Download Michel Bouvier (Statement)

Michel BOUVIER
FONDAFIP
Crisis in public finances, mobilisation of taxation and the fight against tax avoidance
The issue of tax avoidance takes on a particular importance within the context of the difficulties
in public finance currently being experienced by several States around the world. Against a
backdrop of public finance in crisis, the fight against all forms of tax avoidance initially appears
to be an essential step in the process of restoring the balance between public expenditure and
revenue, as well as reducing deficits to prevent excessive indebtedness. However, the
relationship between the crisis in public finance and tax avoidance is not limited to this aspect.
This relationship relates to a basic, maybe even crucial, issue, namely the nature, function and
legitimacy of taxation, or the loss of the sense of fiscal duty, because, in today’s very specific
context, tax avoidance implies more than mere resistance, and we can find in it the germ of a
refusal that is growing steadily, bypassing the upheaval of tax revolt.
This makes it a major issue affecting the future of taxation.
We should first of all recognise that there are different ways of avoiding tax. Tax can be avoided
through evasion, which is a criminal act. It can also be avoided by relocating oneself, or reduced
without breaking the law, but by using the law; taking advantage either of legal loopholes or of
the many options available when setting up, in particular in an international context. All of these
aspects are being accumulated and amplified by the changes underway in contemporary society.
The reasons behind behaviours intended to avoid tax are not better known than their actual
importance; they are as old as taxation itself, and equally varied. As a result it would be
dangerous to attempt to identify such and such a factor as key from the long list of reasons
traditionally put forward, such as ideology, anti-statism, mentality, a taste for risk, economic
circumstance, tax pressure, or simply greed.
And we could of course add falling revenues, which may lead some to be tempted by the
possibilities of tax avoidance. However, while all these reasons are valid, we nonetheless need to
carefully consider the link between tax avoidance and the upheavals that have been brewing
worldwide over the last forty years.
Indeed, the globalisation of trade, the relocation of businesses and individuals, electronic trade
and currency, the ever decreasing space occupied by the planet on account of new means of
communication such as the Internet, and the consequent increasing instability of economic and
financial circuits make the whole issue of taxation increasingly difficult to understand and
control. This first observation leads us immediately to a second: the public authorities that
benefit from collected taxes risk seeing their incomes significantly reduced over the coming
years
Ultimately, the challenges related to taxation, including the control of tax avoidance, are closely
linked to the profound changes being experienced in contemporary societies, which over the last
forty years have lived through a succession of crises that have marked a process of
metamorphosis in which one model of society has gradually been changed for another. As such,
fiscal policy is played out within the context of a fast changing environment that is ever more
complex, ever more uncertain. Nowadays, tax policy has to deal with the development of a
society whose methods of regulation are undergoing change, in particular as a result of the
unprecedented expansion of the economic market into increasingly distant – and sometimes
unexpected – spaces, including the space occupied by taxation itself, which has traditionally
belonged to the public sector. Within this market environment, the nature of taxation has
gradually changed, absorbing the values surrounding it and becoming more and more the price of
a service rendered by the beneficiary institution, and less as the expression of solidarity or even
social duty.
For its part, the tax authorities are trying to turn themselves into service administrators. They
occasionally even begin to see themselves as companies, endeavouring to make their
management processes more profitable as part of a performance culture. The objective here is to
make taxation more acceptable, to prevent tax avoidance, to isolate tax evaders and to provide
the best possible service at the best possible cost. And taxpayers – being well aware of how
public money is user – tend to see themselves as clientsmuch more than users of a collective
resource.
This change from one world to another, being played out against the backdrop of an economic
and financial crisis, is at the very heart of the inability to interpret and understand tax decisions,
and even sometimes the questioning of their very foundations and ultimately their legitimacy.
Effectively, in these circumstances, the meaning of taxation changes. Taxation has long been
defined and justified as the expression and instrument of social solidarity, but has now lost this
sense for many taxpayers, who see it simply as the price of a service rendered. This phenomenon
is further reinforced if taxpayers believe that the service is not of sufficient quality, or worse if
they see no improvements in terms of rebalancing public accounts and discharging public debts.
Such a state of mind encourages – and for some even justifies – tax avoidance, overcoming any
ethical or social impediments they may have felt.
It should also be highlighted that another effect of globalisation is that an increasing number of
economic players (companies, but also increasingly employees) no longer inhabit the same time
or space, or play by the same rules, as the national political and administrative players
responsible for tax policy. On one hand, the number of transnational companies, or simply
medium and large companies and even private individuals based abroad, has increased without
precedent in recent decades. And on the other hand, as the economic space transcends borders,
the fiscal, administrative and legal space has remained largely constrained to national spaces
It follows then that tax law and the administration responsible for ensuring its application are
no longer suitable. Not only are they operating in a different space to taxpayers, but also in a
different time. In other words, while the 21st century economy is being built and developed at
considerable speed, the tax system still has one foot in the 20th (or even the 19th and 18th)
century. Politics, meaning the political and administrative organisation of our societies in
which tax plays a crucial structural role, is out of step with its time.
Restricted by their borders, national tax law and authorities will therefore be increasingly less
able to counter tax avoidance unless some collective solutions can be found. In this regard,
special mention should be made of the OECD, which has done a considerable amount of work in
this area. The possibility of harmonising taxation systems is still particularly difficult nowadays,
which leads us to turn to less ambitious and more conventional solutions such as compiling
information, which as we know is a key tool for tracking down fraud.
This objective leads States to establish or improve their cooperation agreements and to set up an
administrative and legal framework for international information exchanges, such as the
agreement signed on 14 November 2013 between France and the USA in accordance with the
decisions taken by the G20 in September 2013.
However, this option is fraught with difficulties on account of the fact that it contains an inherent
paradox arising from two contradictory concerns: protecting national taxpayers and the
unavoidable need for cooperation.
Another path can also be taken, which involves developing prevention, for example by clearly
determining the rights and duties of the stakeholders (authorities and taxpayers) within the
context of « preventive agreements ». These agreements, which may be in the form of rulings or
prior agreements on transfer pricing, are part of an approach that is intended to develop a new
public-spiritedness in taxation, encouraging taxation to be seen as legitimate and accepted by
taxpayers, and encouraging them to fulfil their tax obligations voluntarily.
It is undoubtedly essential that this path be investigated, not just because it is a means for
reducing tax avoidance, but because it also seeks to foster acceptance of taxation. However, it
may not be enough to prevent the deadlock in which tax systems may ultimately find themselves.
Indeed, we now need to think about evaluating the validity of taxation itself, and in particular the
standards and principles of taxation that were designed for a world from another time and that
are now unable to handle situations that are entirely new, in particular on account of their
magnitude. It should be noted that most of today’s taxation system was established between the
late 18th century and the second half of the 20 century in contexts that – one suspects – no longer
match the reality of contemporary society. Most taxes were invented for a State that was
relatively closed and for the economy defined by the value of work. We now need to reconsider
the foundation and relevance of such taxes in an open world containing a burgeoning intangible
economy.
In fact, we urgently need to invent a tax system for the 21 century, and establish a new meaning
for taxation. In the short- and mediumterm, we undoubtedly need to take measures to combat tax
avoidance, but in the long term it is also essential that we consider the future of taxation systems,
which have undoubtedly been undermined by attempts to avoid some or all of the fiscal burden,
but that more importantly have been impacted significantly by a crisis of economic and political
models.
We have already seen how the relationship between the crisis in public finance and tax
avoidance goes well beyond the simple mobilisation of resources. In some ways, taxation is a
barometer of social malaise. This malaise cannot be resolved by a fiscal technique, but needs
to be addressed using political creativity and imagination.
The challenge in this field is as essential as it is difficult to achieve: to instil a shared vision of
taxation as the specific expression of a minimum level of solidarity between individuals
Michel BOUVIER
See M. Bouvier, M.-C. Esclassan, J.-P. Lassale, Manuel de Finances publiques [Manual of
public finance], 13th ed., LGDJ, 2014.
See M. Bouvier, Introduction au droit fiscal général et à la théorie de l’impôt [Introduction to
general tax law and tax theory], 12th ed., LGDJ, 2014.
See M. Bouvier, « Nouveau civisme fiscal et légitimité du recouvrement de l’impôt » [A new
public spirit in taxation and legitimacy in tax collection], in RFFP No. 112-2010. See also: «
Nouveau civisme fiscal et transformations de l’alliance citoyen-contribuable » [A new public
spirit in taxation and transformation of the citizen-taxpayer alliance], Revue tunisienne de
fiscalité, No. 3-2005.
See M. Bouvier, « Les Français face à l’impôt : quelle fiscalité pour quelle société ? » [Tax and the French: what
sort of tax system for what sort of society?], editorial of RFFP issue 124, op. cit
See also the survey on the French and taxation carried out for Le Monde-BFMTVFONDAFIP by Ipsos,
downloadable at:
http://www.fondafip.org/c__14_195_Fiche_993__2__Les_francais_et_l_impot_l_enquete_.
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