the European Commission con- in Spain to their subsidiaries. siders it a tax haven, but it was removed The existence of war lords, drug from the Spanish list in 2010 when traffickers, extortionists, and mafias Prime Minister Zapatero ceded to the that traffic in persons is possible only pressure of big construction firms like because of the existence of tax haven Sacyr and FCC, which were hoping to whose activities are secret and immune win contracts for widening the Canal. to prosecution. The European Commission has recently published a pan-Europe- an blacklist of tax haven, which in- #LuxLeaks, #PanamaPapers cludes thirty countries or territories that are considered uncooperative in As their production processes have the fight against tax evasion and tax spread out geographically, the multi- avoidance.35 They are countries that national corporations have been able to appear on at least ten national lists of locate the most fiscally sensitive parts the E.U. member states. Four of the of their business in the countries that tax haven are located in Europe: An- are most advantageous for them. Using dorra, Monaco, Liechtenstein, and the what they call “tax engineering,” they Isle of Guernsey, a British territory in manage to earn most of their profits in the English Channel. The European the countries with the lowest corporate. Commission has asked all thirty coun- For example, they can transfer part of tries to carry out a series of financial their profits to a region where there is reforms and to increase transparency no tax on patents, and at the same time if they want to be taken off the defini- they can manipulate transfer fees –the tive list, which was due to be published prices charged among subsidiaries of before the end of 2017. Unfortunately, the same corporate group– in the way though it was to be expected, this list that best suits them. does not include countries with low tax rates or those which practice fiscal dumping, such as Ireland and Luxem- Between 2005 and 2016 burg. Oxfam Intermon, however, has Luxembourg’s tax practices include them in its report on the 15 most aggressive tax haven. resulted in a loss of about The recent report from Oxfam Inter- 317 million Euros for other mon, titled Tax Illusion,36 asserted that EU countries. 34 of the 35 companies on the IBEX 35 have offices in one or more tax haven; in fact, they have 810 subsidiaries lo- cated there, and that number increased The complex business configura- by 44% between 2012 and 2013. Ac- tions of technological giants like Goog- cording to the official statistics of the le, Facebook, and Apple were the first Ministry of Economy and Competitiv- to awaken suspicions about increased ity, 26% of Spanish foreign investment tax avoidance. By 2012 the public be-

16 gan to become aware of the ways in ama. This massive leak brought about which the multinationals were able to the resignation of the Icelandic prime minimize their tax bill by locating their minister and the Spanish minister of European operations in Ireland. industry, José Manuel Soria. To com- The first major scandal in recent memorate the event, April 3rd has been history was the case of #LuxLeaks, designated as the day of global action which was uncovered in November against tax haven.37 2014. When an employee leaked doc- The following are some of the uments of the consulting firm PriceWa- common practices that facilitate tax terhouseCoopers, it became known that avoidance in the global economy: pay- between 2002 and 2010 the Luxem- ing different prices for transfers with- bourg government had signed closed in the same business group, making agreements with businesses, allowing intragroup loans in countries where them to establish their tax offices in that a financial deficit allows businesses country in exchange for the companies’ to pay fewer taxes or delay payment, payment of mutually agreed taxes. This and minimizing the payment of roy- practice, known as “tax rulings,” al- alties by using the trade name within lowed for the establishment of what we the same business group or in related might call “a la carte” fiscal measures. located in tax haven. Benefiting from these agreements were The existence of such practices obvi- some 340 businesses, including well- ously requires not only the compliance known names such as Pepsi, IKEA, of legislators who create regulations that and Deutsche Bank. These companies leave large gaps in the tax system but paid an average tax rate of 2% on prof- also the connivance and assistance of the its when the nominal rate at that time in large consulting and legal firms that ad- Luxembourg was 28%. At that time the vise the process and make it possible.38 prime minister was Jean Claude Junck- er, who has been president of the Euro- pean Commission since 2014. The Eu- And what is Spain’s role in tax ropean Parliament set up a commission avoidance? to investigate this matter. It is estimated that between 2005 and 2016 Luxem- According to the estimates of G. Zuc- bourg’s tax practices resulted in a loss man, Spain’s public coffers have -suf of about 317 million Euros for other EU fered the loss of some 144 billion Eu- countries. ros because of undeclared funds that Another major international scandal Spaniards have deposited in tax haven. was the famous leaking of the “Panama Moreover, Spain has its own financial Papers” in April 2016 by a consortium and business instruments which allow of international journalists. Some elev- businesses to elude tax payments. en million documents of the law firm The SICAV “variable capital in- of Mossack Fonseca were made public, vestment society” is a well-known ju- and they showed that many well-known ridical figure that is widely used in our persons in politics, sports, and other country. It pay taxes at a rate of only spheres had set up businesses in Pan- 1%, the same as for investment funds,

17 and it lends itself to fraudulent use: when they enter nor when they leave 80% of the SICAV have fewer that the Spanish nation; in fact, foreign 150 shareholders and so are consid- capital can even receive government ered family-owned businesses rather assistance and rebates for its declared than corporations. Moreover, although losses. Other countries have already they are true businesses, they are not denounced the existence of these “en- controlled by the Tax Agency but are tities for holding foreign stocks” since instead under the supervision of the they make Spain a tax haven for the National Stock Market Commission. purpose of attracting foreign capital.39 At the end of 2016 there were more For example, it was thanks to such than 3,000 SICAV with assets valued entities that Vodafone could deduct at more than 32 billion Euros. 1,043 billion Euros in financial costs The ETVES “entities for hold- for the years 2003 and 2004. This ing foreign stocks” are another of the maneuver allowed the company to black holes that make Spain a small register 210 million Euros in nega- “tax haven” for the investments of for- tive taxes, which were in effect funds eign firms. The great attraction of these that the national treasury owed to the black holes is that they exempt divi- company. Much the same story could dends and profits from taxes. Thanks to be told of Microsoft, Hewlett Packard, this instrument, foreign capital pays no Pepsi, Starbucks, Morgan Stanley, and taxes on profits earned abroad, neither others.40

18 3. REASONS FOR A MORE JUST TAX POLICY

As we were saying in the first chapter, the debate about the founda- tions of tax policy is directly related to the model of society we desire. A society concerned about guaranteeing social equality and decent minimal living standards will need to redistribute wealth and establish public policies based on a tax system that obeys criteria of justice and progressiveness.

But let us not fool ourselves: taxes are ical of government; they consider tax- a means for redistributing wealth, and es an assault on private property and such redistribution is not voluntary: it’s simply ineffective, since they remove imposed by the government. In this re- wealth from those who are most capa- gard there inevitably arise many ques- ble of increasing it. On the other hand, tions that bring us back to the key issue: taxes are condemned by openly an- the ethical basis for taxes. In societies ti-capitalist groups that consider them that are becoming ever more individu- a way to soothe our guilty conscience alistic and socially fragmented, there is while at the same time avoiding debate a need for more education to help peo- about how the current system allows ple understand that renouncing a certain capital to exploit labor. level of wealth and economic freedom In our day and age it is impossible is essential if we want to have a society to think of a mixed market economy where everyone can live decently and without a tax system that compensates walk the streets without fear. for the inequalities that the system it- On the one hand, taxes have been self generates, but it is also true that questioned, criticized, and denounced the growth of fraud and avoidance, by the more liberal sectors that are crit- along with the global dynamic of fiscal

19 dumping, call into question the actual needed to have in order to be consid- ability of the existing tax systems to ered just: the taxes should be levied on redistribute wealth. those who have capacity to pay them, Many questions are therefore raised and the revenues received should be about the basis and the justification of dedicated to the common good. taxes: are they the best mechanism for redistributing wealth? is their obligato- ry nature justified? how can the tension Are the taxes the best between freedom and obligation be re- mechanism for solved? redistributing wealth? Is their obligatory nature 3.1. The ethical basis for taxes justified? How can the tension between freedom A quick review of the history of tax- and obligation be resolved? ation will help us understand how the ethical justification of taxes evolved. In ancient times taxes were clearly linked to the yoke imposed by empires, which oppressed the communities they Thus, the payment of taxes became conquered. However, from the earliest established; in fact, taxes became a times the Jewish people understood the guaranteed way to maintain monar- role of tribute as a means for redistrib- chies and absolute governments. In uting wealth: the purpose of the tithe more recent centuries, since the begin- was to help “the Levites, the aliens, the ning of the Modern Age, there has been orphans, and the widows, so that they a reconsideration and revision of the might eat their fill within your towns” ethical basis for taxation. Of course, (Deut 26,11). Perhaps one of the first the ethical debate around taxation can- debates about the justice or injus- not be separated from the ethical de- tice of paying taxes is to be found in bate around private property. The new the famous gospel passage where the ideology of liberalism sought to jus- Jewish leaders tested Jesus by asking tify the payment of taxes as a way of whether it was necessary to pay taxes guaranteeing freedom and individual to Caesar or not. The answer of Jesus rights. Rousseau understood taxation is well known: “Give to the emper- as voluntary and free, a natural con- or the things that are the emperor’s, sequence of a freely established social and to God the things that are God’s” contract; taxes were therefore obliga- (Mark 12,17). Beginning in the fourth tory but subject to the social contract. century, scholars began to conceive of , for his part, saw taxation taxes as the compensation paid by in- as the means for guaranteeing private dividuals for the benefits they receive property and the administration of jus- from society. By the thirteenth century tice and for sustaining the institutions Thomism was for the first time defin- needed to protect those individual free- ing the characteristics that a tax system doms that could not be guaranteed just

20 by one’s own individual efforts. Nev- taxes necessary rose from 46.7% to ertheless, liberal ideology is clearly 55.6%. At the same time, when asked opposed to the use of tax revenues as whether society benefited from the tax- a means for inflating the role of gov- es, 63% of those surveyed responded ernment. As we said above, it was only that the benefit was little or nothing, with the capitalist depression of 1929 and 61% claimed that they were pay- and the Second World War that tax ing too much in taxes. As regards tax revenues came to be considered an im- evasion, the percentage of those who portant instrument for moderating the thought it was very high practically social pact established between capital doubled, from 33.8% in 2008 to 66.8% and labor. In fact, this thesis became in 2016, and the percentage of those part of Christian social thought, which who believed that the government did holds to the principle of the universal very little to fight against fraud rose destiny of and therefore defends from 9.9% to 21.6%.42 the subordination of the right to private property to other more fundamental human rights. Taxes are a means to al- 3.3. Two recent views: Piketty leviate this tension.41 versus Sloterijk

In recent years the French economist 3.2. Contemporary tax morality Thomas Piketty is the scholar who has most successfully demonstrated the “Tax morality,” which is a concept need to place hefty taxes on wealth as studied and debated in the fields of a whole. Piketty proposes not a radical political science and sociology, is cur- change in capitalism but simply a re- rently understood as the will on the part form: “The lack of limits on accumula- of citizens and businesses to pay taxes. tion led to radical solutions at the end A low level of tax morality would in- of the 20th century. The challenge to- dicate little will to pay taxes: there is day is to respond in ways that are more reluctance or refusal to pay, and many peaceful than warfare and more effec- attempt to non compliance. A high tive than communism. ... The question level of morality tax would indicate a of equitable tax policy –agreeing about responsible society that is ready to pay who pays what and by what criteria– taxes: people value the tax system as has always been at the center of politi- an appropriate means for redistributing cal conflict.”43 wealth. In considering the low rate of eco- Recent cases of fiscal fraud and tax nomic growth at the global level and the avoidance, and the resulting shortfall grossly unequal in of government revenues, have brought favor of what he calls patrimonial capi- about changes in the morality tax of talism, Piketty proposes a progressive different countries. In some cases, annual tax on wealth that would reach a like the Spanish one, a notable change maximum of 2%, combined with an in- took place between 2013 and 2016: the come tax that would reach a maximum of percentage of citizens who considered 80%. As unbelievable as such taxes may

21 seem, we should remember that when something wrong. Sloterdijk therefore Roosevelt became president in 1932, the recommends a system of voluntary tax income tax levied on the richest citizens payment, accompanied by a cultural of the was 25%; it rose to revolution.45 He proposes replacing 91% in 1941 and was maintained that eros, the insatiable desire for posses- level until 1964. sion and control that now dominates human beings, with thymos, the far nobler sentiment of pride and courage The question of equitable that characterizes those persons who tax policy –agreeing about give of themselves freely. Sloterdijk bases his theories on who pays what and by what the attitude of the great entrepreneurs criteria– has always been –like Microsoft founder Bill Gates or at the center of political Spanish business Amancio Ortega– conflict. who, having reached a certain level of wealth, feel impelled to give part of their wealth away and are proud to do so. In response to such gestures Piket- Despite much opposition, Piketty ty himself states: “Private generosity? asserts: “I want to be optimistic, since Often those who donate to foundations economic and democratic principles still maintain control of the funds. It are pushing society toward more pro- is not enough to say that one’s private gressive tax policies regarding patri- is in the ‘general interest,’ mony. If we want to continue to have whatever that may be.”46 Sloterdijk’s a patrimonial and if we position can obviously be criticized, want to give those starting from zero but he is probably right when he says some access to patrimony, then we that the fiscal exhaustion of the middle need a tax system that will give them classes and the impossibility of getting that opportunity.”44 Piketty’s view is the rich to pay their share will force the that there is no other solution if capi- debate and the political struggle onto talism is not to devour itself. new terrains, which will allow us to es- Diametrically opposed to this cape from the current dead-end. French economist we find the -Ger After examining the thought of man philosopher Peter Sloterdijk, who these two authors, Slovenian philos- holds that governments’ ability to in- opher S. Zizek states that they both crease taxes has reached its limit. He share two premises: 1) the capitalist belongs to the school that talks about structures need to be maintained be- the “gift economy,” which teaches cause they provide the only efficient that in a democratic society there is no way to produce wealth, and 2) there sense in forcing people to pay taxes is a need to correct for the existing since forced payment makes the tax- inequalities. The problem is that the payer feel guilty and indebted with solutions proposed by the two authors respect to the government: the taxpay- –direct taxes imposed on accumulated er is always under suspicion of doing wealth and voluntary contributions of

22 the very rich– are utopian in the most What is certainly true is that, in our literal sense of the term. The first pro- present economic situation, the returns posal, taxes on wealth, would require on capital in the advanced economies a world government with the power are growing faster than the returns on and authority to impose such a meas- labor. This circumstance requires in- ure; the second, voluntary contribu- novative measures since the returns tions, seems to forget that the engine on capital can easily escape taxation. that moves capitalism is competition, It is only when we seek to guarantee an arena in which some win and some people a basic minimum standard of lose, and that generosity finds little living and assure them their rights, space there except perhaps for a few regardless of their participation in the leftover crumbs. What is truly utopian, labor market, that we will understand argues Zizek, is the continued insist- the fundamental importance of a uni- ence on “imagining global capitalism versal basic income –or at least some just as we know it today.”47 form of minimal income for everyone. Thus far, all proposals for financing a involve a fis- 3.4. Taxation, the purpose of labor, cal reform with high tax rates; such and basic income a reform is hard to defend politically given the general resistance to any in- What will most likely oblige us to re- crease at all in taxes. However, if we form tax systems is the structural un- fail to overcome the present difficulty employment and the disappearance of in collecting taxes on capital and cor- jobs, which result form the so-called porate profits, we will never be able to fourth industrial revolution: the digital implement a basic minimum income, revolution. Some are even calling for no matter how much we increase tax a tax on robots in order to compensate rates or how progressive we make the for job loss. If we understand robots as present system. In any case, this is the the fixed capital of a company, such debate now going on; we must engage a tax would be simply a better, more in it as earnestly and energetically as thorough way of taxing the returns on possible, and make sure that the tax capital and on business profits. system is part of the debate.

23 4. PROPOSALS FOR ADVANCING TOWARD A MORE FAIR TAXATION

Having reached this point, we dare to make the claim that the struggle for tax justice is today inescapable, not only to assure the proper devel- opment of the countries of the global south but also to prevent the more developed economies from stagnating or grievously exacerbating the inequality that already exists.

We propose, then, to update the pro- profits and accumulated wealth have posals which will facilitate a just tax mostly failed. policy, first, by recalling the recurrent As we saw in the last chapter, the historical demands of social move- most ambitious proposal is that of ments and, second, by proposing crea- Piketty: he calls for a tax on global tive responses to the fiscal deficits that wealth, which would require a very have ballooned in the context of glo- high level of coordination among gov- balization. ernments. Such a tax would require a worldwide registry of patrimony: “During the French Revolution the 4.1. Making accumulated wealth taxation of property, the right of suc- pay taxes cession, and the creation of a land reg- ister were a means of keeping track of The first great challenge is finding the properties, asserting property rights, best way to tax accumulated wealth and having them publicly respected. and the profits produced by capital. In ... In the global financial capitalism of a globalized world, capital can always today, there is no worldwide financial find some way to avoid paying taxes. register, not even in the European Un- As a result, the current attempts to tax ion. The president of the French Re-

24 public does not even know whether his has nearly doubled revenues, while the minister of finance has a Swiss bank number of those paying the tax has in- account. ... This situation of extreme creased by only a little over a thousand. opacity is not healthy either for de- The implementation of this new tax mocracy or for financial regulation.”48 belies the belief that it would cause cap- The tax on wealth or patrimony has ital flight. Only 49 of those on whom been gradually eliminated in various the tax was levied chose to change European countries; it exists now only their place of residence, and of those, in Norway and France. It was eliminat- half would have been paying less un- ed in Spain in 2010, though it has been der the new tax formula, so it cannot be re-established as a temporary measure. concluded that they left because of the Nevertheless, there are some local fiscal pressure. This fact is remarkable fiscal experiments in Spain that are since there is fierce competition among worthy of study. For example, in 2013 localities with respect to the tax on pat- Guipúzcoa introduced a new tax on rimony. The Community of Madrid, wealth and large fortunes49 for the pur- for example, grants a total exemption. pose of preventing avoidance of the tax Despite the success of the Guipúzcoa on patrimony. The new tax had three experiment with regard to revenues, specific characteristics: first, it reduced the tax was eliminated in 2015 due to a the maximum tax rate from 2.5% to new correlation of political forces. 1%; second, it broadened the tax base Catalonia recently passed another by eliminating the so-called tax shield; measure which taxes the “non-produc- and third, it eliminated exemptions on tive assets of businesses.” The meas- tax payments by family businesses and ure is aimed at eliminating the fraud converted them into allowances. This connected with personal patrimony measure is excellent since it seeks to that is disguised as business property. widen the base of taxation by requiring all patrimony to be subject to taxation. At the same time, by converting exemp- 4.2. Tax and the speculative tions into allowances, it creates an ef- economy fective register of all the patrimony that exists in the territory, and it also avoids The tax on international financial confusion between the genuine small transactions, also known as the Tobin family businesses and the large multi- tax, is perhaps one of the oldest efforts nationals that register as such but actu- in the struggle for a more just tax pol- ally play in a totally different league (for icy. In 1972 the Nobel-prize-winning example, El Corte Inglés or Inditex). economist James Tobin expounded a This tax has affected only 7,818 per- proposal for taxing exchange sons, which is 1.1% of the population transactions in order to restrain the of Guipúzcoa, those with net assets of excessive mobility of capital. During more than one million Euros. Among the 1990s the proposal was strongly those, 2% have fortunes greater than advocated by organizations such as the 10 million Euros and account for 20% ATTAC,50 with the aim not of captur- of the declared wealth. The new tax ing revenues but of discouraging fi-

25 nancial speculation and improving the take advantage of the diversity of leg- efficiency of the financial market itself. islation in different countries to reduce Though the proposal received wide their tax base. backing from civil society, it was not The project has been extended to seriously considered by governments the European level under the leader- until the global financial crisis of ship of the European Commission, 2008. The proposal put forward at that which at the moment has is consider- time consisted of a tiny tax of 0.05% ing two proposals: first, the BICCIS on speculative financial transactions. project, established in 2011 and re- Though small, that tax would collect vived in 2016, would set up a single 400 billion dollars, which would be Europe-wide norm for the corporate dedicated to elimination of poverty tax; and second, all companies with and to adaptation for . more than 750 million Euros in rev- In 2011 the EU passed a provision enues would have to file a “Coun- that levied a 0.1% tax on stock trans- try-by-Country Report” specifying in actions and a 0.01% tax on derivatives detailed (not consolidated) fashion the trade. The measure was expected to revenues, the number of employees, provide 35 billion Euros, which would the returns, and the taxes paid in each be used in Europe. Since some coun- country where they operate. Such in- tries (like the UK and Luxembourg) formation is necessary in order to de- were opposed to the tax, a mecha- tect fiscal fraud and tax avoidance. nism of cooperation was launched This is certainly good news, and which would have allowed at least ten further progress is required along these countries of the EU to apply the tax in lines if governments are to stop the 2014.51 The proposal has been repeat- massive avoidance of business taxes in edly debated in each meeting of the all parts of the world. Nevertheless, the Ecofin (which brings together the EU progress is very slow and suffers from ministers of economy), but the decision two major flaws: 1) the information keeps getting put off. The tax proposal that the companies offer in the “Coun- is not expected to be implemented until try-by-Country Report” will not be in 2018, though some countries (like Italy the public domain, and 2) no serious and France) have already imposed it. thought has been given to a single Eu- rope-wide tax rate. As a result, coun- tries are free to establish whatever rates 4.3. The needed harmonization they want, and there is not even a min- of the corporation tax imum rate, which would be desirable.

One area where real progress has been made in recent years is in the harmoni- 4.4. The struggle against zation of the tax on businesses. In 2013 tax evasion and the end the OECD present the BEPS project, of the tax havens which aims to coordinate the definition of corporate taxes in all member coun- There is need for strong political de- tries so that multinational firms cannot termination in the struggle to end tax

26 evasion, but such determination is lack- all with the tax haven. The Europe ing in those who have the power to act. Commission’s decision to draw up a There is an evident need, for example, joint list of tax haven is good news, but for official reports on the impact of it will not be sufficient if countries like fraud. It is scandalous that a country Holland and Luxembourg are not in- like Spain publishes no information cluded. Moreover, 2017 was supposed at all about the scale of fiscal fraud or to be the year when banking secrecy the impact it has on our economy. We ended in the European Union. Lux- realize that we would only be talking embourg and Austria, the only coun- of statistical approximations, not ex- tries that still permitted secrecy, finally act figures, but if there is little political yielded to the other member nations will to elaborate a good diagnosis of the and agreed to implement the system, problem, then there will be even less already in place in 54 countries of the will to combat the fraud. A very help- OECD, which guarantees automatic ful measure would be simply calculat- exchange of fiscal information. ing the Tax Gap, that is, the difference There is a need, however, for more between what the law says should be firmness. Perhaps, as Zucman proposes, collected and what is actually collected. there should be a specific treaty with re- Another useful step would be in- gard to the commercial exchanges with creasing the resources of the tax-col- these countries, one that imposes taxes lection agencies. Spain has only or tariffs equivalent to the economic 26,231 internal revenue workers, one losses caused by their tax systems. for every 2,081 inhabitants, putting it in last place in Europe. Countries like Portugal, Austria, and Finland have Tax haven twice as many internal revenue work- ers per capita as Spain, and countries Another initiative related to the pre- like Germany, Belgium, Poland, and vious point is what has been called the Czech Republic have three or four the “free zones.”53 Such a “free zone” times as many.52 The Spanish Tax-Col- seeks to limit government relations lection Agency carries out about with firms that operate in the tax- ha 100,000 audits a year, which bring in ven. The proposal is aimed at prevent- 10 billion Euros. The Agency’s Office ing public contracts, which account for for International Taxation carried out 25% of the national economy, from be- 200 audits of large corporations, which ing awarded to companies that operate yielded an extra 1.3 billion Euros from fraudulently in tax haven. The reason the taxable base of these companies. is evident: the companies that operate More resources need to be dedicated in the tax haven do serious harm to the to closely tracking the movements of companies that act responsibly in fis- gigantic fortunes and international cor- cal matters, since their non-payment of porations, and not only the dealings of taxes allows them to compete unfairly the petty defrauders. by charging lower prices. But none of this will make any sense At the present time, more than if we do not first do away once and for sixty municipalities throughout Spain

27 have declared themselves zones that one for the rich and one for the rest are “free” of tax haven, and cities of us. like Barcelona have already begun to These abuses produce ever greater change the conditions for awarding disaffection among honest taxpayers, public contracts. Before being granted making them skeptical about the pos- such contracts, companies are obliged sibility of a responsible tax culture and to present information about the tax discouraging them from paying their haven in which they operate. Should own taxes. the information be faulty, the munici- Many cases that can be cited, in- palities are empowered to rescind any cluding the tax evasion perpetrated by contract granted. soccer stars like Messi and Cristiano But it is evident that further action Ronaldo and the schemes of other sports is needed: the European directives figures, such as those who changed should be modified so as to incorporate their fiscal residence in Andorra. Even the criteria of corporate fiscal responsi- well-known politicians and bility with regard to public contracts in have been discovered with accounts in all of Europe. tax haven, like Rodrigo Rato, Emilio Botín, and many others. Mostly likely it will be necessary 4.5. The importance of good tax to create more rigorous penal codes, pedagogy suppress the five-year statute of limi- tations, eliminate writs of absolution, What is probably most important of all and even pass new legislation prohibit- is the moral dimension of this debate. ing financial counselors from offering A true commitment to tax justice re- services that contribute to fiscal fraud. quires, first of all, a higher level of tax We need public figures to set good morality in our societies. People have example so that people will come to become very disillusioned because of understand that a sound tax system is the many cases of corruption, along central to the rule of law. with the scandals of tax fraud and tax At the same time, good civic edu- avoidance linked to big companies and cation will help our children and young media celebrities. To those cases we people understand the real costs of the can add political practices like the tax services they enjoy, such as health care amnesties, which allow defrauders to and education. We must teach young go scot free without demanding any- people, even while they are in school, thing in return. When tax cheats end up the principles of responsibility and tax paying less than they should, the mes- justice. A good education will help them sage sent out to the public is clear: the realize that paying taxes is one of the tax system has two measuring sticks, most vital duties we have in our society.

28 5. CONCLUSION

In the pages of this booklet we have explained the great need for tax justice, but we have also shown how difficult it is to achieve them. Now- adays it is very to defend the existing tax systems given the systematic corruption, the institutionalized greed, and the ethos of “everyone for himself.” That is why I have decided to end this essay by quoting a let- ter sent to me by a friend a year ago. The letter is a call to responsibility and a testimony to the great value that taxes possess:

“About ten days ago my cousin Martí it was better to deal communally with disappeared while he was fishing on the some things (not a few) and to pay Costa Brava. Martí was a happy, ded- for them collectively so that everyone icated person. There is no need to de- would benefit from them, irrespective scribe our sadness at his disappearance. of how much they contributed. It was Everyone can imagine what it is like. wonderful that Martí (or any person) “For a whole week they searched could receive the focused attention of for him, but to no avail: firefighters, the whole of society in a moment like police officers, civil patrols, and the this. coast guard took part, using every “Think about that fact the next time technical and human means possible. you have to pay your income tax, the Besides their marvelous professional- next time someone asks you to write ism and the sympathy they showed the an invoice without the VAT (or you’re family, their operations drew heavily tempted to ask for one), the next time on public funds. you have to hire someone in your busi- “I’m very happy to be living in a so- ness, etc. Think about that. ciety where the citizens, at some point “We are well aware that there are in their history, agreed to the idea that persons in government offices who

29 rob from the funds they control or who How many stories like this could waste many resources. We know that be told every day, from such different there are multinational corporations spheres of human activity as health that practice a refined type of tax avoid- care, education, emergencies, social ance that is legal. But if we, for our part, assistance, transportation, and so on? want a cohesive society strong in soli- Indeed, when we talk about taxes, we darity and rich in happiness, we cannot are talking about making all these sto- fall into the trap of being like them. ries possible. “I am happy to be living in a so- Certainly, the achievement of a just ciety that believes in the redistribution tax policy today will require that us not of wealth. To be sure, there are imper- only to arm ourselves with arguments fections of every sort, but that’s why but also to organize citizens’ advoca- the case of Martí is important. In the cy movements. We will need to carry search for him there were no co-pays, out the intensive labor of educating no deductibles, no charges of any sort. people in tax matters. Most especially, 99% of our people would never be able we must demand that government ad- to pay for the cost of that operation out ministrations adopt bold measures and of their own pocket. provide exemplary leadership in the “As I come to the end, I want to global struggle for a tax justice model. thank everybody. I want to thank all As has happened at other times in his- of you who by your taxes made it pos- tory, we will have to move beyond the sible for such an intensive search to concepts of present-day law and close be carried out in the hope of finding the gap between legality and what is Martí. Until we meet again, Martí!” truly ethical and fair.

30 NOTES

1. Camacho, Ildefonso (1989). ¿Pagar los im- the underground economy pay no taxes (this is puestos…? Barcelona: Cristianisme i Justícia. not by design but because they have no other Cuaderno no. 36. option). At the very least, they pay the VAT 2. José Luis Rodríguez Zapatero went so far as for the goods they consume. There are many to say that lowering taxes would a leftist poli- studies that certify that migrants contribute cy. «Bajar los impuestos es de izquierdas». El more to the public treasury than they receive País, 16 May 2003. in social assistance. 3. INE. Indicadores económicos y financieros. 15. Annual report of tax revenues of the AEAT. http://www.ine.es/dynt3/FMI/es/ 16. López Laborda, J.; Marín, C.; Onrubia, J. 4. Mateos, Oscar; Pérez Alcalá Gabriel - Fun- (2016). «Observatorio sobre el Reparto de los dación Foessa (2013). ¿Hemos vivido por en- impuestos entre los hogares españoles». Estu- cima de nuestras posibilidades? Desigualdad dios sobre la Economía Española, 2016/21. y derechos sociales. Análisis y perspectivas. Madrid: FEDEA. 5. Conde-Ruiz, José Ignacio et al. (2017). Los 17. Ibid. ingresos públicos en España. Fedea Policy 18. Plataforma per una fiscalitat justa (May Papers, 10 January 2017. http://documentos. 2014). «Fiscalitat justa. El cas a Catalunya». fedea.net/pubs/fpp/2017/01/FPP2017-02.pdf 19. See note 2. 6. Alboan (2013). Política fiscal y Derechos 20. See note 5. Humanos. October 2013. Consultation with 21. Autoridad Independiente de Responsabil- organizations of the civil society in Spain. idad Fiscal. Informe sobre el cumplimiento 7. Zubiri, Ignacio (2014). «Una evaluación del sis- esperado de los objetivos de estabilidad pre- tema fiscal español y las reformas necesarias». supuestaria, deuda pública y regla de gasto Razón y fe, 2014, vol. 269, no. 1384 2016 de las AAPP. 8. Quin sistema fiscal és just i viable en una con- 22. Díaz, Carlos (UE); Onrubia, Jorge (UCM) juntura com l’actual? Conference organized (2014). «Inequidad horizontal en el IRPF dual by Cristianisme i Justícia in February 2012. In- español». Estudios sobre la economía españo- tervention of Maite Vilalta, professor of public la. Madrid: FEDEA. finance at the Universitat de Barcelona. https:// 23. Durán-Sindreu Buxadé, Antoni. (2016). Re- cristianismeijusticia.net/conclusions-tertu flexiones y alternativas en torno a un modelo lia-fiscalitat. fiscal agotado. Real Academia Europea de 9. United Nations. https://www.un.org/sustain- Doctores, February 2016. abledevelopment/inequality/ 24. Ibid. 10. Stiglitz, Joseph E. (2012). The Price of Ine- 25. Domínguez Barrero, Félix; López Laborda, quality: How Today’s Divided Society Endan- Julio; Rodrigo Sauco, Fernando (2015). «“El gers Our Future. United States: W. W. Norton hueco que deja el diablo”: Una estimación del & Company. fraude en el IRPF con microdatos tributarios». 11. Capgemini and RBC Wealth Management Revista de economía aplicada, no. 68. (ed.) (2015). Informe Anual de la Riqueza en 26. See note 5. el Mundo. 27. Egger, Peter; Nigai, Sergey; Strecker, Nora 12. Investigation of El País according to data of (May 2016). The impact of globalisation on the CNMV. tax structures in OECD countries. CEPR - 13. IMF (June 2015). Causes and Consequences Centre for Economic Policy Research. of Income Inequality: A Global Perspective. 28. Rodrik, Dani (2012). The Globalization Par- 14. At the same time, this is an argument that must adox: Democracy and the Future of the World be considered when it is facilely asserted, as Economy. United States: W. W. Norton & Com- often happens, that immigrants and workers in pany.

31 29. Ruud de Mooij, Sjef Ederveen (2001). Tax- 41. An exhaustively detailed explanation of the ation and Foreign Direct Investment: A Syn- historical evolution of fiscal ethics can be thesis of Empirical Research. Munich: CESIfo found in Higuera Udías, Gonzalo, s.j. (1982). Working Papers. Ética fiscal. Madrid: BAC. 30. «Guindos ofrece bajos impuestos a los “big 42. Barómetro del CIS. 20 July 2016. http://datos. banks” de la City para traerlos a España». El cis.es/pdf/Es3146mar_A.pdf Confidencial, 9 December 2016. https://www. 43. Interview with Thomas Piketty (I): «La elconfidencial.com/empresas/2016-12-09/ desigualdad y los peligros del capitalismo pat- guindos-bancos-city-espana-incentivo-fis rimonial». http://blog.cristianismeijusticia.net/ cal_1301153/ ca/2014/09/09/entrevista-a-thomas-piketty- 31. GESTHA-URV (2014). La economía sum- i-la-desigualdad-y-los-peligros-del-capitalis ergida pasa factura. El avance del fraude en mo-patrimonial España durante la crisis. 44. Ibid. 32. Zucman, Gabriel (2014). The Hidden Wealth 45. Sloterdijk, Peter (2014). Fiscalidad volun- of Nations. University of Chicago Press. taria y responsabilidad ciudadana. Madrid: 33. ALSTADSÆTER, Annette (Norwegian Uni- Siruela. versity of Life Sciences); JOHANNESEN, 46. See note 43. Niels (University of Copenhagen); Zucman; 47. Zizek, Slavoj (2016). Trouble in Paradise: Gabriel (UC Berkeley and NBER) (2017). Tax From the End of History to the End of Cap- Evasion and Inequality, 28 May 2017. http:// italism. Penguin. gabriel-zucman.eu/files/AJZ2017.pdf 48. Interview with Thomas Piketty (II): «La fiscal- 34. Macías, Iñigo (2015). «Las termitas fiscales itat justa, centre del conflicte polític». http:// que saquean el continente africano». Africaye. blog.cristianismeijusticia.net/ca/2014/09/16/ org, 15 June 2015. http://www.africaye.org/ entrevista-a-thomas-piketty-ii-la-fiscali fraude-fiscal-africa/ dad-justa-centro-del-conflicto-politico 35. European Comission (2016). Tax good gov- 49. Diputación Foral de Gipuzkoa (2015). Nuevas ernance in the world as seen by EU countries. propuestas para la tributación de la riqueza 36. Oxfam Intermon (March 2015). Tax Illusion. en Europa. 37. Day of global action for the abolition of tax 50. Fuertes Esteban, Antonio (15 October haven. See http://manifest.fiscalitatjusta.cat/ 2014). «La Tasa Tobin y la Res Publica». AT- index2.html TAC. http://www.fiscalitatjusta.cat/?p=621 38. It is scandalous to see how easy it is to establish 51. Comissió Europea. Taxation of the finantial businesses in countries considered tax haven. sector (accessed 26 May 2017). https://ec.eu See, for example, www.paraisos-fiscales.org/ ropa.eu/taxation_customs/taxation-finan 39. EURODAD (European Network on Debt and cial-sector_en. Development) (2014). Hidden Profits: The 52. Tax Administration 2015. Comparative In- EU’s role in supporting an unjust global tax formation on OECD and Other Advanced system. http://www.eurodad.org/hiddenprofits and Emerging Economies. http://www.oecd. 40. All theses cases have been investigated and de- org/ctp/administration/tax-administration- scribed by the journalist Marc Font: «Deu trans- 23077727.htm nacionals que utilitzen l’Estat espanyol com un 53. See “Free Tax Haven Zones” at http://www. paradís fiscal», El Crític, 28 January 2015. taxhavenfree.org.

32

www.cristianismeijusticia.net Cristianisme i Justícia (Lluís Espinal Foundation) is a Study Centre under the initiative of the Society of Jesus in Catalonia. It consists of a team of university professors and experts in theology and different social and human sciences, who are concerned with the increasingly important cultural interrelations between faith and justice.

The collection Cristianisme i Justícia introduces some of the findings of the seminars held by the Centre as well as some of the essays of its staff and contributors. The Foundation sends its booklets free of charge to those who ask for them.

149. J. F. MÀRIA, E. DEVUYST. King Leopold’s Mines; 150. V. CODINA. Fifty Years ago There Was a Council…; 151. A. BLANCH. Leo Tolstoy, TAX JUSTICE, Political Prophet and Evangelical Anarchist; 152. J. I. GONZÁLEZ FAUS. A New Church for a New World; 153. A. CALDERÓN, L. SOLS. Europe at A GLOBAL STRUGGLE the Crossroads; 154. S. HERRERA. Trapped in Limbo, Women, Migration and Sexual Violence; 155. J. CARRERA. The Revolution of Every Day. Christianity, Capitalism, and Post-modernity; 156. O. MATEOS. From «Tragedy» to «Miracle»? Africa in the New Multipolar Context; 157. J. I. GONZÁLEZ FAUS. God?; 158. X. ALEGRE SANTAMARIA, J. I. GONZÁLEZ FAUS, J. MARTÍNEZ GORDO, A. TORRES QUEIRUGA. Rebuilding Lives, Divorce, Welcome, and Communion; 159. J. FLAQUER. Islam: The Crescent Moon… Waxing; 160. M. GONZÁLEZ MARTÍN. From Hostility to Hospitality; 161. SEVERAL AUTHORS. New Frontiers, the Same Commitment; 162. J. LAGUNA. Steepping on the Moon; 163. C. M. TEMPORELLI. Friends of God, Prophets of the People; 164. J. I. GONZÁLEZ FAUS. Inhuman and Subhuman; 165. J. CARRERA, L. PUIG. Toward an Integral Ecology; 166. J. SANZ. How to Think About Change Today; 167. J. BOTEY. The Protestant Reformation at 500 Years; 168. A. ARES. Sons and Daughters of a Pilgrim; 169. J. MORERA. Dismantling the Hells; 170. X. CASANOVAS. Tax Justice, A Global Struggle

All booklets can be downloaded from internet: www.cristianismeijusticia.net/en/cj-booklets

N. 170, December 2018

Cristianisme i Justícia Roger de Llúria, 13 - 08010 Barcelona +34 93 317 23 38 - [email protected] www.cristianismeijusticia.net cristianismeijusticia cijusticia CristianismeiJustícia 170 Xavier Casanovas