4.45 Whistle-blowing and Social Pressure

Primary Reference to Article 32 - Corruption

The substantial shift in issues associated with the public perception of taxation, of fairness and of enforcement policies derives from the coalescence of a number of factors. Foremost is the political impetus given by the G20 and its instruction to OECD to undertake and proceed with the BEPS project. The G20 leaders were themselves reacting to global and grass roots movements, NGOs, investigative journalists and activists who were pointing out the anomalies within tax systems and, in particular, the use of systems and national reliefs by taxpayers to avoid, minimise or defer otherwise perceived tax liabilities – as well, perhaps, as seeking to identify causes other than their own policies which contributed to the global financial crisis.

This work is not the forum to debate the pros and cons of avoidance ethics or more particularly the many shades of grey it involves. It merely records that opposition to what is described as abusive avoidance was and is one of the prime movers for the BEPS project and a concerted drive for fairness and transparency. How governments will react to the recommendations published and to be published by the OECD is yet to be seen. It could be revolutionary or fizzle out? There is only one aspect of which we can be sure. Whatever the outcome, not everyone will be satisfied and those elements which have continuously pushed for reform will continue to do so.

Another factor which has contributed to this debate and has added pressure for reform is the rise of the "whistle-blower", an individual who has access to confidential and private information and who chooses to make that information public either for profit or as a political statement. Whatever the motivation or the morality, disclosure has made available to the public and/or tax authorities details of taxpayers affairs which in some cases, but by no means all, are clearly not compliant and involve tax evasion. They also bring to the fore awareness that some banks and intermediaries have been complicit n that evasion.

We are in an area of highly confused, ethical behaviour. There is that of the whistle-blower, that of the bank or intermediary and that of the national revenue authority. There are questions of breach of confidence, theft of data, cross border responsibilities and equality of treatment – is it fair to honest and compliant taxpayers to offer amnesties to tax evaders? Conversely is it fair to pillory taxpayers who have done nothing illegal but who are seen as tax pariahs because they choose to keep assets in a particular location?

This work is devoted to Taxpayer Rights and Responsibilities. We are strongly of the view that if a taxpayer has been diligent and compliant with his tax affairs and has sought to act fairly and equitably he/she is fully entitled to the privacy and confidentiality that are his/hers as of right. Breach of that right should be subject to an established and recognised remedy. In particular any unauthorised publication of that taxpayer's affairs should give rise to damages payable by both the discloser and the publisher.

Whilst tax authorities may wish to pursue taxpayers for whom data is supplied by a whistle-blower, they should do so with caution given there may be no issue to answer and, if the taxpayer has been and is fully compliant, any overzealous revenue pursuit may well constitute a violation of that taxpayer's rights and due process. The converse, where a taxpayer's affairs are shown to be wrong and criminal, requires equal caution, but in this case to ensure that no excessive leniency acts to the detriment of other taxpayers, and to make sure due process is followed so as not to prejudice a prosecution. Furthermore, governments and revenue authorities have a responsibility to themselves set an example of lawful conduct which is inconsistent with them trafficking in stolen property, or rewarding thieves, and arguing a right to do so on unconvincing moral grounds ("we didn't ask him/her to steal it – we just provided a reward when it was provided to us").

The moral issues felt by whistle-blowers are their concern. If they steal data to make a profit by sale, they are clearly criminal and should face the full rigour of the law. If they act because they are aware of criminal activity, do not wish to be complicit and wish to disclose it, the position is different and there may be, subject to the issue of extraterritoriality, ethical justification.

If there is no criminal activity but evidence of legal actions which some activists consider abusive but which are both legal and sanctioned by the state of residence either of the taxpayer or the taxable activity, theft of data and disclosure of it is a violation of the Taxpayer Rights of those on whom information has been disclosed. It is at least a civil if not also a criminal action against the owner of the data and should not be characterised as "whistle-blowing", particularly if it serves only to fuel the curiosity of some activists.

In such circumstances tax authorities should refuse access to the data and civil courts should be empowered to authorise seizure of documents and data, to embargo release of information contained and to grant injunctions to the taxpayer and/or the tax authority to assist them to secure the privacy and confidentiality to which they are entitled. We take a dim view of any government which encourages the disclosure of such data into the public domain for political not revenue reasons.

The exchange of information across national boundaries either automatically or as a result of a direct request should reduce the incidence of whistle blowing. It does though create a new set of ethical dilemmas and a need for some form of pan-national institution or international agreement for a predefined process capable of resolving disputes and/or errors in disclosures both with tax authorities and individual taxpayers whose rights may have been violated.