Professor Lynne Oats – Lynne oats is an Emerita Professor of Taxation at Exeter University.  Her research interests centre on taxation as a social and institutional practice, embracing historical and contemporary tax policy both nationally and internationally. In addition to holding senior editorial roles, Lynne has published widely in the accounting and taxation fields.

Professor Carla Edgley – Carla Edgley is a Professor in Accounting and Taxation, Cardiff Business School, Cardiff University. She is an Associate Editor of Critical Perspectives on Accounting Journal, and the Interdisciplinary Accounting Review. Her research interests are in interdisciplinary, social studies of accounting and taxation.

Professor Emer Mulligan – Emer Mulligan is a Personal Professor of Taxation and Finance, Head of the Accountancy and Finance Discipline and Director of the Tax Clinic, at the J.E. Cairnes School of Business and Economics, University of Galway, Ireland.  Her research interests are in the intersection of social policy, citizenship and taxation, as well as regulatory relationships and compliance in the tax arena.

In an era marked by global disruption and mounting pressures on public finance, tax systems are under intense scrutiny and the need for critical tax scholarship is more pressing than ever. Building on the legacy of the 2010 tax special issue of Critical Perspectives on Taxation, a follow-on special issue is now available online.

In our editorial, ‘Critical Perspectives on Taxation: In praise of heterophony’, we explore what it means to be a critical scholar and a critical tax scholar today (Oats, Edgley & Mulligan, 2025). This blog piece provides a brief overview of the editorial which is structured into three main sections.

Reflecting on Topics and Trends in Recent Tax Research

The first section commences with reflections on developments in critical tax research since 2010 – within and beyond Accounting.  While some progress has been made in Accounting, we highlight innovative, inspirational tax research that has emerged in other disciplines including Fiscal Anthropology, Fiscal Geography and Law and Society among other domains.  We also, however, observe the continuing, pervasive influence of economics in tax scholarship. This dominance, often referred to as “economic imperialism,” frames tax primarily as an economic issue, sidelining its social and political dimensions.

Papers in the Special Issue

In section two, we discuss featured contributions in the Special Issue and how they engage in myth-busting across tax narratives.

One contribution examines conflicts of interest in tax scholarship in Finland, by Santtu Raitasuo. This paper explores how tax academics often have multiple roles in Finland, as educators and researchers but also practitioners providing tax advisory services to clients. He addresses a myth whereby legal scholarship, which is a particularly important resource drawn upon by the judiciary, is assumed to play an influential ‘objective’ part in legal interpretation. He develops an argument that tax academics are in positions where they have an incentive to propose legal arguments in scholarly work that advance the interests of their private clients. This in turn influences the judiciary and distorts the distributive effects of the tax system in favour of tax advisory clients (Raitasuo, 2024).

Ute Schmiel confronts what she argues to be a persistent myth that hinders the development and implementation of wealth taxes. Her paper highlights arguments that are often employed to stymie discussion such as difficulties in measuring wealth, defining the concept of ‘ability to pay,’ and addressing the mobility of the wealthy elite. Politicians tend to shy away from this debate, despite calls from NGOs and the OECD to reflect on the low level of tax revenues that are generated by so called wealth taxes globally. Schmiel’s paper challenges this status quo by asking whether there are reasons to tax wealth from a tax equity perspective reimagining the concept of ‘ability to pay’ and wealth, by referring to political-cultural market theory (Schmiel, 2024). Her paper is particularly meaningful as wealth taxation is currently a topical issue. Many governments in countries such as Norway and Australia as well as organisations like the OECD are debating how to address rising inequality and fiscal pressures following recent global crises

A third paper by Dennis de Widt and Lynne Oats challenges the assumption that cooperative compliance between tax authorities and large corporations is always driven by high-level expertise and mutual trust. By comparing the UK and Netherlands, the authors show how similar regulatory systems can evolve differently. They introduce a novel framework viewing these interactions as dynamic strategic action fields where different actors like tax authorities, businesses, and advisers interact, negotiate, and shape each other’s behaviour around tax compliance within the broader tax landscape. Notably, the study shifts focus from corporate tax avoidance to everyday practices, revealing that most large firms aim to comply (De Widt & Oats, 2024).

The fourth myth exposed, by Maryse Mayer and Yves Gendron, is about the role of the media in reporting tax scandals.  The authors focus on how the media have represented the controversial phenomenon of corporate tax avoidance by exploring the international “LuxLeaks” news leak, and scandal. Given the enormous influence of the media over societal views around corporate tax behaviours and tax avoidance, this paper explores formulaic ways of reporting. The authors bring to the fore, how the subject of tax avoidance is characterised by an ambiguous normative framework, as the media rely on very different norms to elaborate distinct normative standpoints (Mayer & Gendron, 2024).

Together, these papers exemplify the potential of critical scholarship to disrupt dominant narratives and to open new avenues for inquiry.

Critical Perspectives

In the third section of the paper, our reflections, we explore what it means to be a critical scholar, particularly within the field of tax scholarship, and the challenges but also meaningful opportunities that come with this commitment. While there are many ways to approach critical work, Mouritson et al. (2002) remind us that, at its heart, being critical means refusing to be naïve and questioning how power dynamics shape and influence tax systems.

We introduce examples of scholarship that illustrate what we call “four critical moves—and mixed moves,” offering strategies inspired by music and song lyrics to expand research perspectives and reveal blind spots.

Move 1: Filling the silences – our understanding of tax is replete with silences; caught up with disciplinary strictures, but also things that policy makers do not want to hear. There are myriad gaps, blind spots, unexplored areas, and things we otherwise never see to be investigated in tax research.

Move 2: Expanding the repertoire – it has long been a concern that where the scope of tax research is narrow, misunderstandings follow. A tight focus on technical aspects of tax overlooks the ‘why’ and ‘who’ questions: why are particular policies pursued, and who sets the agenda, for whose benefit? This critical move looks beyond the constrained repertoire of tax knowledge and expertise to consider the wider context. This includes drawing on new ways of thinking about tax issues.

Move 3: Probing the lyrics – this move encourages reflexivity about how narratives are woven around tax issues where phrases are used as if they have a singular agreed meaning, when they carry multiple meanings and resonate differently with different audiences.

Move 4: Unsticking the needle – a stuck needle on a vinyl record results in the same musical phrase on repeat. We often see, for example, debate around aspects of fairness in tax systems stuck in such a loop. Similarly, discussion around wealth taxes has, in many jurisdictions, become the tax equivalent of Groundhog Day. This move encourages us to break away from entrenched ways of thinking by looking at particular causes and issues from a different angle to reveal the limitations of established positions and taken for granted myths.

Mixed moves and evolving moves – these moves are such that authors may adopt more than one move.  it is important to probe, with a critical eye, the power dynamics that stifle debate. We discuss in our conclusion the potential that multiple voices and performers have for critical tax research, playing melodies in different but complementary ways to add broader perspectives and dimensions

Concluding Thoughts

We advocate for heterophony in tax research, not just a multitude of voices (where many voices blend in harmony), but many different voices that strengthen the texture and quality of our work, and a richness of distinct voices engaging in ‘simultaneous otherness,’ fostering creativity and substantial impact.

This issue is a call to action, to question dominant narratives and reimagine the possibilities of tax research. We urge broader engagement, mentorship, and support for early-career scholars, and we emphasise the importance of building a vibrant and inclusive community of critical tax researchers. We need to think about how to enable scholars to join this conversation, and how we mentor the next generations of students, especially PhD students, to explore inspirational new directions, not only in the strands of tax they study but also in how research is approached. This requires both top-down and bottom-up efforts. Senior scholars can provide guidance, share expertise, and foster supportive networks and structures, while early-career colleagues play a pivotal role from the ground up, in bringing fresh perspectives into research, and challenging established assumptions. As a community we can organise workshops, reading groups, and events that foster inclusive dialogue, support PhD students.

Creating such a community means fostering spaces for dialogue, collaboration across disciplines and geographies, and sustained support for emerging scholars. Looking ahead, we hope to see critical perspectives on taxation continue to grow, not only in number, but in depth, diversity, and influence.

Rida Belahouaoui is a professor and researcher, specializing in digital taxation and tax compliance. His work focuses on exploring the complexities of tax legislation and developing strategies to strengthen compliance and limit avoidance. His e-mail address is belahouaoui.rida@gmail.com.

This blog post summarises and discusses the findings of a recently published article in the International Journal of Public Administration. The study investigates how perceptions of tax fairness and trust in tax authorities influence the compliance behavior of taxpayers in relation to overall taxes, emphasizing the moderating role of increased tax pressure in the post-COVID-19 context. The empirical results provide evidence that while perceived fairness and institutional trust are key determinants of compliance, their effects can be weakened or reinforced by changes in tax pressure following economic crises such as the COVID-19 pandemic.[1].

Introduction

In Morocco, tax revenues make up nearly 90% of the state budget (Finance Law 2024). In the post-Covid era, tax revenues are crucial for financing public policies and advancing sustainable development goals (IMF, 2023). Yet, the system is often seen as inefficient and unfair: it covers only 64% of expenditures and loses more than 10% of GDP to non-compliance and administrative weaknesses—an estimated $982 million annually (Tax Justice Network, 2023). While tax revenues were undoubtedly vital before 2020, their importance has become even more pronounced after the Covid-19 crisis, as the pandemic led to a substantial increase in public spending, particularly in public health, education, and public investment programs aimed at economic recovery and resilience. This context has intensified fiscal pressures and reinforced the need for an effective and fair tax system to sustain long-term development priorities.

Since the 1980s, Morocco has pursued tax reforms to modernize its system, most recently through the 2023-2026 reform program under framework law 69-19 (MEF, 2019) and the 2024-2028 strategic plan of the General Tax Administration (DGI, 2024). These initiatives aim to strengthen compliance by building a fairer, more transparent system.

Research on tax behavior has also shifted. Instead of focusing solely on penalties and economic rationality, scholars now highlight the role of perceived fairness, trust in tax authorities, and tax pressure. In this context, tax pressure refers to the perceived intensity of the fiscal burden imposed on taxpayers by the state, through both the level of taxation and the efficiency of tax collection mechanisms. It reflects how individuals and firms experience the weight of taxes relative to their income or profitability, especially when compliance costs and administrative constraints are high. In the post-Covid-19 period, this pressure has often increased as governments sought to rebuild public finances after exceptional spending on health, education, and social protection. Studies show that fairness and trust are vital drivers of compliance, but rising tax pressure, especially after Covid-19, can undermine willingness to comply. Few studies, however, have examined how these three factors interact in shaping compliance decisions in the post-pandemic context. This blog piece explores how perceptions of tax fairness and trust in tax authorities influence taxpayers’ compliance behavior in Morocco (Belahouaoui, 2025). It particularly emphasizes the moderating role of perceived tax pressure in the post-Covid-19 context.

Methodology

In relation to the paper mentioned at the beginning of this blog piece, data was collected through an online questionnaire distributed between May 8 and December 2, 2023. A total of 256 independent accounting professionals in Morocco, certified public accountants and chartered accountants, completed the questionnaire via Google Forms.

Independent accountants were chosen because Morocco’s tax system is primarily declarative, meaning that most taxpayers rely on the accountants’ expertise to file tax returns. Given the complexity and frequent changes in tax laws, these professionals play a crucial role in ensuring compliance and to provide valuable perspectives on tax fairness, trust in authorities, and perceived tax pressure based on the experiences of, and perceptions held by, independent accounting professionals.

The questionnaire covered demographic details, tax compliance intentions, and perceptions of fairness, trust, and pressure in the post-Covid-19 context. The questions were developed based on validated measurement items for each variable drawn from the scientific literature (for more details, see Belahouaoui, 2025 ). Data analysis was conducted using Partial Least Squares Structural Equation Modeling (PLS-SEM), a powerful statistical approach designed to explore complex relationships and test both direct and indirect effects among variables.

Results and Discussion

Findings show that perceptions of fairness do matter, but their impact on compliance is closely tied to trust in tax authorities (Belahouaoui, 2025). Although the respondents were independent accountants, their professional experience provides valuable insights into taxpayers’ behaviors and attitudes, given their direct involvement in advising and representing clients in tax matters. The results reveal that trust emerges as the strongest driver of compliance: it not only directly influences taxpayers’ willingness to comply but also shapes their perceptions of fairness within the tax system. These findings are consistent with international literature emphasizing the complementary roles of authority power and relational trust in promoting voluntary compliance, but they also extend prior evidence by showing how this dynamic operates in a post-Covid emerging economy context marked by heightened fiscal pressure and shifting citizen–state relations. The findings also confirm that tax pressure plays a complex role in shaping compliance behavior (Belahouaoui, 2025). On the one hand, higher pressure can slightly increase compliance, likely due to greater awareness of enforcement and penalties. On the other hand, excessive tax pressure risks undermining compliance unless it is balanced by trust. When taxpayers perceive the tax burden as unfair or disproportionate to the quality of public services they receive, they may begin to question the legitimacy of the tax system. Interestingly, the moderating effect of pressure was only significant for trust—not fairness. This suggests that perceptions of fairness remain relatively stable, while trust becomes especially crucial in high-pressure environments.

Overall, the results underline that building an effective tax system goes beyond enforcement. It requires strengthening trust, ensuring fairness, and managing tax pressure wisely to foster an environment where voluntary compliance can thrive.

Conclusion

In conclusion, the interplay of trust, fairness, and tax pressure forms a complex web that influences taxpayer behavior. Effective tax policy in a post-pandemic world requires a multifaceted approach that combines enforcement with fairness and trust. By balancing these elements, tax authorities can foster a compliant taxpayer base, thereby ensuring sustainable revenue generation and the effective provision of public services. This approach will be essential for navigating the ongoing challenges and ensuring that tax systems are resilient, fair, and effective in meeting the needs of modern societies.

For tax authorities and policymakers, the blog underscores the importance of addressing taxpayer perceptions of fairness and trust alongside implementing fiscal policies. It suggests that enhancing trust and fairness can significantly improve tax compliance rates. Policies should focus not only on the economic aspects of tax adjustments but also on how these changes are perceived by the public, emphasizing clear communication and public engagement. Additionally, strengthening perceptions of fairness and building trust in tax authorities are essential for fostering a more cooperative and compliant taxpayer base, particularly in contexts where tax pressure is perceived as high in the post-pandemic recovery phase.

Dr. Amir Pichhadze, Research Assistant at York University (Canada). Formerly, a Judicial Law Clerk at the Tax Court of Canada (TCC), a Tax Law Lecturer at Deakin University Law School (Australia), and a Tax Policy Advisor at the Department of Finance (Canada). He studied at the University of Oxford (MSc in Higher Education), LSE (LLB in Law; LLM in Taxation), University of Michigan Law School (LLM in International Tax and SJD) and the University of Toronto.  He has written several scholarly articles on the present topic, including Pichhadze, Amir (February 2015) ‘Exposing Unaddressed Issues in the OECD’s BEPS Project’ World Tax Journal, 7(1), 99-167; and Pichhadze, Amir (2017) ‘The Role of Contract Interpretation in Transfer Pricing Law: Lessons from Canada’ Canadian Tax Journal, 65(4), 849-92.  For further information, see: Here

Based on recent caselaw in Canada, this article cautions about the risk of failing to correctly construe transactions when conducting transfer pricing analysis, which could result in a finding that an error of law and/or fact has been made.

The need to delineate transactions in transfer pricing

Around the world, domestic transfer pricing laws require that, for the purposes of applying tax law, the terms of controlled cross-border transactions should be similar to those that were (or would have been) agreed to, had the contracting parties been dealing at arm’s length. As explained in the OECD’s Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (“TPG”),[1] this requires delineating the conditions and economically relevant circumstances of the transaction(s) which the related parties executed. The delineated controlled transaction can then be compared to a comparable uncontrolled transaction, i.e. one that is similar in conditions and circumstances, but carried out at arm’s length. If need be, based on this comparison, the tax authority could adjust the terms [of the delineated transaction] to bring them in line with those that were agreed to in comparable transactions that took place. Where comparable transactions that took place cannot be identified, the terms [of the delineated transaction] would be brought in line with those in a hypothetical transaction that could presumably be comparable in circumstances, but without the conditions of control (i.e., comparable hypothetical transactions involving parties dealing at arm’s length under otherwise similar circumstances).

An accurate delineation of the controlled transaction requires considering different comparability factors such as the contractual terms agreed to by the parties, the functions performed by each party, the characteristics of the property or service provided, the economic circumstances of the parties and the market in which the parties operate, and the business strategies pursued by the parties.[2]

Having accurately delineated the controlled transaction, if it is found that some of its terms are different from those that were (or would have been) agreed to in a comparable uncontrolled transaction, the law will typically authorize some or all the following consequences. It could authorize adjusting some of the terms in the delineated transaction so that taxation will be based on the same delineated transaction but with the adjusted terms. It may also be found that, under comparable circumstances, unrelated parties would have agreed to a wholly different transaction. To deal with such a scenario, the law may authorize the tax authority to replace the whole delineated transaction (rather than only replacing some terms of the delineated transaction) with another transaction. Taxation would then be based on the terms of the replacement transaction. It may also be determined that parties dealing at arm’s length would not, under comparable circumstances, be expected to agree to any transaction. In such a scenario, the law may authorize completely ignoring the delineated transaction for tax purposes, without any adjustments or replacements.

The need to correctly construe the contractual terms of the controlled transaction being delineated

Generally, taxation is based on the ‘true nature’ of a transaction.[3] Therefore, before applying the relevant tax law, it is necessary to begin by correctly delineating the transaction(s) under assessment.[4] There have been numerous cases, involving the application of different tax laws, in which the ‘true nature’ of the transaction(s) under assessment has been in dispute, which  required the courts to construe the transaction(s) in accordance with the applicable law of contractual interpretation.[5] While courts may consider the litigants’ interpretation of the transaction, it is ultimately the task of the court to apply the correct interpretation.[6] A trial’s court failure to properly construe a transaction could be reviewed on appeal,[7] and may amount to a legal error of law and/or fact.

The risk of failures to construe contracts in transfer pricing disputes

It would seem reasonable to expect that taxpayers [or their professional advisors], tax authorities, as well as judges, would know to correctly construe the contractual terms if and as necessary for the purposes of delineating the actual controlled transaction under assessment. Yet, my review of tax disputes in selected jurisdictions – Canada, the UK, the US, and Australia – revealed that in no transfer pricing dispute to date has this issue of interpretation been pleaded or raised by the courts in transfer pricing disputes. Yet just because the issue may not have been pleaded or raised by the courts, it does not necessarily mean that the task of interpretation was not relevant and should have been pleaded and/or addressed by courts. One such case, which I have identified in my research on transfer pricing, is the tax dispute in Canada that involved the transfer pricing arrangements of GlaxoSmithKline Inc. (Canada v GlaxoSmithKline 2012 SCC 52).

Through my study of the litigants’ and courts’ approach to their analysis in this case, I identified the risk that, as evidenced by the parties’ submissions and the courts’ written opinions, all overlooked, either advertently or inadvertently or by mistake, the necessary role of contractual interpretation when carrying out the task of delineating the controlled transaction which was under assessment . The task of contractual interpretation was, however, necessary in order to deal with a contentious issue in this case: what was the ‘true nature’ of the controlled transaction under assessment?

The OECD clarifies the matter in its revised guidelines

In 2017, in line with my own recommendations,[8] the OECD published its revised guidelines which, unlike the previous version of the guidelines, stated at [1.43] that, for the purpose of delineating the transaction between related parties in cross-border transactions, the applicable principles of contract interpretation ought to be considered. Recently, in the book Fundamentals of Transfer Pricing Vol. 1, reference was made to my research when discussing the need to determine the intentions of the parties for the purpose of delineating controlled transactions.[9] The authors pointed out that, as is now required by the OECD’s TPG, the principles of contract interpretation aid in ascertaining the legal implications of contractual obligations.[10]

The risk of an error: an example

Since then, another notable case has processed through the Canadian courts. While this was not a case in which a transfer pricing arrangement was being assessed under Canada’s transfer pricing law, it involved the contractual interpretation of transfer pricing arrangements for the purposes of determining a transfer price amount to be paid as damages for breach of a patent. As will be explained next, this case exemplifies the potential outcomes of failing to correctly construe a transfer pricing arrangement. This ought to alert litigators and courts to the risk of failing to correctly undertake this necessary task of construction where it is necessary to distill the ‘true nature’ of a transfer pricing arrangement.

In Laboratoires Servier, Adir, Oril Industries, Servier Canada v. Apotex,[11] Canada’s Federal Court found that Apotex’s manufacturing and sale of perindopril infringed ADIR’s Canadian patent. Then, in ADIR v Apotex,[12] ADIR, the Plaintiff, was given the option of receiving either a portion of the Defendant’s [Apotex] profits or an amount that reflects the damages suffered from the infringement. ADIR chose to receive a potion of the profits.

As established in Monsanto Canada Inc. v. Schmeiser,[13] the amount of profits that Apotex would have to pay in damages would consist of the difference between its “gross revenues and its current and capital expenses” that was “directly attributable to the infringement.”[14]

Apotex, the Defendant, sold perindopril to Apotex UK, a foreign affiliated company. On the basis of its interpretation of the transfer-pricing agreements between Apotex and Apotex UK, Apotex suggested that, owing to the increased risk that Apotex UK would bring an infringement suit, it charged Apotex UK a “higher price” for the sale of perindopril than the price (the “lower price”) paid by buyers in other countries.[15] By this view, the difference between the “higher” and the “lower” prices represented consideration paid (by Apotex UK) on account of non-patent-infringing indemnity and legal services provided by Apotex to Apotex UK.[16] Accordingly, that amount ought to be disaggregated from the total amount payable to ADIR in respect of the patent infringement.[17]

The trial judge, Gagné J., took “the view that if part of the price paid by Apotex UK and GenRx is proven to have been paid on account of those services, then the revenues should be apportioned or segregated accordingly… The question is therefore, whether or not the defendants have provided sufficient evidence proving that part of the price paid was indeed on account of non-infringing services and indemnity.” ADIR, on the other hand, interpreted the transfer-pricing agreements to mean that the transfer price was a payment only for the perindopril, and thus the whole sum was directly attributable to the patent infringement.[18]

As Justice Gagne explained, while it could take into account the different contractual interpretations of the litigants, the task of construction is ultimately determined by the court. The court therefore had to determine the true nature of the controlled transaction. Specifically with regard to the difference between the “higher” and the “lower” amounts, did the parties intend to have Apotex UK apply the difference solely as consideration paid for the indemnity and legal services or, alternatively, was that amount also consideration for the perindopril?[19] To make this determination, Justice Gagné proceeded to interpret the transfer-pricing agreements by applying the relevant principles of contract interpretation.[20] She concluded that a “proper interpretation of these agreements” did not support the assertion that “the difference between the higher price and the lower price, in the context of the export sales of Apo-perindopril to Apotex UK and GenRx, was paid solely on account of the indemnity provision and related litigation services, and not on account of the sale of the product.” Instead, in her opinion, “segregating or apportioning those revenues would not be equitable in this case.”[21]

As the FCA explained in Salt Canada v. Baker, contractual interpretation can be subject to judicial review on appeal from decisions at the Tax Court as well as in cases from the Federal Court dealing with other areas of the law such as settlement agreements, employment contracts, among others.[22] The FCA follows the SCC’s precedent that contractual interpretation “involves issues of mixed fact and law as it is an exercise in which the principles of contractual interpretation are applied to the words of the written contract, considered in light of the factual matrix.”[23] Hence, based on the SCC’s decision, the FCA stated that “contractual interpretation should be dealt with as a question of mixed fact and law, attracting a deferential standard of review unless an extricable error of law is identified.”[24] The FCA went on to note that “one example of such an extricable legal error,”  identified by the SCC in that case, “was the application of an incorrect principle.”[25]

Apotex appealed Justice Gagné’s decision on the basis that she made an error in her contractual interpretation of the transfer pricing agreements.[26] The FCA found that Justice Gagné committed an extricable error of law in her interpretation of the transfer pricing agreements, though it concluded that Apotex failed to establish that the transfer pricing agreements apportioned revenue as it alleged.[27] Even if interpreted correctly, the appellant had not demonstrated that the revenues received pursuant to the transfer price agreements were intended to be apportioned between revenue received for the drug and revenue received for the indemnity and defence costs the appellant agreed to bear.

Conclusion

It is mandatory to correctly construe contractual arrangements, where it is necessary to do so, in order to then determine their tax consequences. In transfer pricing disputes, and perhaps also in other tax disputes, there is risk that litigants as well as the courts fail to do so, either advertently or inadvertently or by mistake. Perhaps in some cases, such as the GlaxoSmithKline Inc. case, courts have not addressed the issue of construction where it was not raised by the parties in their pleadings. Nevertheless, a court could raise it as an issue that ‘stems’ from the pleaded issues or as a ‘new issue’ that was not pleaded by the parties but is required in order to ensure procedural fairness.[28] Failure to properly construe the actual transaction in question could be subject to judicial review and result in finding that an error was made. It is therefore critical for litigants and courts to be aware of, and take into consideration, the necessary role of contractual interpretation in transfer pricing disputes, as well as in tax disputes generally.

1.0 Introduction

Emotions are not incidental to tax policy, they are integral. From anxiety at the thought of an audit to the quiet pride of meeting obligations, taxpayers’ emotional states affect how they interpret messages, make decisions and respond to enforcement. The MINDSPACE framework,¹ developed to guide behaviourally informed policymaking, includes ‘Affect’² as one of its central features, yet this component remains underutilised in tax scholarship and administration.

This post draws on my PhD research comparing tax compliance behaviour in Australia and Pakistan to explore how the affect heuristic plays out in practice. I argue that understanding taxpayer emotions, particularly shame, guilt, pride, and fear, can help tax authorities design fairer, more effective compliance strategies. Naming and shaming, for instance, may appeal to certain affective instincts, but its effectiveness is culturally contingent. That is, it depends on whether public exposure aligns with the society’s norms and expectations. Such mechanisms can work in societies where public transparency is normalised, but they can backfire when used in settings that do not share those norms. In light of this, I propose an ‘empathy-based’ model that includes second-chance mechanisms and emotionally resonant communication to foster sustained compliance.

1.2 Affect and Tax: The Theory

The MINDSPACE report defines affect as the influence of emotional states, ‘hot’ or ‘cold’, on decision-making.³ Positive moods may lead to optimistic choices, which in the tax context can include risk-taking behaviour such as assuming one will not be audited or attempting to conceal income. Negative moods, on the other hand, tend to produce more cautious or pessimistic behaviour. For example, being overly conservative in claiming deductions or double-checking every entry to avoid mistakes. Policymakers are encouraged to recognise these dynamics and account for them when shaping interventions. For example, a mandatory ‘cooling off’ period before making financial decisions might prevent people from acting impulsively in a heightened emotional state.⁴

In taxation, the emotional experience of interacting with authorities, whether it is fear of punishment, shame from public exposure, or anger at perceived unfairness, or simply how one is made to feel during encounters with frontline staff, can drive compliance as much as legal or financial incentives.⁵ Recent empirical research into HMRC’s Charter found that when democratic tax principles, such as ‘getting things right’, ‘making things easy’, ‘being responsive’ and ‘treating people fairly’, are not upheld in practice, taxpayers can feel disempowered, mistrustful and emotionally distressed.⁶ Tax is not just about what people owe, it’s about what they feel.

1.3 Emotions at the Forefront: Shame, Guilt and Compliance

Building on psychological research, my study found that integral emotions (those arising directly from the tax context) play a pivotal role in compliance decisions. Taxpayers may feel shame when imagining being publicly named, or guilt when contemplating dishonest declarations, even if they are unlikely to be caught. These affective responses can be as powerful as the threat of penalties.

As Erard and Feinstein’s model of moral sentiments suggests, shame is externally driven, based on the anticipation of others’ judgment.⁷ Guilt, however, is internal, a reflection of self-assessment against social norms. Both influence behaviour, but in different ways. While shame may prompt short-term compliance to avoid humiliation, guilt fosters internalised accountability and longer-term honesty.

2.0 Data Snapshot: Insights from the Study

2.1 Methodology

This study drew on data collected over a 15‑month period from 193 participants in total. Of these, 157 self‑employed taxpayers completed a structured survey (79 in Australia and 78 in Pakistan), and 36 took part in interviews (18 in each country). The research design captured both attitudinal and behavioural responses to a range of compliance measures, providing a rich mixed‑methods perspective.

2.2 Naming and Shaming as a Compliance Tool

Table1. SQ12 and SQ11 correlation results.

Australia. The correlation between feelings of guilt and remorse if named‑and‑shamed for tax non‑compliance (SQ12) and the belief that naming and shaming techniques are unfair (SQ11) was –0.043 (p > 0.10). This is a very weak negative correlation and not statistically significant. It suggests there is almost no relationship between a taxpayer’s perception of the fairness of naming and shaming and their emotional response of guilt or their likelihood of changing behaviour to avoid future humiliation. In other words, whether individuals view naming and shaming as unfair does not appear to significantly influence their feelings of guilt or their behavioural intentions in the Australian context.

Pakistan. The correlation between SQ11 and SQ12 was –0.199 (p < 0.05), indicating a weak but statistically significant negative association. This suggests that individuals who believe naming and shaming is unfair are slightly less likely to feel guilt and remorse or to alter their behaviour if they are named‑and‑shamed for tax non‑compliance. In the Pakistani context, those who see naming and shaming as unjust may be less affected emotionally or behaviourally by such tactics, which could reduce the intended deterrent effect.

These findings illustrate how the affect component of MINDSPACE shapes the effectiveness of naming and shaming strategies. In Australia, the almost non-existent correlation suggests that feelings of guilt or remorse are not strongly linked to perceptions of fairness, indicating that naming and shaming does little to activate an emotional lever for compliance. Other variables in the dataset, however, demonstrated stronger and more meaningful associations with affect. In particular, feelings of guilt were more clearly linked to perceptions of civic responsibility, sensitivity to social pressure and the belief that paying tax contributes to the public good. While emotional responses appeared more muted and context-specific in Australia, often mediated by professional advice and rational judgment, they played a more prominent role in Pakistan, where communal norms, trust in authority and fear of social disapproval more visibly shaped taxpayer behaviour.

Moreover, the statistically significant negative correlation in Pakistan suggests that individuals who view naming and shaming as unfair are less likely to report feelings of guilt or to change their behaviour in response, which may, reduce the intended deterrent effect. Together, these results suggest that emotional responses to compliance interventions may vary across contexts, and that policy tools relying on affect should be carefully tailored to cultural expectations and taxpayer perceptions to be effective.

2.3 Emotional Divergences: Australia vs. Pakistan

The role of affect also varied significantly across jurisdictions. In Australia, participants tended to describe their tax behaviour in analytical terms, often emphasising reliance on professional advice, careful reading of guidance material and deliberate calculations to ensure compliance. Emotional triggers such as shame or pride were still present, but they surfaced more subtly, for example as a private sense of satisfaction after lodging accurately or mild embarrassment when seeking help, rather than strong outward reactions. In Pakistan, by contrast, emotional and social norms held stronger sway. Participants reported a greater fear of social judgment and more acute sensitivity to community perceptions. Here, the threat of naming and shaming could be a stronger deterrent, but only if seen as legitimate and fairly applied. Where trust in the system was low, even strong emotional triggers failed to influence behaviour.

2.4 Emotionally Resonant Communication

Tax communication itself is an emotional experience. Clear, accessible messaging reduces confusion and anxiety. Overly complex instructions, on the other hand, provoke frustration, anger and disengagement. This is especially relevant for the self-employed, many of whom face stress navigating uncertain reporting obligations. An interesting nuance, however, is that not all complexity is imposed by the system itself. Some of it can be self‑generated, for instance through attempts at tax minimisation or other opportunistic behaviours, which add further layers of calculation and uncertainty to the process and can intensify emotional responses.

My survey findings support this point. In Australia, only a modest proportion of respondents strongly agreed that emotions such as fear or anger influence their tax decisions (10.1 per cent), with a larger group somewhat agreeing (24.1 per cent) and a similar share taking a neutral position. In Pakistan, by contrast, emotions were a more prominent factor, with 15.4 per cent strongly agreeing and 37.2 per cent somewhat agreeing that their emotional state affects compliance decisions. These differences suggest that emotionally charged messaging is likely to resonate more strongly in Pakistan, whereas in Australia, communication strategies that prioritise clarity and factual detail may be more effective than those relying on emotional appeal.

Drawing from my findings, I argue that emotionally attuned communication, particularly when delivered by a trusted messengers, such as the tax authority itself or a recognised intermediary like an accredited tax adviser, can significantly enhance compliance. When the source of the message is seen as credible and fair, campaigns that acknowledge taxpayers’ emotional burdens, rather than merely instructing or penalising them, are more likely to foster stronger relational trust.

3.0 Beyond Shaming: Designing for Positive Emotions

Overreliance on shame and fear may backfire. While such tactics can work under certain cultural conditions, they risk alienating taxpayers or undermining long-term voluntary compliance. Instead, tax authorities should consider strategies that evoke positive affective states. For instance, publicly recognising individuals for consistent compliance, particularly among small business owners, can foster a sense of pride and legitimacy. Storytelling that highlights how tax contributions support essential community services can also strengthen a sense of civic purpose.⁸ Even something as simple as a personalised message of thanks after filing a return can reinforce the value of honest participation. These emotional nudges work not through punishment, but by affirming identity and reinforcing a sense of belonging.

4.0 Policy Proposal: A Second-Chance Model

One concrete recommendation informed by both empirical findings and global best practices is the adoption of a ‘second chance’ program, particularly for first-time or minor non-compliance. Rather than resorting to immediate public shaming, these programs provide taxpayers with an opportunity to correct their mistakes confidentially, supported by empathetic communication and access to guidance. Such approaches reduce the emotional harm often associated with compliance enforcement and align with the affect principle of MINDSPACE by promoting fairness, trust and a more supportive administrative environment.

This is not a novel idea, but a policy direction backed by successful models abroad. In the United States, the IRS’s Fresh Start initiative offers taxpayers various pathways to settle tax debt, access penalty relief, and avoid liens, ultimately making it easier to re-enter compliance voluntarily.⁹ Similarly, HMRC in the UK allows taxpayers to make voluntary disclosures of unpaid tax in exchange for more favourable terms and reduced penalties.¹⁰ These second-chance mechanisms demonstrate that fostering cooperation, rather than relying solely on deterrence, can enhance long-term compliance and institutional legitimacy.

Participants in my study, highlighted the need to distinguish between wilful tax evasion and unintentional error. I acknowledge that, particularly in a small business context, this boundary can be difficult to draw and open to manipulation. Nevertheless, a second-chance model creates space for empathetic engagement, giving taxpayers the chance to rectify their affairs without public humiliation or loss of dignity. In both the Australian and Pakistani contexts, such programs could significantly mitigate the emotional burden of compliance while cultivating a relationship of mutual respect and understanding between tax authorities and citizens.

5.0 Conclusion: Designing for Emotion, Not Just Economics

Affect is not an add-on to tax policy; it is a core component. If we fail to design for emotions, we risk creating compliance strategies that are either too harsh, too disengaged or too impersonal. The findings from my research show that emotions like shame, guilt, pride and anger are not noise, they are data. They tell us how taxpayers interpret messages, how they relate to institutions, and how they decide to comply.

MINDSPACE offers a valuable lens to rethink these relationships. By recognising the emotional lives of taxpayers, we can build systems that are not only more effective, but more human.

Author’s Note

This blog draws on my doctoral research, which explored tax compliance behaviour through the lens of the nine features of the MINDSPACE framework (messenger, incentives, norms, defaults, salience, priming, affect, commitment and ego) to examine three psychosocial factors: tax communication, tax literacy and naming and shaming.

For readers interested in the broader project, you can view the abstract of my PhD here. Thank you for your interest!

Elaine Doyle, Professor of Taxation, University of Limerick, Ireland.

Brendan McCarthy, Assistant Professor of Taxation, University of Limerick, Ireland.

This research was carried out with Professor Penelope Tuck, University of Birmingham, UK and Professor Frank Barry, Trinity College Dublin, Ireland.

Introduction

We recently published a paper exploring the introduction of a specific Irish tax policy that has been the subject of much international attention, namely the 12.5% corporation tax (CT) rate.[1] This blog gives a summarized version of the paper. Ireland’s withdrawal of its opposition to the OECD’s 15% global minimum CT rate in 2021 may restrict the extent to which the 12.5% rate applies in the future making it timely to explore the background to its introduction.

Most sources documenting tax policy changes merely outline their progression through the various stages necessary to introduce them into law. While reference may be made to social and economic objectives, the literature fails to fully explore how authorities approach the complexities involved in negotiating the shape of new tax legislation. To address this gap, our study used an oral history method to document the memories and lived experiences of key participants in Irish tax policymaking who navigated the introduction of the 12.5% CT rate which necessitated extensive engagement with the EU authorities. In so doing, the paper provides a case study that can guide other tax administrations by showcasing one approach to successfully negotiating tax change in an international domain. This is the primary contribution of the study.

The second contribution lies in our use of the oral history method. This method facilitates the creation of a richer and more nuanced contextual narrative on the evolution of the relevant tax provision. Despite numerous calls for the utilisation of oral history in business, the method has been employed infrequently. This study demonstrates how the method can be used to gain a richer perspective on how public policy decisions are arrived at which may encourage and assist other researchers in their endeavours.

Tax Policymaking in Ireland

Although there is a wealth of literature on policymaking more generally, Wales and Wales (2012) point to the dearth of research in relation to tax policymaking. This is particularly so in the Irish context. While the Wales and Wales (2012) study found that Ireland did not have a satisfactory consultative process when it came to tax policymaking, they note that the Irish business community nonetheless had good access to Department of Finance officials. The authors refer to a ‘small country effect’ when describing the informal relationship between the Irish business community and government, specifically noting how government institutions are small and senior private sector individuals are well known. In acknowledging that the Irish tax community is highly interconnected, the authors suggest that governments in similarly small countries may have the advantage of being able to hear the views of the people affected by a proposal simply due to being able to have everyone together in the same room and at the same time.

In a study from the following year, Christensen (2013) suggests that the generalist civil service orientation and closed recruitment mechanisms in Ireland created a tax policy bureaucracy characterised by constrained economic expertise, limited cognisance of microeconomic ideas about taxation, a passive approach to policy advice, and which identified primarily as ‘civil servants’. He argues that this ultimately led to Irish tax policymaking being dominated by politicians rather than technically skilled officials. He also suggests that this meant that neoliberal tax ideology (low rates, broad bases and neutrality) was not entrenched among Irish policymakers in the mid-1980s, resulting in high income tax rates, narrow bases and a plethora of tax reliefs at a time when many other countries were embracing neoliberal tax policies.

A Brief Historical Background to the Development of the Irish 12.5% CT Rate

Following independence in 1922, Ireland was a predominantly agricultural economy. With the volume of Irish exports falling substantially in the subsequent years (due to a combination of factors, including the Great Depression, protectionism, a trade war with the UK, and the difficult trading conditions of the Second World War era), a renewed focus on exports was necessary. In contrast with Department of Finance arguments in favour of trade liberalization to boost exports, the Department of Industry and Commerce advocated instead for financial and tax incentives. The victory of the latter in the policy battle of the mid-to-late 1950s initiated the strategy of ‘industrialization by invitation’ which remains a significant component of Irish industrial development policy to the present day. A decision to introduce export profits tax relief (EPTR) was announced in 1956. By confining the tax relief to exports, the policy achieved its objective of promoting the outward re-orientation of the economy without triggering the opposition of earlier protectionist-era industry. Profits in 1956 were subject to a total tax rate of approximately 50%. EPTR was initially due to operate for a period of five years, taking the form of a remission of 50% of the tax on manufacturing profits derived from increased exports over a datum year.Over the next two years, the tax remission was expanded to 100% and the period of the exemption was extended from five years to ten.

Manufactured exports increased strongly in 1957, more than doubling between 1956 and 1960. Moreover, by the eve of EU (then, EEC) accession in 1973, post-1955 export-oriented foreign firms accounted for almost 20% of manufacturing employment. As EEC accession approached, however, Ireland was understandably concerned by the prohibition in Article 98 of the Treaty of Rome regarding export incentives introduced without prior EU approval. Nevertheless, EPTR would survive until the end of the decade, when it was replaced by a new 10% CT rate on all manufacturing enterprises. This special rate was extended to qualifying activities carried out at the International Financial Services Centre (IFSC) in Dublin in the 1980s, while most other services activities continued to be taxed at a substantially higher rate. This resulted in a complex system under which some companies paid the lowest rate of CT in the EU while others paid one of the highest.

Ireland’s success in attracting foreign direct investment began to provoke claims of unfair tax competition from other EU Member States in the 1990s. The Irish government was informed by the European Commission in November 1996 that the preferential 10% rate could not be maintained indefinitely as it had been judged as an anti-competitive state aid.This gave rise to considerable political disquiet in Ireland: while the country was anxious to avoid being labelled a tax haven (thus damaging its international reputation), it was nonetheless considered vital to maintain a low CT rate to retain the foreign investment so carefully nurtured over previous decades. Eventually in 1998 the EU permitted Ireland to introduce a uniform rate of 12.5% for all companies from 2003 onwards. More detail on the historical background to the Irish 12.5% CT rate is outlined in the full paper.

Research Method

We now turn to a brief discussion of the oral history research method we employed for our study. As a method, oral history is used to document people’s first-hand experiences, opinions, interpretations and perspectives – information that might otherwise fade from public memory and be lost forever if not captured and preserved (Sommer and Quinlan, 2018). While oral history interviews are typically conducted with one person at a time, discussions taking place during a multi-person interview can serve to illuminate participants’ memories, yielding important insights.Participants may assist each other to remember details or spark responses that otherwise would not have occurred. Moreover, individuals within a group will often provide corrections of information and can stimulate each other’s memory, especially when a large group come together:  as they argue and exchange stories, fascinating insights can emerge from this collective memory.

To gain a thorough understanding of the arguments and ideas in play during the period leading up to the introduction of the 12.5% CT rate, the authors held a ‘witness seminar’ in Dublin, Ireland, in February 2019, in a premises equipped with unobtrusive audio recording facilities. The seven participants involved in the witness seminar had held the following roles during the relevant time period (with some holding more than one role): Chairman of the Irish Revenue Commissioners, President of the Irish Tax Institute, Secretary General of the Department of Finance, advisor to the Minister for Finance, Chief Executive of the IDA, Inspector of Taxes, member of EU working groups on direct taxation, two Principals in the Department of Finance, two members of the 2008-2010 Commission on Taxation, and two Tax Partners with three of the Big 5 accounting firms of the time. While many of the participants were retired, all had the ability to articulate their memories effectively and were willing to give an account of their recollections of the period in question.

Findings & Discussion

Space constraints prevent us from outlining the findings from our study comprehensively, however, we briefly outline the main themes below. Our findings support the existence of a ‘small country effect’ (Wales & Wales, 2012). The level of integration of the tax ecosystem in Ireland, as identified by participants, facilitates being agile when it comes to introducing policy measures needed to address specific issues. The ability to ‘get everyone together in the same room and at the same time’ reduces the level of bureaucracy to be navigated to arrive at a good outcome for all relevant stakeholders.

Participants spoke of the importance of relationships, both within and external to the country. Within Ireland, they noted how there was broad political agreement that a low CT rate was essential (both in terms of the certainty it offered existing taxpayers and its ability to attract foreign direct investment), something that was crucial in bringing all relevant Irish parties together in a united front to achieve the best outcome for the country.

I think we all put on the green jersey[2] on regular occasions…

Participants observed that building and maintaining strong international relationships was also important in achieving an advantageous policy outcome consistent with EU regulations, noting how positive relationships result in trust and open communication which were essential both internally and externally with relevant international partners. These relationships were built over time by the positive engagement of Irish policymakers across all tax areas within the EU context, even when the issues at hand were not of direct relevance to Ireland. Participants felt that maintaining a high level of involvement in discussions around tax within the EU (and later also at the OECD) gave the relevant Irish personnel a broad understanding of how the international tax environment was changing, allowing them to correctly anticipate the direction of travel in terms of best practice in corporate tax policy.

… our whole approach in the Department of Finance and in Revenue … was to be in the forefront of international discussions. You never deal with the issues by absenting yourself… In the OECD… we always had a strong hand, a strong team in there… We were always in those discussions.

Finally, participants’ discussions reveal that the 12.5% rate was not arrived at using any mathematical or economics-based formula.

… there is nothing magic about 12.5%… I mean, it couldn’t be 13 because that was seen as unlucky. It couldn’t be 10, you know, 12.5 almost was, it’s an eighth, it’s an easy thing…. It is fair to say it wasn’t a mathematical… Optimum point or anything…

Nevertheless, in contrast with Christensen’s (2013) suggestion that the dearth of economists within the Irish Department of Finance resulted in a generalist civil service orientation, we offer an alternative viewpoint: had the ranks of policymakers at that time been populated with qualified economists in the majority, the focus on contemporary economic models may have stifled the pragmatism which resulted in all interested parties putting aside their differences to work instead in the interests of the country.

Conclusion

Unpredictable national or global events can disrupt the best developed policy plans. A global pandemic, a war impacting on global food security and supply chains, a change in the leadership of important trading partners – any one of these can critically undermine the most thoughtfully considered tax policy approach. However, our findings highlight that the correct approach to tax policy evolution – an approach centred on strong positive national and international relationships, a willingness to engage in tax debate to assist others even when the issue does not directly impact on the country in question, respect for international partners and open communication and trust – can provide the building blocks to achieve positive policy outcomes in a challenging international context. It is hoped that the Irish case study can offer guidance to others facing similar challenges.

References

Christensen, J 2013, ‘Bureaucracies, neoliberal ideas, and tax reform in New Zealand and Ireland’, Governance, vol.26, no.4, pp.563-584.

Sommer, B. W., and M. K. Quinlan. The Oral History Manual. American Association for State and Local History Book Series. 3rd ed. Maryland, USA: Rowman & Littlefield, 2018.

Wales, C J, & Wales, C P 2012, Structures, processes and governance in tax policy-making: An initial report, Centre for Business Taxation, Saïd Business School, University of Oxford.

Authors’ Bios

Elaine Doyle is Professor of taxation at the University of Limerick, Ireland. She qualified as a Chartered Accountant and a Chartered Tax Advisor, working in PwC Dublin and EY Limerick before moving into academia. She has been awarded numerous accolades nationally and internationally for excellence in higher level teaching and learning and has undertaken several leadership roles in academia both locally and nationally. Her research interests include, inter alia, professional ethics and risk management in tax practice, tax compliance, tax policymaking, ethical reasoning and ethics education. She has published prolifically in these areas and has secured national and international funding to support her research activities.

Brendan McCarthy holds a Ph.D. in Taxation from the University of Limerick (UL), Ireland. He is a qualified Chartered Tax Advisor who worked for 10 years as a tax practitioner with Grant Thornton Chartered Accountants prior to returning to academia in 2016. His primary research focus is employee voice, in tax and the other traditional professions, and most of his research is qualitative in nature. Brendan has been teaching taxation at both undergraduate and postgraduate levels since 2016.

[1] Doyle, E. M., McCarthy, B., Tuck, P., & Barry, F. (2025). The Evolution of the Irish 12.5 Percent Corporate Tax Rate: An Oral History. Enterprise & Society, 1-25. The Evolution of the Irish 12.5 Percent Corporate Tax Rate: An Oral History | Enterprise & Society | Cambridge Core

[2] Irish national sports teams wear green jerseys when competing aboard. The reference to ‘putting on the green jersey’ means that everyone is part of the Irish team when representing the country.

Determining Employment Status in the UK

Employment status is and always has been a very complex matter in the UK.  However, in the years leading up to 1996, one could reasonably conclude that it was markedly less complex than it is now, in 2024.  I explain why below, but it is essentially because employment status in the UK is determined for law and tax separately, using similar, but not the same, benchmarks.  Employment law governs employment rights and contractual terms and conditions and employment tax governs the type of taxes the individual should pay such as income tax, PAYE and National Insurance contributions (NICs).  The following paragraphs illustrate the complexity. 

Employment law

The legislation concerning itself with the employment law part of employment status is overseen by the Department for Business & Trade (DBT) and is contained within the Employment Act, and several other pieces of legislation which compliment it, such as the Employment Rights Act (ERA).  This legislation is further supplemented by Employment Tribunal case law precedents from the Employment Appeal Tribunal and higher courts.  In employment law, since 1996, there have been three statuses – employed, self-employed and “worker”.  

The term ‘worker’ is not helpful, since in everyday language, a ‘worker’ is a word which can appear in discussions concerning individuals or groups of individuals who may be employed or self-employed – for example, the Cambridge Dictionary defines a worker as someone who a) works ‘in a particular job’ (i.e. skilled or unskilled), or b) works ‘in a particular way’, such as a good/tireless/skilled worker.  It can also mean someone who works for a company or organization as an employee but does not have a powerful position.

By contrast, for employment law purposes, a “worker” is defined by section 230(3) ERA 1996 as: “an individual who has entered into or works under (or, where the employment has ceased, worked under) –

1. a contract of employment; or
2. any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual.”

ACAS tells us that someone is likely to be legally classed as a “worker” if most of these things apply:

• their work for the organisation is more casual, for example work is less structured or they do not have a regular working pattern
• they’re usually required to personally do the work
• they’re not offered regular or guaranteed hours by the employer
• they have very little obligation to make themselves available for work, but should do work they’ve agreed to

If most of these do not apply, someone is more likely to be an employee or self-employed.

So essentially, “worker” status falls in between employed and self-employed status.  Workers have some employment rights, but not as many as employees.  They have a more flexible arrangement, but with fewer statutory rights.  

Workers are sometimes referred to as ‘limb (b)’ workers. This term comes from the Employment Rights Act 1996, s. 230(b). So, what exactly are workers entitled to receive, and more importantly perhaps,  not entitled to receive, as part of their relationship with the engager?  

Workers are entitled to:

• a written statement of employment particulars outlining their job rights and responsibilities
• National Minimum Wage
• paid holiday
• payslips
• protection for whistleblowing
• protection against discrimination
• protection from less favourable treatment for working part time

Workers are not usually entitled to:

• a minimum notice period if their employment is ending, for example if their employer is dismissing them
• protection against unfair dismissal
• make statutory flexible working requests
• time off for dependants
• statutory redundancy pay

Employment taxes

‘Employment taxes’ is a very wide-ranging term for a host of different pieces of legislation covering different aspects of employment and working arrangements, such as payroll, National Minimum Wage (NMW), Income Tax (PAYE), National Insurance contributions (NICs), Pension arrangements,  benefits in kind, remuneration planning, share schemes and reward, working time, termination payments, Construction Industry Scheme (CIS), Optional Remuneration Arrangements (OpRA), off-payroll working arrangements, to name but a few. 

The employment status legislation for tax purposes is essentially, and unhelpfully, non-existent, because there is nothing set down in legislation which points the researcher to a definitive set of rules and guidance which sets out when and how someone is classified as employed or self-employed. 

So, how is employment status for tax determined?

Employment status for tax is determined by referring back to tax case law precedents and HMRC guidance (generally understood to be HMRC’s own interpretation of the legislative provisions and case law) on the subject, as well as some supplementary legislative provisions set out at Part 2 of ITEPA 2003, chapters 7,8,9 & 10.  HMRC has also produced guidance in the form of their Employment Status Manual on GOV.UK, as well as a status determination tool, known as Check Employment Status for Tax (CEST).

Case Law

The most important case law precedent in terms of employed v self-employed dates back to the Ready Mixed Concrete case of 1968.  McKenna J issued a decision containing his definition of a ‘contract of service’ (an employment contract), which has been and still is today referred to in most employment status cases by other judges.  Essentially this is:  

• The individual provides personal service to the engager in return for remuneration; and
• sufficient control exists by the engager over the individual; and
• the other contractual provisions are consistent with an employment contract.

However, this has led to the courts determining status by referring to this method, seemingly without questioning why employment should be examined before self-employment is examined. 

It is interesting that the new UK government’s reforms propose a radical shift to a single worker status for all but the “genuinely self-employed” (this term is yet to be clarified), merging together the existing ‘employee’ and ‘worker’ categories. 

Labour are proposing to merge together the existing ‘employee’ and ‘worker’ categories – returning to pre-1996 times. The consequence of such a change would significantly extend vital rights (e.g. paid holidays, statutory sick pay, and anti-discrimination protections) to many more individuals who are currently classified as “workers” including agency and zero-hours contracts workers (also known as ‘casual’ contracts). The work needed to do this will involve unpicking several legal precedents.  Changing over the contracts to employment contracts will be complex, and it is not currently clear whether some individuals will be able to retain self-employed contracts while gaining a suite of employment rights.

In spite of challenges, the proposals around a “single worker status” isn’t all doom and gloom – because the outcome may achieve simplification of what is a universally acknowledged complex area, and provide some stability into the bargain.

Intermediaries: Part 2 ITEPA 2003 Chapters 7,8,9 &10 (also known as the “intermediaries’ legislation”)

To add to the confusion, and having stated earlier in this blog that employment status legislation is non-existent, I must complete the picture by discussing the general concept known as the “intermediaries” legislation.  The legislation does not solve the status conundrum – rather, it serves to make it still more complex.  

To counter the steep rise in employment taxes avoidance by engagers which became prolific in the early millennium years which coincided with the emergent Information Technology (IT) sector thanks to the internet and evolution of consultant-based working arrangements, legislative provisions were introduced which aim to capture alternative working arrangements such as working through a limited company or LLP (an ‘intermediary’), or an agency, or perhaps through a Managed Service Company (MSC) or via an Umbrella Company – all of which became so prolific that it was necessary to legislate for them to prevent further revenue leakage from the Exchequer’s most important revenue stream^[1] – PAYE and NICs.  All these pieces of legislation have been introduced to try to combat various methods of working which have attempted to circumvent the normal “employed v self-employed” rules.  Note however that it is important to maintain a clear perspective – if someone is genuinely self-employed, they should have the democratic right to be treated as such – subject to the fact pattern fitting the bill.

These rules tie in with or must be considered before (“trump”), other aspects of employment taxes legislation^[2].  Thus, the way in which status needs to be approached for tax purposes is first to consider whether the individual is working as a sole trader contractor or in a partnership or working through some other kind of legal entity such as a corporate body. 

CEST and HMRC guidance

The CEST tool is to be used to determine employment status for tax only.  

The CEST tool was born in the millennium years, when HMRC wanted to provide a tool which employers could use online.  HMRC agree to honour the outcome, based on the facts supplied at the time of completing the tool.  Obviously, should the facts not match the reality, HMRC would not honour the decision.

However, it is very difficult to produce a tool which can determine employment status without considering a whole host of facts, and each case is different.  The guidance on employment status produced by HMRC can be found at https://www.gov.uk/hmrc-internal-manuals/employment-status-manual – and yet, this is not the only guidance which needs to be looked at, because it is about taxation and not employment rights.  Ideally, the two parts of employment status should not be considered in isolation, but in tandem. This helps to avoid problems further down the line and helps eradicate exploitation of immigrants and low-paid workers, and indirectly tackle issues such as modern slavery.

How do employers and agents need to approach employment status?

To really get employment status right, what strategies should employers and agents adopt? 

In many cases, it’s possible to tell immediately whether someone is employed or self-employed for tax purposes.  However, others are less clear-cut and need further examination.  

The tendency to try to rush employment status decisions to expedite recruitment can be a bear trap. Better recruitment planning can avoid this. Talking through the issues around whether the person required is to be classified as employed or self-employed can assist employers in  being comfortable with the decision-making process.  The fact pattern must match the eventual contractual terms of engagement.

The employment law side must also be given due consideration – self-employed workers can also appeal to the Employment Tribunal if they feel they should have been classified as an employee all along! 

What are the main stumbling blocks?

The main stumbling blocks with making employment status decisions that are commonly encountered by employers, individuals and agents alike are:

• Misunderstanding the terms around employment status;
• making assumptions and not having the whole fact pattern to hand;
• trying to (consciously or unconsciously) make the role fit the preferred status;
• not being told the whole truth by someone about the role and the terms of engagement;
• not seeking expert advice; and
• trying to do things too quickly and missing things.

Has the 2024 UK Budget helped employment status?

In a word, no.  Despite claiming to deliver a Budget with no impact on the “working man”, the Chancellor’s rise in employers (or secondary) NICs from 13.8% to 15% will undoubtedly prove to be a huge burden on employers of all sizes.  The unintended consequences of that may be:

• Pay rise freezes;
• recruitment freezes;
• promotion freezes; 
• headcount reductions; and
• pushing individuals into bogus or false self-employment.

Conclusion and next steps

It is clear the current situation relating to determining employment status is far too complex, onerous, burdensome and a barrier to doing business, detrimental to the flexible UK labour market and negatively affecting the UK economy.  Coupled with Brexit, which has affected many sectors of the labour market including the NHS and social care, clearly, something needs to be done.

In July 2024, I set up the so-called Employment Status Consultative Committee (ESCC) which is a collective of representatives from a number of different professional, representative and industry bodies who are hoping to work with the UK government to consider the whole of employment status and consider how it could be reconfigured to attain a workable and viable, future-proof solution.  A letter has been written to the Exchequer Secretary to the Treasury (XST), James Murray MP and a copy of this can be found here.

^[1] HMRC tax receipts and National Insurance contributions for the UK (monthly bulletin) – GOV.UK

^[2] These provisions are as follows:

1. Ch. 7 Part 2 ITEPA 2003  – this is the Agency rules.   Where Chapter 7 applies, the agency is treated as the worker’s employer and has tax and NICs withholding obligation. 
2. Ch. 8 Part 2 ITEPA 2003 – this is the “IR35” rules.  Where Chapter 8 applies, private sector clients are supplied with work by an intermediary (usually a Personal Service Company or PSC). The PSC decides if IR35 applies to them.  From 6 April 2021, Chapter 8 only applies where the services are provided to private sector clients that are small or have no UK connection. 
3. Ch. 9 Part 2 ITEPA 2003 is the Managed Service Companies (MSC) rules. Where Chapter 9 applies, the intermediary providing the labour is classified as a MSC.  Chapter 9 trumps Chapter 8. 
4. Ch. 10 Part 2 ITEPA 2003  – this is the Off Payroll Working (OPW) rules.   Where Chapter 10 applies, from 6 April 2017, a public sector body must apply the rules to intermediaries supplying workers’ services.  From 6 April 2021, it applies where the work is provided to medium and large UK connected private sector clients.  The engager decides if OPW applies 

In the wake of the OECD’s BEPS project, there has been an explosion of interest in the closely related question of how tax systems ought to deal with highly mobile individual taxpayers.  The most obvious example of such a taxpayer is a high net-worth individual (HNWI) who can move easily between jurisdictions and whose choice of jurisdiction may be affected by tax rates, reliefs and administrative arrangements, amongst other considerations.  Yet we should not lose sight of taxpayers at the other end of the spectrum such as low-paid migrant workers, who may be paying considerable amounts of tax to their host jurisdiction without the capacity to make informed tax-efficient choices, or who, conversely, might be forced into the informal sector with few realistic opportunities to comply with their formal tax obligations.    

Either way, and as illustrated by recent debates surrounding the abolition of the UK’s preferential regime for non-domiciled individuals, individual mobility creates important challenges for democracy.  Contrary to the US Revolutionary slogan “no taxation without representation”, mobility can amplify the voice of at least some HNWIs even at the expense of revenue-generation (“reduce my tax liability or I shall leave”) at the same time as denying voice to others (“refugees must pay tax but cannot vote”).  In other words, it leads to potentially serious mismatches between taxation and representation.  Nor does citizenship provide any easy answers, despite its importance in signifying membership of political communities.  Citizenship has never been identical to subjection to the tax system (children, for example, are taxable but do not enjoy the full range of citizenship benefits), but in the context of ever-increasing individual mobility it is more difficult than ever to treat it even as a rough proxy for those who ought to be subjected to tax liabilities.  Indeed, tax systems can be expected to have to cope with increasing numbers of non-citizen taxpayers as well as non-taxpaying citizens.

Whether states ought to respond to these challenges with lower expectations of “no taxation without representation”, by making citizenship easier to obtain, by widening the franchise to include a wider range of non-citizens, or in some other way, raises an eye-wateringly complex series of questions that demand attention not only from lawyers but from a myriad of other disciplines.  It is hardly surprising, then, either that there has been a significant upswing in literature dealing with these topics, or that this literature has not yet settled on any consistent recommendations.   The Fiscal Citizenship Project, whose members are represented in the present volume, is perhaps driving the most systematic attempt to build a common vocabulary between disciplines, but it remains at a relatively early stage.

The present volume does not even attempt to compete as a systematic project.  On the contrary, it is gloriously various, representing the complexity of the problems involved as well as the sheer range of insights that are emerging across different jurisdictions and academic backgrounds. This approach is backed up by tolerant editorship that allows authors to speak for themselves rather than repeating an “editorial line”, which seems particularly well-judged in a young research area where the literature is still finding its way.  It encourages, instead of restricting or channelling, the growth of ideas.  All the same, variety is not the same as incoherence, and indeed the editors do an excellent job of drawing together the different strands and ensuring that the volume provides a meaningful and useful experience, whether read from the beginning to the end or dipped into. In this connexion, it is worth noting that both Lind’s introductory chapter and Brøgger and Björklund Larsen’s closing chapter focus on boundaries.  This is hardly a coincidence: the volume is all about boundaries, be they disciplinary, geographical, membership or tax conceptual. 

This neat bracketing of the issues is complemented by the exceptional clarity with which Bamford sets out many of the most relevant political philosophical questions in Chapter 2, which will be helpful for anyone working in this area but could equally be understood by the most recalcitrant first-year undergraduate.  In the following chapters, we read about a proposal for a more sophisticated concept of tax residency that would account for a wider range of life circumstances (Shanan and Narotzki); a new way of conceptualising fiscal citizenship (Schmidt and Matthaei); a proposal for increasing the relevance of tax payments to citizenship applications (Ramos Obando); an analysis of whether distinctions between citizens and non-citizens, if used carefully, might help states to respond to the challenges of taxpayer mobility (Lindsay); a discussion of the citizenship position of corporates (Scherer); the treatment of non-citizens within automated tax risk-management systems (More and Schenke); the importance, and misuse, of taxpayer status in defining political communities (Davis); the anomalous and potentially pointed exemption of agricultural workers in the US from certain fiscal obligations (Sarkar); the different status of taxpayers in the Canadian and Chinese tax systems (Li); and the scope, design and operation of cooperative compliance programmes in Norway and Sweden (Brøgger and Björklund Larsen).

I greatly enjoyed reading this book and would heartily recommend it to anyone who is or who might conceivably be interested in this emerging area of research.  In common with many if not most edited collections, the volume is not entirely even, either in quality or relevance to the topic.  Without wishing to single out any particular author, I sympathised with the attempts to develop theoretical and philosophical frameworks but felt that some were more successful than others.  I also thought that some of the boundary issues, in a field of study replete with boundaries, were presented by authors in a rather over-simplified or at least stylised way; still useful, but perhaps a starting-point for further discussion rather than a destination.   Finally, there is some evidence of “shoehorning” of topics into the scope of the volume, though, in balance, one of my most valuable experiences was realising that the final chapter on cooperative compliance is not at all shoehorned but instead highlights the themes of the book in a new and (for me) unexpected way.

These minor reservations, ironically, highlight one of the things that I enjoyed most about reading this volume, which is its exploratory quality.  It provides a coherent overall experience, as would be expected from editors of this calibre, but it is not overly tidied.  It is suggestive of directions rather than attempting to close down possibilities.  This, in turn, indicates a field of enquiry that is on its way up rather than one that has been answered and is exhausted of inspiration.  This sense of excitement and newness is more than captured in the volume and is one of its real strengths.  Apart from anything, it is fun to read, full of insights and inclusive.  It invites the reader to join in, and it is to be hoped that this invitation is accepted widely.

Tax researchers are increasingly focusing on the impacts of digital technologies on tax authorities and taxpayers. In June 2023, Benita Rose Mathew^[1] of the Surrey Institute for People-Centred Artificial Intelligence spearheaded a workshop on digital innovation in tax administration with participants from universities, tax authorities, companies, and NGOs from around the world.^[2]  A similar mix of participants gathered in Antwerp in June 2024 for the 9th International Conference on Taxpayer Rights. Convened by the Center for Taxpayer Rights and hosted by the DigiTax Centre at the University of Antwerp.  The focus was “Towards a Digital Taxpayer Bill of Rights^[3].”

About four dozen experts participated in about a dozen sessions over three days in Antwerp. Discussions centred on taxpayer rights to transparency, fair treatment, and human intervention, particularly in the context of AI blackboxes, data collection and accuracy, and the incomparable speed and scale at which digitized systems can inflict harm. The following are a few points that struck me as especially interesting.   

GDPR and the AI Act 

Within the EU,^[4] digitalization implicates both the GDPR and the recent AI Act. As taxation is an important objective of public interest, the GDPR permits a state to limit the rights of data subjects and the obligations of a tax authority (as a data controller) , provided any limitation of rights is necessary and proportionate and the essence of the data subject’s fundamental freedoms and rights remain protected. Philip Baker^[5] explained that the meaning of this power to limit rights and obligations in tax administration is  unclear as key issues have yet to be addressed by the EU Court of Justice.

The EU AI Act, now coming into force, imposes different levels of regulations based on a classification of AI applications.  Applications classified as “high risk” are subject to the most regulation.  The Act includes a list of AI uses that will be classified as high risk.   For example, AI used to determine eligibility for public benefits or used for  criminal law enforcement or that uses biometric data is considered “high risk” and thus subject to the most regulation.  Sylvie De Raedt^[6] highlighted that, although tax administration is not explicitly listed as high risk, it may be in specific situations For example,  tax authorities using biometric data or determining eligibility for public benefits would be high risk.

Baker questioned whether, under European Convention on Human Rights criteria the risk of administrative penalties, not just prison time, means much of tax administration should be classed as law enforcement, and, thus, high risk.

The deeper issue regarding the extent to which tax authorities should be limited by non-tax laws is what sets tax authorities apart as exceptional. Is it that taxes are the lifeblood of government?  Historically, this has been the US approach, Nina Olson explained.^[7] This leads to fewer limitations on tax authorities.  Conversely, Baker argued that tax authorities are exceptional because they collect, hold, and process the most personal data on the most persons.  Thus, he argued, tax authorities involve the riskiest data activities, and their AI and data uses should be subjected to more, not fewer data protection and human rights safeguards.

Privacy and history

National histories should be expected to influence the politics of how tax authorities use AI.  Magnus Kristoffersson^[8]described the traditional openness of  records held by Swedish authorities, including parts of personal tax records that taxpayers in many other nations would expect to be confidential. Baker speculated that the US and UK governments have lagged in developing data and AI protections because, unlike much of Europe neither experienced invasion or dictatorship in the 20th century. He attributed the EU’s lead in data protection to living memories of invasion, dictatorship, and the misuse of government-held information for persecution.

Glitches and incremental steps

Lotta Larsen^[9] reminded us that digitized systems will always have bugs and glitches, and system designers will struggle to keep up with societal changes. Keeping up with technological changes continues to prove difficult for some tax authorities, such as the IRS. David Padrino, the IRS Chief Transformation Officer, cited new funding aimed at modernizing the IRS. He said there is no IRS-wide digital transformation strategy.  The focus is on incremental projects. One such project is the introduction of “Direct File,” enabling taxpayers to file returns directly with the IRS. His pride in the success of this program, even though he acknowledged that taxpayers elsewhere have long been able to file directly with their tax authorities, underscored how far the IRS is from the type of digital revolution the AI salesforces hype. 

Cautionary tales

Dirk Van Rooy^[10] presented the Australian Robodebt scandal and David Hadwick^[11] discussed the Dutch childcare benefits scandal as cautionary tales for tax authorities. The Robodebt scandal arose from automating processes to recover overpaid welfare benefits.  Robodebt compared welfare recipients’ reported income with their tax data held by the Australian Tax Office, but it used averages of the tax data, which generated inaccurate debt calculations for those with fluctuating incomes.  The beneficiaries targeted for collection were not informed as to how their alleged debts were calculated; there was no process to challenge the alleged debts; and there was little human oversight.  A half million alleged debts had to be recalculated by hand. In a class action settlement, the government paid $1.2 billion.   In addition to the obvious process deficiencies, Van Rooy identified ideological assumptions about welfare recipients as critical to the flawed design of the system.

Hadwick highlighted the role of mistaken assumptions in the Dutch childcare benefits scandal in which non-Dutch recipients were disproportionately targeted. The problem was human bias against the non-Dutch resulted in sampling biases in the data used for machine learning. This led to discrimination against the non-Dutch as a feature rather than a bug of the automated system. Exacerbating problems for those targeted was a decision to require reimbursements not based on individual misconduct but rather a “hunch” about the percentage of individuals who would be non-compliant if they had certain social relationships (e.g., parents of children served by a childcare-provider previously connected to fraud). Hadwick’s message was that the scandal was not caused by artificial intelligence but rather politically motivated instead of data-based theorizing. Hadwick emphasized that humans must not be removed from automated-decision making processes, that is, there should always be a “human-in-the-loop” but that this is insufficient; the humans must be subject to a duty of care (e.g., to use data rather than hunches when building the system).

Developing countries 

Rhoda Nyamongo^[12] addressed the challenges faced by tax authorities in developing countries implementing AI systems.  One is the shortage of personnel who are trained in data science or taxpayer rights.  Like Hadwick, she emphasized that humans-in-the-loop are not sufficient.  What is needed are humans who understand what they are doing and what the AI system is doing and work carefully. A second challenge is that many developing countries are in the early stages of AI and data protection regulation.  A third is that tax authorities in developing countries often are locked-into using off-the-shelf software that they are unable to improve.  A fourth challenge is corruption, which means taxpayers in some developing countries may trust an AI-generated decision more than that of a tax agent.

Personal involvement 

The role of tax agents in digitized tax administration was a recurring topic. De Raedt noted that digitization reduces human contact between taxpayers and tax authorities. Vincent Vercauteren^[13] lamented how already tax agents do not become personally acquainted with the taxpayer being audited but rely exclusively on e-mailed demands for the taxpayer’s digitized books and records, which leads to worse results for both the agency and the taxpayer.  Nina Olson^[14] worried that one ultimate effect of digitization will be to exacerbate inequities with high income individuals and corporate taxpayers receiving more human interaction while others will be forced to rely exclusively on AI-delivered services.

Data from third parties 

Tax authorities will increasingly rely on third parties to provide data for AI analysis. Alessia Tomo^[15] argued that transparency as to what the government is doing is a cornerstone of democracy, which means that taxpayers have the right to know that tax authorities are engaged in web-scraping, for example.  She argued that, not only is the re-use of this data practically and legally problematic, it also does nothing to improve voluntary compliance.  If the agency’s goal is improving compliance rather than merely detecting tax cheats, this is an inadequate strategy as taxpayer compliance is unaffected if taxpayers do not know what information is being collected.  

Bigger picture

Several speakers suggested the importance of tax researchers considering the bigger picture. Raffaele Russo^[16]characterized much of the discussion at the conference as simply talking about AI doing what tax agents have done for 50 years.   Instead, he characterized this as a moment for thinking outside the box, thinking how radically different not only tax administration but substantive tax law could be. Diana van Hout^[17] suggested considering whether substantive tax law should be reformed to reduce the need for sensitive personal data (e.g., medical expense information).  Larsen encouraged pondering who ultimately will control the data (a handful of multi-national corporations)?

Digital Taxpayer Bill of Rights

The goal of the conference was producing recommendations for a Digital Taxpayer Bill of Rights.  It is expected to be published around the New Year.  Materials and recordings will soon be available at the Center for Taxpayer Rights site.  

The Chairman Presidential Committee on Fiscal Policy and Tax Reforms in Nigeria, Mr Taiwo Oyedele, wrote that Area-boys (click for details) are already collecting taxes on government’s behalf, thereby leading to a multiplicity of both formal and informal taxes paid by citizens – the Area-boys terminology and that of formal and informal taxes are explained more clearly in the sections below – notwithstanding, it is worthy to note that, the formal and informal taxes administered by Area-boys and paid by citizens can add to citizens’ fiscal burden. This was a rejoinder made by Mr Taiwo Oyedele to his earlier interview with Channels TV on 17^th January 2024, wherein he mentioned, provocatively, that Area-boys can be trained and paid salaries to effectively administer taxes on the government’s behalf.  

Mr. Taiwo Oyedele’s statement was met with many criticisms by Nigerian citizens across media outlets; many of these criticisms were justified on the basis that, Area-boys can undermine citizens’ rights and state laws through aggressive tax administration; they often contribute to a higher tax burden for low-income earners due to a multiplicity of inequitable taxes; and Area-boys largely do not remit tax-revenue generated to the statutory government—rather they remit to political leaders within the government, thereby undermining accountability processes. Furthermore, citizens raised concerns about extortion by Area-boys and cases where Area-boys pledge allegiance to local politicians – to retain revenue collection contracts – but end up being used as thugs to disrupt political-democratic processes. 

These criticisms point to the major challenges of engaging Area-boys as tax administrators. Notwithstanding these risks, from my observation of the role of Area-boys in the administration of property and toilet taxes in Makurdi Benue State, it may be possible to empower some types of Area-boys in some contexts to collect taxes effectively and efficiently in areas with less formal tax administration presence. This prospect likely depends on the different leadership and structures of Area-boys that exist and vary across the country, while the implications for governance and public accountability certainly need to be taken into consideration and considered through future research. For instance, the Governor of Benue State made a Public Order Declaration on the 24^th of May 2024, which intends to place fines on traffic and other offences; this is to be implemented by contracted security agencies alongside the Governor’s Adviser on Youth and Illegal levies; this is the governor’s aide, in charge of regulating activities of Youths (Young under-employed citizens) considered in this blog as the Makurdi’ Area-boys in urban centers, and making sure that issues of extortion considered as illegal levies within the state are regulated. From my observation, the Governor’s Adviser often engages Area-boys who have allegiance to the ruling political party to help the implementation of illegal levies regulation and they will likely be engaged to administer fines on traffic offences but there are likely concerns of harassment to political opponents and opposition members or other groups when these Area-boys are subsequently engaged by the Benue State government to implement the Public Order due to their political allegiance. 

Who are Area-boys?

Area-boys is a general term in Nigerian parlance attributed to young men inhabiting marginalized neighbourhoods, often underemployed or unemployed, seeking livelihood through informal means. Governance structures of Area-boys differ across regions in Nigeria. For instance, Area-boys in Lagos, often referred to as ‘Agberos’,  predominantly comprise of members with less formal-organized structure, and their leadership succession is majorly established through undemocratic processes, probably connoting less accountability in the system. In Makurdi, two groups of Area-boys exist with different structures. These are the Youth-Group and the Agberos.  From my observation, Youth-group mainly operate within local communities and neighborhoods, they are comprised of members with more formal education and have organized democratic process of leadership succession with periodic elections which might connote a form of accountability. Within market premises and motor parks, another form of Area-boys leadership exist in Makurdi, with leaders often referred to as Chairman-Agbero and with similar structures to the Lagos Agberos.

As this variation in the names and structures of Area-boys exist, it is likely that the range of informal and formal taxes administered by the Area-boys across regions in Nigeria also varies. Given the wide variation in types of actors captured under the umbrella of “area boys”, I do not try to generalize here; my observations are solely based on indicative evidence from Makurdi. Pragmatic and practical policy approaches to mitigate the challenges of taxes administered by the Area-boys need to be considered on a case-by-case basis across the country.

Informal and illegal taxes and Payments Collected by Area-boys

Area-boys across the country collect a range of informal and illegal taxes and payments, including user fees, fines, tolls, development levies, presumptive income taxes, and taxes on agricultural produce through roadblocks. Some of these payments represent informal taxes as they are levies collected by Area-boys, sometimes with the backing of traditional institutions or local government authorities, for public goods provision. In other cases, payments represent clearcut extortion: for example, Area-boys mount roadblocks demanding that transporters pay them certain fees through coercion.

In Makurdi, I further observed in some cases that Area-boys, backed by Traditional leaders, collect development levies from landowners who attempt to develop property on those lands; they term such payments as “Deve”, but failure to comply leads to destruction of whatever property the landowner may establish without recourse to statutory laws. Although these payments take the form of property taxes, they are extortionate since there are no evidence to show they are used for community development purpose.  

In other cases, Area-boys collect flat-rate tax on the daily income of wheelbarrow/truck pushers, motorbike (“Okada”)and tricycle (“Keke”) riders, bus drivers (“Muluwe”), and petty traders in the local markets; the tax is presumptive and inequitable as it does not take into cognizance the difference in income of citizens thereby exerting more burden on those who make lesser income.  I have equally observed that sometimes taxpayers are forced to pay above the agreed limits or make double payments by different Area-boys groups thereby amounting to extortion because such force payments might not be accounted to the local council or Chiefs.

Can Area-boys support local government taxation?

I observed in some cases in Makurdi that Heads of Revenue Department – referred to as Revenue Heads hereafter – with the approval of Council Chairmen informally, contract Area-boys to collect fees from citizens who use public toilets, those who park vehicles or use the local government garages and farmers who bring agricultural-produce for sale in local markets. Accordingly, the Area-boys report directly to the Revenue Heads on how much tax-revenue they collect on a daily basis, from which some percentage is shared between the Revenue Heads and the Area-boys, given the informal arrangement. There is sketchy evidence on how much is shared and remitted which portends to lack of transparency in the process. A similar case is reported in Lagos where such revenue ends up in the pockets of corrupt government officials—tax administration by Agberos account for 29.4% of Lagos State Tax Revenue, yet it is largely unaccountable. This might be due to political synergy, where other than remitting tax revenue to the government, the Agberos might have shared such tax revenue with their political masters. This suggests potentially large risks for accountability of the strategies of tax farming suggested by Mr Taiwo Odeyele. 

Despite the obvious accountability challenges of tax administration by Area-boys, my recent engagement with Youth groups in Kaduna – with similar organized structure like those in Makurdi – has shown that Area-boys backed by traditional leaders keep adequate tax records and report to community members when they collect informal taxes to fund community development projects. For instance, I found through an interview with the Youth leader in the Rido Council Ward that when they collect informal levies to fund repairs of electrical installations (Transformer) in the community, as directed the Mai Angwan (Local Chief), they are required to keep registry of payments made by community members; in order cases, the Youths issue receipts to community members during the collection of levies. Although Kaduna State may offer a different context from Makurdi and Lagos which I have been observing,  it suggests that there is some potential for Area-boys to be made more accountable when integrating with respected informal institutions. Before considering using them, local governments need to consider the structure of hybrid governance that puts in place checks to curb crimes by Area-boys while ensuring that Area-boys act within legal frames when they administer taxes on behalf of the government.  

In terms of efficiency, if Areas-Boys are paid lower when trained and commissioned as local tax-administrators, it may reduce the cost of tax administration by government as compared to engaging career tax administrators with higher pay who have formal education and placement in civil-service cadre; but we must bear in mind cases/risk of retained revenues which may outweigh the cost of collection when tax collection is outsourced to private actors by the statutory tax administrators. Regarding effectiveness, when compared to formal tax administrators, I observe that Area-boys are more acquainted with the activities of informal actors like developers in the communities evading formal development levies and activities of agro-produce transporters using routes with no presence of formal tax-administrators. In Lagos, reports shows that Area-boys engage more frequently with informal actors like non-registered small scale businesses, vehicles parked at unauthorized space, and local transporters. This puts Area-boys in a position to approach actors in the informal terrain and make timely collections than formal tax-administrators. 

The Need for More Research and Policy Engagement on Tax Administration by Area-boys    

Despite the challenges outlined, the possible benefits of tax administration by Area-boys should not be overlooked by tax policymakers. Attempts should be made to study the governance structures and the varying taxes administered by the Area-boys which in a way may contribute to local tax efforts and broader state building.  To do this, there is need to undertake further research to understand how Area-boys structure their tax administration; develop possible methods to mitigate extortion; develop collaboration mechanisms that can be structured to enable a hybrid tax administration between formal tax administrators and the Area-boys.

There is a never-ending debate about the legitimacy of taxpayers’ behaviour in the legal reduction of their tax liabilities by, inter alia, the (ab)use of loopholes and inaccuracies in the content of regulation, this is tax avoidance. Globally, this legal behaviour is frowned upon as it increases the tax gap, deprives States of resources to carry out part of its functions, and makes the tax system ineffective or unfair to some degree. But not only that, a plethora of new terms also has become common language, even between lay citizens, to describe that “abhorrent” behaviour. At the regulatory level, the Organisation for Economic Cooperation and Development (OECD) has intervened through the publication of soft law/guidelines that highlight some of the manipulable aspects of tax rules with international scope to be corrected via procedures in domestic tax codes in the hope of limiting the opportunities for tax avoidance to occur. Locally, States frequently modify the operation of their tax systems introducing either legal changes that close loopholes and correct inaccuracies of existing problematic regulation, or administrative changes that strengthen tax administrations’ capabilities to enforce rules more effectively.

The effects of problematic tax regulation are noticeable within tax administrations. In the article entitled “Implementing problematic tax regulation: Hysteresis and bureaucratic revolutionaries within tax administrations”, Lynne Oats and I examine the long adaptation process that the Chilean tax authority- the Servicio de Impuestos Internos (SII)- experienced to become as an effective enforcer of the first tax transfer pricing rule in the Chilean setting between its enactment in 1997 and its repeal in September 2012. Informed by interviews and documentary evidence, we provide a detailed account of how two characteristics of the domestic tax rule became particularly problematic during its implementation: namely, the absence of specific mandatory documentation requests and the incompleteness of the valuation methods section. The fact that multinational companies or any taxpayer with cross-border transactions with related third parties were not obliged to submit documentation (such a transfer pricing study or a specific affidavit, for example), made the SII tax officials’ enforcement work particularly challenging. In the words of the late tax administration expert and academic Richard Bird, competent personnel is one of the ingredients that makes tax administrations successful. However, as we illustrate in our article, the absence of mandatory documentation prevented tax officials from developing a thorough command of the practicalities of transfer pricing. Theoretical knowledge of the rule was insufficient to empower officials to apply the rule. As the case illustrates, documentation did not only serve as a source of information for tax authorities, but also as a fount of practical knowledge when officials examine taxpayers’ affairs. In its absence, tax officials were bound by their hands and feet from getting to the bottom of transfer pricing transactions. Interestingly, tax officials had to use their instinct to select audit cases, while in most instances their instinct failed creating material administrative costs. In cases where tax officials could access other information sources and audits started, they faced the challenge of incompleteness or ambiguity in the methods of valuation. 

Rather than following the OECD Transfer Pricing Guidelines of the time (1995) strictly, rule-makers customised its content to fit the Chilean tax environment introducing a previously unknown valuation method called reasonable profitability. As described by some interviewees, this method was largely ambiguous and could encompass any other valuation method, but without precise definition in the tax code. Obviously, this made tax officials’ selection of methods of valuation more problematic. In the timespan of 9 years, the problems of the rule made the SII’ work difficult, if not ineffective. As described in the paper, some high-profile managers and directors of multinationals wonder whether the Chilean tax code contained a transfer pricing rule or not, contributing to a taxpayers’ perception of an absence of control. 

For various political reasons, beyond the scope of the article, the transfer pricing rule remained unchanged for fifteen years. During this period, however, one newly appointed SII director (the highest authority in the tax authority) intervened to empower the institution in the enforcement of the existing rule to collect revenue, when possible, but also to evidence the problematic nature of the rule to motivate a legislative change in the future. This director landed in the SII with the conviction that this sense of having no control had to be corrected by the actual enforcement of the rule, and that companies in particular industries were manipulating prices to artificially reduce their tax liabilities. How did the director address this issue? Mostly by developing practical competence in tax officials. During this director’s period in office, tax officials were called to examine some specific transactions, getting to the bottom of them, in order to collect tax revenues. In those selected cases, tax officials had to document which aspects of the rule impeded them from collecting revenue. In this way, tax officials developed practical competence by auditing real cases, regardless of the outcome. Thus, the first (few) successful audit cases appeared, thereby reducing the sense of a lack of control. In other words, this director became a bureaucratic revolutionary. After that, tax officials became competent enough to effectively apply the transfer pricing regulation despite its complexities, paving the way for the new regulation promulgated in September 2012. 

Although this is a recent example of the problems occurring in a tax authority in a developing country, it broadly informs us about the challenges States face in the implementation of problematic rules. At the international level, this mismatch between the role of enforcer and the actual capabilities of tax administrations may become the norm for developing countries in light of the adoption of BEPS in emerging areas such as digital taxation or the global minimum tax. But also, this happens in the implementation of local regulation whenever the legislative output is deficient. We are left to wonder who should we blame for the ineffectiveness of tax rules? Should we blame technically compliant taxpayers, as distinct from tax evaders, who lawfully apply, and sometimes exploit, the content of problematic rules relevant to them reducing their liabilities? Christian Aste, a Chilean lawyer and active commentator, recently wrote an interesting metaphor on his LinkedIn site about tax avoidance: “Several politicians paint it in black and put it in the same box as tax evasion. Is that fair? Course not! As screws are not nails, tax avoidance is not evasion. Is it illegal to buy 2×1 items in a supermarket sale? No, we simply use our astuteness to pay less for more… in return, those companies bring employment and growth”. Then, should we blame tax authorities for their apparent ineffectiveness in terms of implementing the rules? In fairness, these two sets of actors did not formally craft those rules. Should we instead blame, or pay attention, to the regulatory process with its configuration of actors and institutional arrangements that favoured the creation of problematic tax regulation that leads to implementation problems and ultimately avoidance? Part of the answer seems to be there, and more attention needs to be paid to make tax policy-makers accountable.