Friday, April 23, 2021
Weekly SSRN Tax Article Review And Roundup: Roberts Reviews Tax Boycotts
This week, Tracey Roberts (Cumberland; Google Scholar) reviews a new work by H. Scott Asay (Iowa; Google Scholar), Jeffrey L. Hoopes (North Carolina; Google Scholar), Jacob Thornock (BYU; Google Scholar), and Jaron H. Wilde (Iowa, Google Scholar), Tax Boycotts:
In Tax Boycotts, the authors evaluate the widespread assumption among tax scholars that the key risk deterring corporations from engaging in greater levels of tax planning is the loss of corporate reputation. The authors undertake a systematic set of studies to determine whether U.S. consumers actually respond to news about corporate tax avoidance with boycotts of corporate products and stock purchases. The authors survey a representative sample of U.S. consumers concerning their perceptions of and actions with respect to corporate tax planning and then examine weekly scanner-level data on consumer purchaser, daily data on retail stock purchase activity, and data for ongoing boycotts. The authors conclude that tax planning and tax avoidance are not particularly important drivers of past boycott activity in the U.S. They also conclude that boycotts also pose no threat to future tax avoidance activity.
The authors’ efforts to obtain and examine data to assess underlying assumptions central to the tax literature could not be more timely or valuable, given recent critiques of formalism and calls for data analysis and experimentation. The authors’ multi-level approach is well thought-out and comprehensive. However, their conclusion about the future of boycotts may be premature.
First, the authors’ consumer survey may not be fully representative. The survey included about 500 respondents that were representative of U.S. consumers on five dimensions: gender, age, household income, education level and political affiliation. A larger group of subjects would, of course, be beneficial, but the geography of the respondents may also be relevant. If the survey participants were local to the universities where the authors work and teach, Iowa, North Carolina, and Utah, they may not be representative of the broader consumer population, particularly, in New England, the Mid-Atlantic and the West Coast states, where much U.S. consumer activism begins and gains momentum.
Second, the authors asked survey participants to rank the relative importance of factors that might influence a purchase decision. The fact that a corporation “Uses aggressive tax strategies to avoid paying their ‘fair share’ of taxes” ranked below “Financial statement fraud,” “Paying bribes in another country,” “Using discriminatory hiring and promotion practices,” “Harming the environment,” and above “Paying low wages” and “Its products are not made in the USA.” All of the higher-ranking factors are illegal; tax avoidance and the lower-ranking factors are not. It is unsurprising that consumers would be more likely to shun an illegal enterprise.
Third, the illegal / legal distinction is relevant in view of the boycotts’ broader context. Boycotts are one of many tactics that organizations use to educate and mobilize citizens to address government lapses and regulatory gaps. Kenneth Abbott (Arizona State) and Duncan Snidal (Oxford) describe the five stages of regulatory activity as (1) agenda-setting, (2) negotiation of standards, (3) implementation, (4) monitoring, and (5) enforcement. At each stage of public governance, the process may break down. Organizations sparking social movements are not using boycotts solely as a private mechanism to enforce public norms. Instead, they intervene at the agenda-setting stage, naming and shaming corporate actors and using boycotts as a performative signaling device, to demand regulatory change in the face of legal ossification and legislative quagmire.
In the wake of the Great Recession and the imposition of broad austerity measures, organizations such as War on Want and UK Uncut initiated name and shame campaigns, calling for boycotts of tax-avoiding multinationals. In response, Starbucks made additional voluntary tax payments of $16.8 million in 2013 and 2014. While several Members of Parliament responded to the campaign with calls to change the tax laws to reduce avoidance, others introduced legislation to expand such opportunities. The most important effects of the calls for boycotts were not widespread corporate self-regulation through voluntary remittances to the treasury or more stringent tax legislation locally, but the OECD project on Base Erosion and Profit Shifting, which reaches the problem at its source.
Many common governance problems are acute in the international context: absence of any overall governing authority, lack of resources, obstacles to coordinating and collaborating across jurisdictional boundaries, race-to-the-bottom dynamics, and diversion of the regulatory process by self-interested actors. Because any multinational corporation facing higher taxes in one jurisdiction may shift their income to another more tax-friendly jurisdiction, efforts to combat tax avoidance must be made through collective action at the state and international level.
Similar “leakage” problems and race-to-the-bottom dynamics plague efforts to preserve environmental resources and regulate labor standards at the international level. Numerous nongovernmental organizations have spearheaded international boycott campaigns to address child labor, human trafficking, environmental degradation and climate change, and some of these campaigns have begun to have an effect, though they have likely had little direct effect on corporate earnings. While the Tax Justice Network and the Global Alliance for Tax Justice may not have made significant inroads among U.S. consumers and issued demands for boycotts, the Biden Administration’s tax team and Congressional leaders are cognizant of their concerns. As researchers have begun to connect tax avoidance to other social harms, such as the slowed response to the pandemic and environmental resource degradation, which are more salient to the public, the demands for tax fairness have grown.
Finally, boycotts are one tool in an array of private regulatory mechanisms that NGOs may employ to raise awareness and call for legislative action. NGOs have developed many private governance mechanisms to address regulatory gaps, including corporate social responsibility, the rise of socially responsible investing (SRI) and environmental sustainability and corporate governance (ESG) reporting, certification and labeling systems, and environmental and social auditing structures (which have been built from existing tax and accounting audit infrastructure). The authors are likely correct that boycotts are not a real threat to consumer or investor activity in the U.S. Tax transparency is minimal; tax data is available only from the securities filings of publicly traded companies. Corporations with no consumer products are not vulnerable to product boycotts. Some products are not readily boycotted. Recent tax campaigns against the nation’s largest investor operated utilities did not call for boycotts; no one is going to cut themselves off from gas and electricity in protest against their utilities’ failure to pay taxes. Nevertheless, with or without boycotts, the notice that such campaigns draw to corporate tax avoidance may result in legislative change. Even the pro-business Tax Cuts and Jobs Act of 2017 curtailed the simultaneous tax benefits that investors in public utilities enjoyed from bonus depreciation, interest deductions, and restrictions on passing these benefits through to consumers.
Tax Boycotts is an excellent effort to test long-held assumptions. I look forward to reading any of the authors’ future research in the areas of tax and private governance.
Here’s the rest of this week’s SSRN Tax Roundup:
- Brent W. Ambrose (Pennsylvania State), Patric Hendershott, David C. Ling (Florida), and Gary A. McGill (Florida), Evolution in the Tax Code: (Almost) the End of Homeowner Tax Savings? (2021).
- Kim Brooks (Dalhousie), A Hitchhiker's Guide to Comparative Tax Scholarship, 24 Florida Tax Review 1 (2020).
- Andrew C. Chang (Federal Reserve), Linda R. Cohen (UC - Irvine), Amihai Glazer (UC - Irvine), and Urbashee Paul (Northeastern), Politicians Avoid Tax Increases Around Elections (2021).
- Machado Derzi (Antwerp), O Instrumento Multilateral da OCDE e a Legitimidade Democrática do Direito Tributário Internacional (The OECD Multilateral Instrument and the Democratic Legitimacy of International Tax Law), in Direito Tributário: Uma Visão da Escola Mineira - Estudos em Homenagem a Misabel de Abreu (André Mendes Moreira et al. eds., Letramento 2020).
- Joachim Englisch, How to bring a harmonized GloBE minimum tax in compliance with EU fundamental freedoms (2021).
- Joachim Englisch (Muenster), International Effective Minimum Taxation – Analysis of GloBE (Pillar Two) (2021).
- Maarten Floris de Wilde (Erasmus), The Biden Administration’s ‘Made in America Tax Plan’ through the eyes of a Dutch tax lawyer (2021).
- Tatiana Falcao, Can the Digital Economy Debate Improve the Taxation of International Shipping Profits? 99 Tax Notes International 1065 (2020).
- Xiaoli Feng (Guangdong), Bin Ke (National University of Singapore) and Kai Zhu (Shanghai), A Review of China Tax Research (forthcoming, China Accounting and Finance Review) (2021).
- Daniel J. Hemel (Chicago) and Gregg D. Polsky (Georgia), Equalizing the Tax Treatment of Stock Buybacks and Dividends (2021).
- Tarun Jain (Supreme Court of India), Interpretation of Fiscal Exemptions: Another Debate Commences?, SCC Online Blog (2021)
- Tarun Jain (Supreme Court of India), ITAT’s Power to Grant Stay: Is the Supreme Court Decision in Pepsi Foods the Last Word? SCC Online Blog (2021).
- Tarun Jain, Taxing Transactions between Clubs and Their Members: An Elusive Terrain for the Legislature?, RGNUL Student Research Review (2021)
- Tisha King (Wilfrid Laurier) and Jonathan Farrar (Wilfrid Laurier), To punish or not to punish? The impact of tax fraud punishment on observers’ tax compliance (2021).
- Kimberly S. Krieg (San Diego) and John Li (Ryerson), A Review of Corporate Social Responsibility and Reputational Costs in the Tax Avoidance Literature (2021).
- Rebecca Lester (Stanford Business), Ethan Rouen (Harvard Business) and Braden Williams (Texas), Financial Flexibility and Corporate Employment (2021).
- Francine J. Lipman (UNLV) and Christopher Pang, Anatomy of the Aloha State Earned Income Tax Credit, 99 State Tax Notes 829 (Feb. 22, 2021).
- Aitor Navarro (Universidad Carlos III de Madrid), The Allocation of Taxing Rights under Pillar One of the OECD Proposal, OUP Handbook of International Tax Law (F. Haase, G. Kofler eds., Oxford University Press (forthcoming 2021).
- Shail Pandit (Illinois), Mehul Ashok Raithatha (Indian Institute of Management), and Stephanie Sikes (Illinois), Determinants and Shareholder Valuation of Indirect Tax Avoidance: Evidence from a Quasi-Natural Experiment (2021).
- João Félix Pinto Nogueira (IBFD), Pasquale Pistone (Vienna University of Economics and Business) and Alessandro Turina (IBFD), Digital Services Tax: Assessing the Policy Reasons for its Introduction in the European Union: Feedback to the EU Consultation on the Introduction of a Digital Levy, Intl. Tax Stud. 3 (2021).
- Andreas Oehler (Bamberg), Thomas Egner and Stefan Wendt (Reykjavik), Tax Returns, Tax Deductibility of Costs of Studying and the Importance of Comprehensible Information – An Empirical Analysis (2021).
- Ludmila Mara Oliveira and Tarcisio Diniz Magalhaes (Antwerp), Influências Externas nas Reformas Tributárias do Brasil ao Longo da História (External Influences on Tax Reforms in Brazil Throughout History), in Reformas ou Deformas Tributárias e Financeiras: Por Que, Para Que, Para Quem e Como? (Fernando Facury Scaff et al. eds., Letramento 2020).
- Shail Pandit (Illinois at Chicago), Mehul Ashok Raithatha (Indian Institute of Management) and Stephanie Sikes (Illinois at Chicago), Determinants and Shareholder Valuation of Indirect Tax Avoidance: Evidence from a Quasi-Natural Experiment (2021).
- Kent D. Schenkel (New England), What Would Settlor Do? Immortal Trust Settlors, Federal Transfer Taxes, and the Protean Irrevocable Trust (2021).
- Erika Scuderi (WU - Institute for Austrian and International Tax Law), Towards a Plastic-Free Economy: The Italian Plastic Tax, Rivista Telematica di Diritto Tributario (2021).
- Shambhavi Sharma (Tamil Nadu National Law University), Vivad Se Vishwas Scheme: A Principled Debate on Tax Amnesties (2021)
- Laura Snyder (Queensland), Karen Alpert (Taxpayer Advocacy Panel), and John Richardson (Citizenship Solutions), Mission Impossible: Extraterritorial Taxation and the IRS, 170 Tax Notes Federal 1827 (2021).
- Mihaela Tofan (University Alexandru Ioan Cuza of Iasi), Enforcement of Tax Claims, Jurisprudential Highlights (2021).