In my January 8, 2013 post ("My Name is Cliff, Drop Over
Some Time"), I criticized parliamentarians for passing most
tax legislation without much, if anything, in the way of informed
debate. As a consequence, there is a lot of pressure on the
Department of Finance (the group primarily responsible for drafting
tax legislation) to "get it right" the first time. And,
as we know, it doesn't always manage to do so, and we have to
amend (and re amend) the original version to correct the initial
mistakes. Input from outside experts could help here, but in Canada
we lack an institutionalized approach to involving private sector
experts in the tax legislative process. There used to be an
informal executive interchange program that served this purpose,
but I don't hear much of it these days.
I was reminded of this by a news article in the February 1, 2013
edition of the Belfast Telegraph." (Oliver Wright,
"Top accountancy firms accused of exploiting tax laws they
help to draft.") In the UK, senior employees of the big four
accountancy firms are often seconded to the Treasury Department to
assist officials in writing complex new rules. Noting this, the
chairman of the House of Commons Public Accounts Committee
described the practice as "shocking." She is quoted as
saying "You're writing the technical stuff then you use
the very stuff you've written to go away and advise your
clients how they could use the new law to cut their tax
bills." The chairman described the revolving door between
Whitehall and the accountancy firms as an "abuse of
process." To me, what's shocking here is the attitude
underlying these remarks.
Let's acknowledge that the tax systems in the UK and Canada
are complicated; woefully so in many respects. This is unlikely to
change in any material way so long as we rely on an income based
tax as our primary revenue source. Like it or not, the commercial
world is complicated. Quite apart from addressing purely domestic
arrangements, modern tax systems have to operate across borders in
a rapidly globalizing world. Experience shows how really difficult
it is to craft rules that accomplish their intended objectives
without doing unintended harm. Expert input from the private sector
can be a big help in getting the drafting closer to right the first
I don't buy the complaint that having worked on the drafting
of some new rule, a private sector specialist acts improperly in
later advising clients on how the new rule works. It is a telling
commentary on the extent to which the parliamentarian quoted above
misunderstands the tax legislative process. It is parliamentarians,
not outside experts, who make the rules. If the parliamentarians
don't like the way their rules work, they're to blame for
not understanding what they're doing, not the consultants.
What's really behind the complaint, I fear, is the idea that
taxpayers generally should ignore the actual words of any tax rule
and pay tax on the basis of some unexpressed moral principle.
Putting it bluntly, I think complaints of this type are based on
whatever the complainer feels the targeted taxpayer ought to pay,
regardless of what the legislative words say it has to pay. The
private sector expert is then demonized for explaining what the
actual words of the rule say, even when the advice relates to
legitimate tax planning. As I have said before, this kind of
posturing by legislators is dangerous because it encourages the
public to think that taxpayers who reduce their taxes by following
the rules are in some way morally deficient. As the Belfast
Telegraph article indicates, that opprobrium is now to be
extended to those who temporarily lend their talents to the
Treasury Department to assist in the drafting process.
In Canada, it used to be the practice for senior tax advisors to
join Finance on a temporary basis to assist in the tax drafting
process. Happily, it was not suggested that they were somehow
acting improperly when they subsequently gave advice to their old
clients on the operation of the rules with which they were
involved. The practice of spending time at Finance seems to have
declined in recent years. I don't think this is because of a
change in attitude at Finance, but because nowadays it is difficult
to persuade senior practitioners to do so. That being said, I'm
grateful that we haven't yet heard here the kind of screams now
emanating from the UK when a private sector specialist does provide
input on proposed tax changes.
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