This blog was first published in Swedish on October 1, 2021. The text is published "as is" with no amendments made because of subsequent events
Questions about rates and contents of tax legislation are dealt by the Swedish Parliament with on a democratic basis. The adoption of laws to ensure that the legislative intent is upheld and that taxes are actually collected should, on the other hand, be a non-political issue and supported by all political parties.
The OECD considers the issue non-political. This is why the organization has combated both international tax evasion and aggressive tax planning for a quarter of a century, in particular when such activities are carried out via tax havens. The same goes for individual OECD countries. Regardless of the government's party affiliation, new measures against international tax evasion and avoidance are regularly adopted.
The Swedish tax base is like a holey Swiss cheese
In Sweden, however, the situation is different. Despite that cross-border tax planning and tax haven transactions have increased exponentially since the deregulation process started in the 1980s, not a single new legislative measure in this area has been adopted beyond the (often watered down) directives imposed on Sweden by the European Union.
News regularly appear in the Swedish media noting that business sector after business sector has discreetly registered its domestic operations in tax haven jurisdictions. Likewise, we learn from the press that both Swedish companies and individuals invest or derive income via tax havens. All for the purpose of avoiding - partly or fully - taxation in Sweden.
Needless to say, nothing of substance takes place in tax havens. Everything is just fake. Believe me, I have visited and negotiated with all tax haven jurisdictions. But in the absence of new legislative tools and resources, the Tax Agency can in most cases only watch while the tax avoidance and evasion activities are ongoing.
In fact, the Swedish tax base is today like a holey Swiss cheese
The few proposals that the government has put forward in recent years to combat tax avoidance and evasion - the "exit tax" and the domestic reporting obligation of tax avoidance arrangements - have been withdrawn after "massive criticism" from various bodies consulted by the government.
The shift in power towards the business community has meant that the power balance that should exist between different interests is missing in the consultation procedure.
Behind the consulted bodies' "massive criticism", however, is the Confederation of Swedish Enterprise and its sister organizations, which steer the public debate with an iron fist. Business representatives compared the exit tax with "the construction of a Berlin Wall around Sweden" and the domestic reporting obligation with "denunciation". The crude rhetoric aims to scare other consulted bodies into joining ranks.
This rhetoric is, of course, absurd. If the proposed domestic reporting obligation of tax avoidance arrangements deserves to be equated with "denunciation", then the OECD should be considered a Soviet-controlled Eastern European state, since BEPS Action Point 12 recommends such rules. It also follows that the United Kingdom and the United States are countries not governed by the rule of law since they have introduced such legislation. This is nothing but pure nonsense. But apparently no rhetorical ploy is too low to protect the economic privileges of the few.
Four measures could to some extent restore the balance of power in the consultation procedure
The problem today is that the Swedish consultation procedure for government bills is dysfunctional. The shift in power towards the business community has meant that the balance that should prevail between different interests is missing. Regardless of the tax avoidance proposal examined, the Swedish Tax Agency always ends up being the only consulted body defending the tax base.
Four measures could be implemented immediately to attempt to restore - at least to some extent - Montesquieu's balance of power that should govern a democratically based consultation procedure when proposals to counteract international tax avoidance and evasion are reviewed:
1. Make the Supreme Administrative Court a mandatory consultative body with regard to proposals to combat tax evasion and avoidance.
Today, only the SAC has the authority and integrity required to withstand direct and indirect external pressure. Judges at lower instances fear having their careers ruined if their opinions deviate too much from the business community's perception of the issue.
2. Prohibit all consultative bodies under threat of heavy economic fines from publishing - directly or indirectly - their consultative opinions or from going to the media before the consultation period has expired.
The business community may, of course, express a dissenting opinion in the government report concerned, but otherwise strict secrecy should prevail until the end of the consultation period. Today, the business community's consultative bodies initiate all-out media campaigns as soon as the consultation procedure begins with the aim of pressuring other consulted bodies to adopt their views.
3. If a body consulted by the government has links to the business community (e.g., in the form of joint ventures, employment or as freelance contractors), these links should be disclosed on a transparent basis.
For example, such requirements are imposed by American tax policy journals. When publishing in Tax Notes International, I have been required to certify what connections I have (or do not have) with state or private institutions.
It is important for the understanding of an opinion to know whether the consultative body or any of its leading figures have connections to the business community.
4. Make at least one Swedish university a mandatory consultative body with the exclusive function to present arguments in defense of the Swedish tax base.
This would not only lead to the Swedish Tax Agency not having to be the sole defender of the Swedish tax base during the consultation procedure, but relevant expertise would also over time be accumulated at the designated university.
In the United States, there are several universities, including Harvard, Georgetown and Michigan, that have made it their mission to gather expertise on tax avoidance and evasion and to defend the tax base when Congress discusses tax bills.
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If the consultation procedure is to continue to be governed by empty rhetoric and at times by pure absurdities, let us skip the hypocrisy and simplify the process for the business community.
By using the consultation procedure model opinion below (see appendix), the business community will save both time and resources. All they have to do is to fill in the names of the consultative body and the legislative proposal, sign the opinion and then press the send button. It will take a maximum of three minutes to complete the opinion.
The model opinion is effective against all legislative proposals that a government may present in the future to counteract (international) tax avoidance and evasion. The consulted business organization does not even have to read the legislative proposal, only remember its name. The criticism raised in the model opinion is so convincing, so extensive and of such political and substantive weight that the government will be forced to withdraw the bill.
Appendix
Opinion of [business organization]
Proposed measures to combat tax avoidance and evasion [fill in relevant report reference]
Ref:
[business organization] rejects the report's proposals on the following basis:
The proposals' general shortcomings
Initially, the [business organization] would like to highlight the report's serious shortcomings and hasty conclusions. Most of the issues addressed remain unresolved and the report has not been able to demonstrate the usefulness of the proposed rules in addition to those already in force. Furthermore, a more detailed impact assessment is required to enable the consultative bodies to assess the effects of the proposals.
In-depth substantive analysis of the proposals
As far as the proposed rules are concerned, they are sweeping, unclear and will further complicate an already complex tax system. Key terms are vague and undefined. The vagueness makes them arbitrary and difficult to apply. The proposals undermine both certainty and the tax system's legitimacy and raise the risk eroding the industry's and the general public's confidence in our tax legislation and in the Swedish Tax Agency. The introduction of the rules thus constitutes a long-term threat to core Swedish legal principles and Swedish legal tradition.
The proposed rules violate the principle of legality, but also likely the principle of proportionality, the tax treaties' discrimination provisions, EU law, Swedish secrecy provisions, the Swedish Tax Agency's obligation to ensure objectivity and the Convention on Human Rights. The proposals practically invite the Swedish Tax Agency to engage in discretionary practices, which will undermine the very foundations of the Swedish tax system.
The proposals' additional costs
The proposals will render domestic and cross-border transactions and capital movements more expensive. Administrative and compliance costs will increase significantly for the Swedish Tax Agency and the private sector. The tax avoidance activities that the rules intend to counteract are negligible. The proposed rules are therefore not necessary from a fiscal point of view. Instead, they will mainly target regular good faith activities and the additional costs caused by the rules will ultimately be borne by the consumers.
Swedish investment climate
The proposed rules will have a negative impact on the investment climate in Sweden. The increased taxation will lead to fewer investments. The number of start-ups will stagnate, foreign investors risk turning their backs on Sweden, something that generally threatens to undermine Swedish competitiveness. The Swedish multinational industry's competitive situation will deteriorate and the rules risk staging a business flight out of the country.
Final comments
In addition to what is already stated above, the [business organization] would like to conclude by emphasizing that there is a lack of both academic research and official statistics that clarify the need for the proposed rules. They are also superfluous because both the well-developed concept in case law of 'substance over form' and the Tax Evasion and Avoidance Act cover in their entirety the scope of the proposed rules. (1)
[enter name of business organization]
20xx-xx-xx
___________________ __________________
[name] [name] (rapporteur) (2)
(1) Note that the last paragraph refers to particular Swedish case law and a statute that are virtually never applied.
(2) Any similarities with Plato's dialogue "Menexenos" are purely coincidental.
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