SSRN Id2610090scsc

TILBURG LAW SCHOOL
LEGAL STUDIES RESEARCH PAPER SERIES
Corporate Social Responsibility and Tax Planning:

Not by Rules Alone
Hans Gribnau
Tilburg University
J.L.M.Gribnau@tilburguniversity.edu
Tilburg Law School Legal Studies Research Paper Series

No. 09/2015
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Article
Social & Legal Studies
2015, Vol. 24(2) 225250
Corporate Social The Author(s) 2015
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DOI: 10.1177/0964663915575053
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Planning: Not by
Rules Alone
Hans Gribnau
Tilburg University, The Netherlands; Leiden University,
The Netherlands
Abstract
Taxpayers have to plan their tax affairs to plan their life or develop their business
strategy. Often tax planning is encouraged and intended by tax legislation but sometimes
it is not. By way of tax incentives, the tax legislator often tries to steer citizens behaviour
to achieve all kind of policy goals. This way the tax legislator stimulates taxpayers to
adopt a calculating attitude towards the tax system, breeding a rule-based mindset
focused on tax planning. This rule focus crowds out ethics. Taxpayers turn around the
rules to their advantage. The tax legislator usually reacts with refined or new rules that
add to the existing complexity of tax law. Companies endorsing corporate social
responsibility (CSR) accept ethical obligations beyond compliance with the law. It is
argued that these companies should agree that the interpretation and use of tax rules are
based on a moral choice that rules out strictly complying with the letter of the law. CSR
companies should even take one more step in endorsing the view that tax is a body of
rules, which itself is grounded in principles that make up the internal morality of law.
Therefore, they should take these principles seriously when engaging in tax planning.
Keywords
Corporate social responsibility, internal morality of law, legal ethics, legal principles, tax
incentives, tax legislation, tax planning
Corresponding author:
Hans Gribnau, Tilburg University, Postbox 90153, 5000 LE Tilburg, The Netherlands.
Email: j.l.m.gribnau@tilburguniversity.edu
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Electronic copy available at: http://ssrn.com/abstract=2610090
226 Social & Legal Studies 24(2)
Introduction
Taxation is key to the character and functioning of the state, economy and society. For
over a century, taxation has underpinned an enormous growth in collective spending.
Tax revenues enable government to provide the public with all kinds of public goods and
services. With taxes, people pay for the legal system. Thus government provides a frame-
work for the functioning of society and economy supported by taxes. Enforcing contracts
supports markets, for instance. The state fosters innovation, encourages investment,
boosts worker productivity and stimulates the efficient use of scarce resources. Further-
more, taxes are collected to pay for public goods such as defence, health care, public edu-
cation, infrastructure for transport and communications and social security. Through a
wide range of activities, the social welfare state tries to create substantive freedom and
equality for its citizens. Often the tax system itself is used to promote the common good,
for example, for income policy goals, to promote economic growth (e.g. by attracting
foreign investors), to increase employment and for environmental policy. Tax incentives
are used to affect behaviour. Thus taxation has an enormous impact on all kinds of activ-
ities and situations of societys members, citizens as well as enterprises. In order to keep
in control of their finances, people have to know the impact of taxation and tune their
behaviour to this impact. It is thus that they engage in tax planning. In an international
context, tax planning is often used to avoid double taxation.
Tax planning, tax avoidance and tax evasion are different ways in which businesses
respond to tax legislation. In one way or another businesses, like all taxpayers, make use
of tax legislation whether domestic legislation or international tax rules, such as tax
treaties. In this article, I will first deal with the relationship between two fiscal actors,
legislature and taxpayers, who share a calculating attitude towards taxes. The upshot
of this attitude is that the use of tax law is an essentially rule-based affair shared by the
two of them. In the framework of this article, the Dutch corporate tax system is used as a
case study. Reference is also made to literature concerning other jurisdictions, cautiously
suggesting that some arguments may be generalized. Dutch tax legislation is nowadays a
continuously growing, very complex and often muddled, inconsistent body of rules,
which sometimes violates important legal principles. These principles are important to
comply with because they constitute the internal morality of law (Fuller, 1977
[1964]: 200224). Taxpayers in turn seem to focus on rules, paying little attention to
underlying principles. This rule focus crowds out ethics. Subsequently, I will have a
closer look at the consequences of this rule-based reciprocal use of tax law for the idea
of tax compliance. To my mind, legislature and taxpayers should pay due respect to these
fundamental principles to avoid a deadlock.
Here, I employ the term tax planning in a broad way including very different forms
of taxpayer behaviour encompassing a broad set of avoidance and evasion schemes that
affect only financial arrangements of taxpayers. In this way, tax planning is contrasted
with strategies in which taxpayers emigrate or companies move physical operations to
avoid higher taxes (Bruce et al., 2007: 226). Tax planning should, for the purposes of
this article, thus, be understood in a neutral ethical way, as opposed to, for example, tax
evasion and tax avoidance, which often have a negative unethical overtone. The con-
ventional distinction between tax evasion and tax avoidance seems to be quite clear,

Electronic copy available at: http://ssrn.com/abstract=2610090
Gribnau 227
though. The former is illegal, the latter legal. Hence, tax evasion involves intentional
non-disclosure or concealment, be it fraudulent or not (Hasseldine and Morris, 2013: 5).
Taken in its widest sense, the concept of tax avoidance comprises all arrangements to
reduce, eliminate or defer a tax liability (Freedman, 2004: 335336). Nonetheless,
defining tax avoidance is very complex, and according to Freedman, it is a definitional
quagmire (2006: 361). Moreover, avoidance is often difficult to distinguish from illegal
evasion in actual practice (Shaw et al., 2010: 1150). This goes all the more for interna-
tional tax law. Gutmann argues that defining tax avoidance should start by identifying
fact patterns, concrete tax problems and comparing solutions rather than concepts
(2014:17). To be sure, as Prebble and Prebble argue, the distinction between legal (tax
avoidance) and illegal behaviour (tax evasion) as such cannot determine questions of
morality, for conduct can be immoral for other reasons than that it breaches the law. The
upshot of this divergence of legal conceptualization and moral evaluation is twofold, that
is, the claim that tax avoidance is moral is mistaken and evasion is immoral for more than
just legal reasons (Prebble and Prebble, 2010).
The term aggressive tax planning in a way moves away from this legal distinction
between tax evasion and tax avoidance. Aggressive tax planning or tax aggressiveness
according to Lanis and Richardson can be broadly defined as:
the downward management of taxable income through tax planning activities. It thus
encompasses tax planning activities that are legal or that may fall into the gray area, as well
as activities that are illegal. Moreover, they argue that the term can be used interchangeably
with tax avoidance and tax management. (2012: 86)
Note, however, that this equation does not account for the fact that not doing some-
thing, for example, not smoking or not consuming, may lead to paying less taxes and
therefore is sometimes included in a broad conception of tax avoidance. Nonetheless, the
impact of aggressive planning can render the distinction between tax evasion and tax
avoidance obsolete. As Shaviro, arguing that aggressive tax planning threatens the func-
tioning of the tax system, points out, At a certain point, although it is hard to say exactly
where, aggressive planning merges into outright cheating (2004: 24).
In recent debates on aggressive tax planning, corporations like Google, Starbucks and
Facebook argued that they acted legally, that is, in conformity with the prevailing legal
rules. Rules are an important regulatory instrument and as a generalization they guaran-
tee a measure of certainty and equality. However, rules have a drawback, which is why
the rule focus becomes increasingly problematic. Rules are imperfect. It is just not pos-
sible perfectly to translate the goal sought to be served into a rule (justification). Imper-
fectly drafted rules account for traditional legal issues such as the interpretation of rules
and gaps in the law (behaviour not regulated by rules).
So the question is whether taxpayers and, more specifically, companies ought to
include ethical considerations in their tax decision-making framework. Here, I will focus
on companies that engage in corporate social responsibility (CSR), so this article is sub-
ject to a limitation. These companies accept the duty to obey the law, for they are willing
to comply, so there is no need to elaborate on the fundamental conditions of compliance
with tax laws. Therefore, this article does not discuss important conditions such as

legitimacy and trust in the broader set of political institutions, that is, trust in the collec-
tive decision-making process and the spending of tax revenues (Scholz, 1998: 163). CSR
companies accept legal obligations. Carrolls well-known view on CSR advocates ethi-
cal obligations on top of the obligations to comply with the law for (corporate) taxpayers.
This point of view raises a number of questions. In what way should companies that take
this kind of responsibility comply with the tax rules? Where can they find guidance when
faced with a less than perfect body of rules? So the subsequent question will be whether
the legal system contains specific guidelines for ethical conduct which go beyond the
(letter of the) law.
The relevance of the research question is twofold. Firstly, the question of how to com-
ply beyond the law, a CSR obligation, has not yet been (sufficiently) answered by apply-
ing insights from legal philosophy. Hence, this article contributes to the theoretical
development of these kinds of obligations and, therefore, to one of the central research
themes of CSR theory (and the wider field of business ethics). Secondly, this article has
practical relevance. The research problem makes a contribution to society. Answering
the research problem helps solve a practical problem that many CSR companies face,
that is, on the one hand, the public at large and politicians criticize companies use of
tax planning techniques and on the other hand, there are increased concerns among com-
panies about aggressive tax planning.
As for methodology, the research question calls for an interdisciplinary approach.
This article places itself at the intersection of tax law, fiscal sociology, (business) ethics
and legal philosophy. The primary source being used is academic literature but inciden-
tally reference will also be made to reports and non-academic articles. The issue of the
use of inherent imperfection of rules will be tackled from two legal philosophical per-
spectives on rules. On the one hand, there is the perspective that draws a sharp line
between law and morality, and, on the other hand, there is the internal morality of law
perspective, which denies a strict separation between between law and morality. In this
second approach, legal principles make up the internal morality of law, that is, the moral
core of the body of legal rules. These principles should be fleshed out in order to provide
guidance when following the rules evidently does not result in paying a fair share of
taxes. In my view, in particular, companies endorsing CSR should take these principles
to heart because they accept ethical obligations beyond compliance with the law.
Tax Legislation
Complex and Ever Changing Rules
Modern society is complex. Tax law cannot but reflect the complexity of societies, hav-
ing to attach legal consequences to all kinds of facts and actions. Some tax law is even
extremely complex. A typology of tax law complexity may distinguish between com-
plexity through elaboration and complexity through attempted precision (Picciotto,
2015: 167; cf. French, 2013: 4). According to Krever, most studies in tax law complexity
fail to identify correctly the principal causes, as they either start with economic theory
rather than actual experience or are based on highly subjective surveys. He argues that
analyses based on objective data such as the subject matter of private ruling requests

Gribnau 229
reveal four key causes of complexity, namely, the use of tax expenditures, the effect of
transplanted categories, the consequences of judicial inclinations and the impact of rigid
legislation (Krever, 2008: 190192; cf. Avery Jones, 1996: 6465).
Dutch tax legislation nowadays exhibits a tantalizing complexity due to its ongoing
proliferation (this not only goes for the Netherlands). No wonder, since taxation not only
is an important instrument to collect money for the treasury but is also used to implement
redistributive and other government policies (Avi-Yonah, 20062007: 3; Gribnau,
2013). The primary function of taxation aimed at raising revenue for necessary govern-
mental functions, such as the provision of public goods, and the redistributive function,
aimed at reducing the unequal distribution of income and wealth, seem somehow to be
overshadowed by the instrumental or regulatory function. On the one hand, not all kinds
of policy goals implemented in the tax system are driven by concern for distributive jus-
tice whereas the resulting complexity blocks peoples view on the distribution of the tax
burden. Hence, the fairness of the tax system becomes less evident (less transparent). On
the other hand, these regulatory measures often cause a shift in the distribution of the tax
burden among taxpayers, which may violate the underlying value of everybody paying a
fair share. Hence, the regulatory function may even go at the expense of the redistribu-
tive function (Campbell, 2012: 106).
Taxation nowadays is thus seen as an important regulatory instrument of wide-scale
social and economic planning. Of course, tax policies will potentially always have an
economic impact and affect economic growth. The point, however, is that tax incentives
as a regulatory instrument are often introduced to steer taxpayers behaviour with the
explicit aim of enhancing economic growth economic effects being not just a side
effect or side constraint. In the regulatory state, taxation is one of the favourite means
to steer the flow of events. Most scholars of regulation agree that the regulatory state
governs at distance because it is no longer able to employ unilateral, discretionary
control via command (Yeung, 2010: 67; Snape, 2015). From this perspective, taxation
in the regulatory state increasingly relies on rules to encourage citizens to act in ways
deemed desirable by the state and to (financially) discourage other types of behaviour.
It is about governing at distance in the sense that citizens behaviour is not changed by
command and prohibition (control) but rather by voluntary choices incentivized by the
financial impact of behavioural changes. However, as will be shown below, the legisla-
ture tries to control these voluntary choices, changing or abolishing regulations if they do
not deliver the behaviour aimed for.
Dutch government advocates the view that the use of tax legislation for non-fiscal
goals is an integral part of government policy (Gribnau, 2003; Vording, 2013). It is an
instrument for micromanaging the choices of taxpayers. Dutch tax law, therefore, con-
tains all kinds of incentives mostly in the form of tax reductions, for example, for com-
muting by bike, employees training, day-care centres, production of Dutch movies,
research and development, ecologically sound investments or the letting of rooms by pri-
vate persons. States use tax legislation to attract businesses. Thus the instrumental use of
taxation has also an international component. As a result, there is a fierce tax competition
among states, a form of regulatory competition. (The political dimension of corporation
tax issues should not be neglected, see Snape, 2007: 382389). The tax legislature
seduces taxpayers to behave according to their ends and thus creates a good deal of tax

planning. At the moment, the greening of the tax system is one of the major goals of gov-
ernment tax policy. This recently led to the introduction of the packaging tax and various
(very frequently changing) incentives to buy ecologically sound cars. Tax legislation to
support CSR is another option (Perrini et al., 2006: 38). This fits well with other propos-
als. Greider, for example, proposes that corporation taxation could be refashioned, so
that tax liabilities might be reduced for those that adhere to higher social or environmen-
tal standards (Greider, 2006: 2326).
This overuse of taxation to achieve disparate goals and objectives is one of the main
causes of the excessive complexity of tax law. Moreover, tax rules frequently lack qual-
ity by violating important legal values and principles. Tax legislation is often hobbled by
reasons of political opportunity and the need to reconcile disparate interests. This is
partly due to the interference of pressure groups in the legislative process. Pressure
groups seek to create and preserve expenditures in the form of tax exemptions and
attempt to shift the burden of taxation in their own favour. Business lobbying by the
Dutch employers organization VNO-NCW is often very effective. It is used to promote
or secure the passage or defeat the tax legislation, which is deemed favourable or unfa-
vourable. They also may try to obtain tax privileges at the cost of the principle of
equality.
Furthermore, the tax legislature often lacks information about the facts and the way in
which taxpayers will comply or circumvent new tax legislation (information asymme-
try), which accounts for uncertain effects of new legislation (Vording and Gribnau,
2009). Legislatures facing unintended taxpayers behaviour and even deemed excesses
may re-examine current legislation and consider its adequacy (for five types of costs
of tax avoidance, see Dowling, 2014: 176). Tax evasion and tax avoidance may thus
be countered by repairing, amending and supplementing the body of rules that add up
to its complexity and lack of consistency over time. This often leads to very detailed
rules. However, complex and detailed rules often appear to be inadequate. Corporate tax
managers may view these new rules as opening up new tax planning opportunities, whilst
at the same time other taxpayers but also corporate tax managers prefer simplicity, pre-
dictability and consistency in time (Briault, 2005, referring to a UK politician and citing
corporate tax managers). As a result, tax legislation is often amended in order to adapt to
changing circumstances. However, frequent and rash adaptation easily leads to inaccu-
rate or inconsistent legislative rules and, thereby, threatens legal certainty and equality.
Tax expenditures and tax instruments come and go as throw-away-goods (Rijkers,
2005: 328). This lack of consistency in time accounts for taxpayers uncertainty, and
they have difficulties in tuning their life and plans to tax legislation. High levels of com-
plexity of the tax legislation and the tax system reduce the responsiveness to new poli-
cies. Taxpayers often underreact to new tax provisions or even ignore these entirely
(Abeler and Jager, 2013: 6). As Freedman argues, the complexity of the tax system
accounts for the fact that there is a resentment building up from businesses, which feel
that they are being asked to make tax decisions in a climate of uncertainty and undue
complexity (Freedman, 2006: 361).
Moreover, vague norms are frequently introduced in tax law, leaving the tax admin-
istration a large latitude to determine the law. These vague concepts are deliberately
indeterminate to put off taxpayers bending the rules but they operate at the expense of

Gribnau 231
legal certainty (chilling effect). Furthermore, all too often, statutory provisions are not
well tailored to specific categories of taxpayers with relevant differences in the light
of the rationale or justification behind the provision thus violating the principle of
equality. This kind of legislation makes it difficult for the courts, in their role as inter-
preters, to perform well in determining the meaning of tax legislation and to provide
effective legal protection (de Cogan, 2015: 254255).
To summarize, the hurried pace of the legislative process produces sloppy legislation
and an feverishly body of very detailed rules on the one hand and increasingly vague pro-
visions on the other hand. As a result, the quality of the body of tax rules is lacking, due
to uncertainty, lack of clarity, inconsistency, lack of transparency and so on. Moreover,
often the fair share principle, reflecting the ideal of a fair distribution of the tax burden, is
not easy to be identified in tax legislation (Bundesministerium der Finanzen, 2010: 70).
At the same time, the taxpayers increase their focus on tax planning.
Muddled Body of Tax Rules Necessitates Tax Planning

As shown above, Dutch tax legislation is nowadays very complex, which accounts for
lack of legal certainty, equality, consistency and transparency. As a consequence, the
application of tax rules is often complex and unclear. Complexity gives rise to uninten-
tional non-compliance and intentional overcompliance both of which appeared to favour
the tax authority in terms of revenue collection. Complexity imposes an unfair burden on
taxpayers who are not knowledgeable about the tax system, compromising the integrity
of the system (McKerchar, 2003). In other words, due to (excessive) complexity, tax
assessments may not mirror the level and incidence of the tax intended by the legislature.
Therefore, people are unconsciously paying less or more than their fair share. Further-
more, tax complexity creates often burdensome compliance costs for taxpayers, such
as the costs of the completion of tax formalities the costs of the necessary expertise
included. (For the distinction between the terms compliance costs, administrative
costs and administrative burdens, see Highfield, 2009: 278279.) Lastly, due to the
excessive complexity of tax law, taxpayers are forced to engage in tax planning; other-
wise they would be insecure with regard to a large part of their financial affairs. For some
taxpayers, the complexity of tax law even offers opportunities to deploy tax minimiza-
tion techniques to shift their burden of taxation to others, and for these taxpayers com-
plexity isnt a nuisance at all, instead providing opportunities for aggressive tax
planning. They often do so by financial engineering, exploiting the complexity of the
body of rules by contriving complexity themselves. As the European (EU) Commission,
for example, recently stated, some taxpayers may use complex, sometimes artificial,
arrangements which have the effect of relocating their tax base to other jurisdictions
within or outside the European Union (COM (2012) 722 final: 6).
The instrumentalist, that is, extremely policy oriented, attitude of the legislature adds
greatly to this complexity. At the same time, the legislature shows a calculating beha-
viour with regard to taxes, seducing businesses into tax planning. Looking for optimiza-
tion of the use of the tax instrument, the legislature calculates benefits and costs and
consciously designs and redesigns rules to influence taxpayers behaviour. Incentives are
introduced to stimulate or discourage taxpayers to act in a way that actually means

paying less (or not more) tax. This use of taxes as a policy instrument is not limited to a
national context, and on an international level we see states competing with their tax sys-
tem in order to attract economic activities from other states. This regulatory competition
capitalizes on and reinforces businesses leaning towards tax planning. International tax
competition is an important cause of the ever growing complexity of tax rules. However,
special tax schemes such as tax holidays, selective base or rate reductions and tax breaks
may be designed solely to undercut competition. Moreover, this kind of harmful tax
competition leads to unfair tax advantages for multinational corporations over smaller
local enterprises, overtaxation of labour, a radical reduction of public goods and services
and negative consequences for distributive justice. (Menendez, 2005: 208 points to the
connection between corporate taxation and distributive justice, i.e. tax dumping leads
to social dumping.)
The result of this feverish and instrumentalist legislative activity is that tax legislation
regularly violates important legal values and principles, such as legal certainty, equality,
neutrality and consistency. The tax legislature, for example, sometimes deliberately
introduces uncertainty to put off taxpayers. Even so tax privileges (tax breaks) are intro-
duced, which violate the principle of equality. Furthermore, the tax legislature breeds a
rule-based mindset focused on tax planning. In this respect, the Dutch tax culture is by no
means an exception. Other legislatures (continue to) fuel the growth of tax avoidance
culture by relying on the taxation system to deliver a variety of tax unrelated subsidies
and economic stimuli and ( . . . ) to drive social policy (Ordower, 2010: 6). To my mind,
the tax legislature would to do well to show more respect for legal principles, strength-
ening rather than weakening the internal morality of the law (see Rule following guided
by legal principles section).
Moreover, partly due to the instrumentalist use of tax legislation, taxation regards
almost every aspect of human life. The upshot is that tax often has a major and long-
term financial impact on taxpayers decisions and actions, such as where to live, when
to retire and where to carry on an enterprise. Citizens simply have to take into account
the tax consequences of their actions and decisions, as taxes function as a budget con-
straint. In one way or another, taxpayers have to plan their tax affairs to plan their life
or develop their business strategy. Often the tax planning is encouraged and intended
by tax legislation but sometimes it is not. Individuals and businesses use whether or
not intended by the legislature tax rules to lower their tax bill. Hence, tax planning
is a common affair for all taxpayers and calling for a nuanced approach. It is only fair
to say that all taxpayers are to some extent tax planners, as everybody shall take into
account tax rules in their decisions, whether or not the rules are fully grasped and
whether or not taxpayers be aware of engaging in tax planning. In short, tax legislation
and tax planning are dynamic and reciprocal.
Businesses engaging in tax planning play an important part in this interplay between
tax legislatures and taxpayers. For businesses, taxation is part of their cost calculation,
tax planning being a means of saving in expenses (Scholes et al., 2002: 3). Corporations
deftly play the rules, thereby sharing a rule focus with the legislature. The interplay of tax
legislature and (corporate) taxpayers increases the complexity and lack of clarity of tax
rules rules being the main focus in the mindset of both legislature and businesses. Com-
plex and unclear rules are carefully studied to be gamed with by businesses, and in turn,

Gribnau 233
the legislature supplements the existing body of rules with even more rules to curb this
gaming. Thus international companies seek to eliminate or reduce their tax liabilities.
Traditionally, in an international context companies engaged in tax planning in order
to avoid double taxation. However, nowadays they exploit areas where several tax sys-
tems must interact and the scope for tax arbitrage, playing the rules of one system off
against another, is considerable (Shaw et al., 2010: 1151). Complexity and avoidance
can go hand in hand. Tax authorities often face difficulties in constructing adequate
countermeasures. Detailed rules, targeting relatively specific acts, may lead to creative
tax compliance. Taxpayers who engage in such behaviour make use of the many loop-
holes inevitably present in very specific tax laws. Complex business structures in the glo-
bal market are put in place, which are extremely difficult for tax administrations to
monitor and control. A smorgasbord of rules engenders a cat-and-mouse legal drafting
culture of loophole closing and reopening by creative compliance, according to
Braithwaite (2005: 147).
Rule Focus: Crowding Out Ethics

Being aware of taxpayers responsiveness to tax rules, tax legislatures may use tax leg-
islation to steer taxpayer behaviour by creating a kind of command and control environ-
ment. Incentives should be considered, along with coercion and persuasion, as an
alternative means of exerting power and influence over taxpayers behaviour (Grant,
2002). The use of incentives reflects an economic view that rests on the principle of
rational choice which is itself related to the fundamental assumption of the homo eco-
nomicus, the primary concept of economic anthropology (Sedlacek, 2011: 14). Inter-
estingly, the legislative regulatory measures assume taxpayers to behave as
economicrational people, although there are many more circumstances and factors
affecting actual taxpayer behaviour, besides purely economic reasons, as for example the
economicpsychological research on tax compliance shows (Kirchler, 2007). Individual
behaviour and the willingness to change ones behaviour according to governments
wishes are also dependent upon internal motivations that develop from attitudes and
values, such as feelings about the legitimacy of group authorities or about people com-
mitment to the group (Tyler, 2011: 26).
The consequence of this assumed economicrational behaviour may, however, be an
incentive for actual economicrational behaviour, for it may stimulate taxpayers to
adopt a dominant economic rationality in their tax decision-making process. The dom-
inance of the economicrational perspective may crowd out important legalethical prin-
ciples in the taxpayers decision-making process, such as the principle of equality and
the ability-to-pay principle, as will be argued more extensively below. This is not exactly
in line with encouraging a mind-set in which tax-paying is marked as a positive contri-
bution and a clear obligation (Freedman, 2006: 368). The regulatory perspective on leg-
islation may crowd out the awareness of the ideal of a fair distribution of the tax burden
(everyone paying a fair share) underlying the tax rules.
This preoccupation with the economicrational framework may become even more
pregnant because tax incentives and repair or refinement of these incentives have a
rule-based character, with many technical details to fulfil their goal of stimulating a

specific activity and exclude an unintended broad scope of application. Such rule-based
regulations often come with a lot of supervisory power and bureaucratic controls and
thus create a legal command-and-control environment (Braithwaite, 2005: 145149).
In such an environment, it is easy to lose sight of important legalethical principles
enshrined in the law, both for the legislature and the taxpayer. Tax statutes establish a
rule-based context to encourage and even control the behaviour of the taxpayers, and the
taxpayers will play with the rules. The focus of both legislature and taxpayer is on rules,
not on ethical behaviour. As a result, a dominantly rule-bound regulatory and compli-
ance focus is likely to undermine a more principle-based ethical thinking. This may
cause both actors to (consciously) ignore tougher issues that a more ethics-focused
approach might demand (Berenbeim and Kaplan, 2007: 2). Moreover, and by analogy
with, empirical economicpsychological research, it can be argued that in a command-
and-control environment of coercive tax legislation, where people feel they have very
little influence, a crowding-out effect of intrinsic motivations such as ethical con-
siderations to comply with the law, may occur (Frey and Jegen, 2002: 594595).
In that case, not only actual ethical thinking is undermined but even the motivation
to so to think.
Another negative repercussion of fiscal instrumentalism, and changes and refinement
of rules, is, as shown in Complex and ever changing rules section, that it adds to the
complexity and lack of transparency of the law. This leads in turn to increase uncertainty
for taxpayers about their legal rights and responsibilities and again incites taxpayers to
carefully study the rules to improve certainty of their tax position. This reinforces a ten-
dency of using tax incentives in a mechanistic, rule-based way. Indeed empirical
research has found that continuous changes and complexity in tax law have a negative
effect on the level of compliance (Kirchler, 2007: 39).
No Rule Following Without Ethics

It is time to bring together some strands of this article. First, one may say that tax plan-
ning is pervasive and actively stimulated by tax legislation. Therefore, one cannot dis-
miss every engagement in tax planning as unethical out of hand. Consequently, the
ethical assessment of tax planning needs careful evaluation, being a matter of degree.
Furthermore, I have discussed the complexity, lack of clarity and inconsistency of tax
legislation, which, moreover, threatens important legal values and principles, such as
legal certainty and equality.
The result of this is twofold. On the one hand, tax legislatures and taxpayers share a
focus on rules. This mindset prevails in the interaction of these two fiscal actors. Tax
statutes establish a rule-based context to control the behaviour of taxpayers and tax-
payers will play with the rules. On the other hand, these tax rules are often muddled,
complex and inconsistent. That may render compliance with the rules more difficult.
What is more, businesses may maintain that bending the rules may qualify as compli-
ance, be it creative compliance with the letter of the law. Even taxpayers who engage
in aggressive tax planning may think they honestly subscribe to the viewpoint that
everybody should pay their taxes. Apparently, this view can be taken in a seemingly

Gribnau 235
very formalistic way by bending the rules in order to minimize ones tax liability. Here,
complying with the rules is taken in the sense of complying with the letter of the law.
However, the letter of the law is often a poor instrument for guiding taxpayer beha-
viour, for example, because it is often unclear how the letter of the law should be inter-
preted. Moreover, as we have seen, taxpayers may comply with the law and still pay no
tax at all. Also, tax behaviour may be within the letter of the law but take the form of
creative compliance. The essence of creative compliance is that it escapes the intended
impact of the substantive law. Creative compliance is not just a tax issue but a much
more general law issue. Actually, it is an ethical position based on a strict separation
of law and morals. Shklar maintains that this is a distinctive feature of analytical posi-
tivism that leads to (excessive) formalism, which views law as a discrete entity, dis-
cernibly different from morals. Thus law is treated as a formal, self-contained system
of norms that is there, identifiable without any reference to the content, aim and
development of the rules that compose it. To her mind, this idea of law is the very
essence of formalism (Shklar, 1964: 3334). To her mind, formalism has its deepest
roots in the legal profession (Shklar, 1964: 9). Nonetheless, the way one complies with
the law inevitably reflects an ethical stance. A strict separation of law and morals is
designed to carefully divorce law as a set of rules from ideology. Formalism, therefore,
does not deny the importance of ethical considerations, only that they lie outside the
realm of law. Moral convictions are only put outside the legal system in order to keep
it pure. Formalism is a hallmark of a pure science of law that has its justification in
keeping at bay individual, subjective convictions. The task of the pure science of law
is to preserve from all that is subjective, contingent, or ideological (Shklar, 1964:
41). Consequently, formalism, as a way of compliance, itself reflects a moral stance.
Taxpayers engaging in creative compliance are acting upon personal, subjective convictions
that cannot be legally enforced because law and morals are seen as distinct entities. Thus,
creative compliance uses formalism to avoid legal control, for example, a tax liability. Tax-
payers may comply with the letter of the law, whilst totally undermining the rationale behind
the words (McBarnet, 2003: 229230). They evade the spirit of the law through loopholes or
creatively interpreting its requirements to avoid substantive compliance (interestingly, the
public at large and politicians seem to share a very broad understanding of the spirit of the
law, Dowling, 2014: 174). Hence, they do not pay their fair share.
In my view, compliance with tax law, therefore, often cannot simply be a matter of
rule following. The ethical stance involved in the interpretation and use of legal rules
should be less formalistic. Ethical behaviour cannot be reduced to rule following. Rules
demand interpretation, which in turn should be guided by some ethical view. But even if
clear-cut rules are available, complying with the rules of two or more different tax jur-
isdictions may result in the payment of nil corporate tax in each of these countries. Per-
fectly legal and compliant behaviour, therefore, may lead to a result that might be
deemed unethical. My view fits well with an approach towards tax planning, which
according to Van Brederode, has emerged in doctrine recognizing the right of an indi-
vidual to structure his affairs as he sees fit and to lower his taxes as long as this does not
violate the spirit of the law (2014: 768).
A pitfall for the described rule-based behaviour of both companies and the legislature
may thus be that they are so preoccupied with the technicalities and complexities of tax

law and that they do not pay enough attention to the bigger picture and leave out other
than technical tax considerations in their choices. Turning to this broader perspective and
focusing on businesses rather than the legislature, the question is whether companies
ought to include ethical considerations in their tax decision-making framework. In recent
years, this has become quite an urgent issue, an important reason being the increasingly
ingenious and aggressive corporate tax planning. Subsequently, the question will be
addressed whether the legal system contains specific guidelines for ethical conduct,
which go beyond the (letter of the) law.
CSR As an Ethical Position

Globalization has had a major impact on tax planning, which is increasingly based on
global arbitrage of tax rules. Due to the more aggressive management of costs, tax came
to be regarded as a cost that should be minimized (alternatively, corporate income tax
can be seen as a distribution out of profits; see Knuutinen, 2014: 5051). In the late
1990s, corporate tax departments even became innovative profit centres (Crocker and
Slemrod, 2005: 15931610). More recently, there is some evidence of increased con-
cerns among companies about aggressive tax planning. In the post-Enron era with new
regulations, accounting and reporting for corporate income tax have received increased
scrutiny by all kinds of stakeholders. Concerns with reputation both within the organi-
zation and as perceived by the public become very important. The media play a partic-
ularly striking role in this respect (Mulligan and Oats, 2009).
The explosive development of tax planning practice, on the one hand, and the
increased concerns among companies, on the other, make the question whether compa-
nies ought to include ethical considerations in their tax decision-making framework all
the more pressing. Should ethical considerations determine a corporations compliance
with tax rules? Are there ethical boundaries to tax planning? Corporate taxpayers who
engage in CSR would be expected clearly to answer this question in the affirmative (dif-
ferent theories of the corporation may account for different views on CSR and the obli-
gation to pay taxes, see Avi-Yonah, 2008b, 2014). For them, creative compliance then
may pass the test of legality but fails on the test of certain accounts of CSR. Note that
some scholars are very sceptical. Reich, for example, argues that it makes for good press
and reassures the public (Reich, 2007: 170). Sikka provides examples to show how cor-
porations talk about social responsibility, but indulge in tax avoidance and evasion
(Sikka, 2010: 153168, for a critical response, see Hasseldine and Morris, 2013). How-
ever, not all scholars are that pessimistic (e.g. Lambooy, 2010), and empirical research
suggests that good corporate governance correlates with higher CSR initiatives, which in
turn contribute to shareholder value (Ferrell et al., 2014). Van Eijsden provides a busi-
ness case to include tax as a corporate responsibility issue (Van Eijsden, 2013). Reputa-
tion constitutes may be the strongest driver for companies engaging in CSR (Knuutinen,
2014: 58). As for empirical research, an analysis of a sample of 408 publicly listed Aus-
tralian corporations indicates that the higher the level of CSR disclosure of a corporation,
the lower is the level of tax aggressiveness (Lanis and Richardson, 2012).
Interestingly, CSR (as represented by Carroll) views ethical considerations as
beyond compliance, and businesses have to go beyond what is required by the law.

Gribnau 237
Ill now explore this notion of beyond compliance. CSR regards the business commu-
nitys concern for society. It is an essentially contested concept (Crane et al., 2008:
5). Essentially contested concepts, like the rule of law and equality, inevitably involve
endless disputes about their proper use (Gallie, 1964: 157). Defining CSR, therefore,
is not just a technical exercise in describing what corporations do in society. It is also
a normative exercise in setting out what corporations should be responsible for in soci-
ety (Crane et al., 2008: 6, who also point out that definitional work in CSR may even be
an ideological exercise in describing how the political economy of society should be
organized to restrain corporate power). Thus many definitions are possible, the EU
Commission giving a very brief one, the responsibility of enterprises for their impact
on society (European Commission, 2011: 6). For the purpose of my article, the defini-
tion given by David F Williams will do:
CSR [Corporate Social Responsibility] is defined for this purpose as a manner of doing busi-
ness that takes into account the economic, social and environmental impact of the com-
panys actions (the so-called triple bottom line). A companys approach to this issue
will reflect its chosen ethical stance; i.e. the set of values or rules of conduct that govern
its interactions with other parties. (Williams, 2007: 1)
Interestingly, Carrolls view on CSR emphasizes obligations for businesses that go

beyond what is required by the law and the quest for greater profits. Carroll captured
these beyond compliance social responsibilities in his famous pyramid of CSR. He
makes an analytical distinction between a firms economic, legal, ethical and philanthro-
pic responsibilities, which are not mutually exclusive. The total social responsibility of
business entails the concurrent fulfilment of these four responsibilities, ethical and phi-
lanthropic responsibilities positioned on top of legal (and economic) responsibilities.
Note that CSR is sometimes distinguished from corporate philanthropy (which relates
to the distribution of profits rather than to the manner in which they are earned (e.g. Wil-
liams, 2007)). However, the important point is that CSR companies have a certain view
on legal responsibilities. Already at first glance, it is clear that these companies do not
have a narrow view on legal responsibilities, for they strive for more than fulfilling their
legal obligations. This should translate to their tax planning strategy, for taxation is an
economic and legal issue. Of course, taxpayers may arrange their tax affairs as they wish.
They may plan and structure their affairs to achieve a favourable tax treatment within the
limits set by law. To take tax considerations into account is perfectly legitimate. Hence,
the law does not require a company that faces different options to choose for a business
transaction that involves paying the highest amount of tax. Companies may choose to
structure their business so as to limit their tax liability (European Court of Justice, Case
C-255/02 (Halifax plc and others v. Commissioners of Customs & Excise), [2006] ECR
I-1609 para. 73). But CSR companies are not looking, either, for the most favourable tax
treatment that does not overstep the boundaries of the tax law.
Carroll elucidates businesses legal responsibilities, that is, society expects business
to obey the law. The framework of legal requirements set forth by a societys legal sys-
tem represents the basic rules of the game by which business is expected to function.
This legal framework is extending, fostering CSR, for example, through indirect

legislation, using disclosure as a tool, or private law used by private parties (see Lam-
booy, 2010; McBarnet, 2007: 31 ff.). The firms legal responsibilities reflect a view
of codified ethics in the sense that they embody basic notions of fair practices as estab-
lished by lawmakers (Buchholtz and Carroll, 2008: 41; Carroll, 1991: 3948). Thus, the
legal system is distinguished from ethics. Ethical responsibilities are not codified in the
law. Therefore, law is one thing, and ethics is another thing. (Nonetheless, the law is
often the referent around which ethical decisions are made, therefore, not only a bound-
ary of constraint on decisions; see Christensen, 2008: 451461). In my view, the relation-
ship between law and morality is a more complicated one. Ill come back to this point in
Rule following guided by legal principles section.
However, as Carroll points out, laws are essential but not always adequate. First, laws
present the picture at a given moment. New topics and issues continuously emerge. As a
result, the legal rules cannot possibly address all the issues that business may face. As
shown above, even very frequently changing tax legislation will lag behind because of
new high-tech structures invented by tax advisers. Second, the law often lags behind
evolving ethical values and norms. Third, legislative rules may lack integrity because
they are made by lawmakers and may reflect the personal interests and political motiva-
tions of legislatures rather than appropriate ethical justifications (Buchholtz and Carroll,
2008: 41). Here, ethical responsibilities come in. They are needed to embrace those activ-
ities and practices that are expected or prohibited by society even though they are not codi-
fied by law (Buchholtz and Carroll, 2008: 41). It means that social responsibility begins
where the law ends (Davis quoted in Carroll, 1999: 277). Ethical social responsibilities
take precedence over the legal (and economic) ones in exceptional cases or so it seems.
They demand a higher standard of performance than required by the legal system.
Thus, according to Carroll, if the body of rules has shortcomings, we need to fall back
on ethical considerations. Corporations who adhere to this view on CSR and use these
evidently failed rules should correct or supplement them according to expectations of
society. The legal system, therefore, itself to be viewed as a system of codified ethics,
should be supplemented by ethical responsibilities in cases of morality not or inade-
quately codified by law. Ethics precedes law and supplements law. As long as legal rules
are available, businesses use them without the need for ethical considerations, except
when the impact of these rules evidently violates public morality. Thus, ethical respon-
sibilities seem to be situated outside the body of legal rules. They generally do not per-
tain to compliance with and use of legal rules. According to this interpretation of CSR,
beyond the body of rules there is no obligation to pay tax, and paying tax outside the
legal framework is a matter of morality. Note that the assumption of a clear line between
law and morality is implicitly underlying this CSR position. This strict separation of law
and morality actually and probably unconsciously reflects a positivistic and forma-
listic stance, even as a CSR company does not shy away from the idea of ethical respon-
sibilities related to the law.
Separation of Law and Morality

The CSR position, as voiced by Carroll, may fit in well with a legal point of view that
separates law, as laid down by the lawgiver, and morality. Tony Honore is a fine example

Gribnau 239
of this position. Apart from law no one has a moral obligation to pay any particular
amount of tax (Honore, 1993: 5). Paying taxes is a moral obligation owed by members
of a community to their community, a contribution to the expense of meeting collective
needs. But this obligation is incomplete because taxpayers cannot settle it for them-
selves. It has no real content until the amount or rate of tax is fixed by an institutional
decision, by law (Honore, 1993: 5). Institutional determination of what amounts to a
reasonable contribution is needed since what is required is a co-ordinated scheme which
can be defended as fair not merely in the aggregate amount it raises but in its distribution
(Honore, 1993: 5). It has to be admitted, though, that the intended incidence of the tax
and consequently the actual distribution may become illusory because of aggressive tax
planning. Legislation by definition always lags behind. Moreover, the level and inci-
dence of the tax may be open to moral criticism. Nonetheless, the contribution to society
is settled by law justice cannot by itself create an obligation to pay any particular
amount of tax (Honore, 1993: 6; cf. Deak, 2009: 288289).
Legal positivists such as Honore rightly stress the importance of legality and legal
certainty, the responsibility for which is in the hands of the legislature. This not only goes
for legal positivists. Natural law scholars also stress the importance of the legislature
establishing the obligations of citizens (e.g. see Finnis, 1980: 289). In the context of taxa-
tion, therefore, the legislature must set out the total amount of tax to be paid by the com-
munity, and the way in which liability is to be allocated (Freedman, 2004: 338). Hence,
the legislature must determine the fair share taxpayers have to contribute. However, once
the legislature has created this legal obligation and written it in legal texts, regulations
will inevitably appear to be imperfect, ambiguous, lagging behind societal and economic
developments and so on. The letter of the law may diverge from the spirit of the law. The
legislature, of course, has the primary responsibility for narrowing the gap between the
letter of the law and the spirit of the law. States should cooperate to achieve a better
aligned international tax system. But again, perfect legislation is not possible. Therefore,
the pressing question becomes whether only the legislature and states are accountable for
the tax system. Is it a matter of an exclusive responsibility, companies (and citizens)
bearing no responsibility for the integrity of the legal order whatsoever? As shown
above, the complexity and lack of (moral) transparency of the tax system is partially
caused by companies lobbying and tax planning (Complex and ever changing rules
section). Isnt there room for shared responsibility? To my mind there is, be it, of course,
asymmetric. The fact that the legislature has to advance the general interest, whereas tax-
payers may advance their own interest, accounts for this normative asymmetry.
Let us have a closer look at Honores statement that apart from the law no one has a
moral obligation to pay any particular amount of tax. Without detracting from the impor-
tance of legality and legal certainty, namely, the legislature determining the amount of
tax to be paid, this statement is not as unambiguous as it may seem to be at first glance.
As I have already pointed out, legal rules can be used and complied within different ways
with different ethical impact. Furthermore, there is a pervasive need for interpretation of
legal rules. Of course, rules are not self-interpreting. Phrased in general and abstract
terms, their application to particular situations necessarily is often unclear (Honore,
1987: 2526). Rules have to be interpreted to apply to instances not contemplated by the
legislature or because inconsistent rules may indicate undesirable and unacceptable

outcomes in hard cases. Undesirable and unacceptable outcomes may also result from
gaps in the law. Moreover, there is often a choice between different legal rules, and rules
can be manipulated in unethical ways. Interpreting and using the law inevitably imply
making value judgements (Peczenik, 1989: 21).
In my view, therefore, the interpretation and use of legal rules need ethical evaluation
like many other issues businesses have to decide upon. Here, I agree with Williams who
argues that the way in which a company conducts its business will reflect its ethical
stance and all companies have such an ethical stance (even if, in the extreme case,
it is represented by a conscious decision to ignore ethical issues) (Williams, 2007: 6).
There is no clear line between law and morality in this respect. Precisely because the
body of legal rules is to be seen as codified ethics, businesses are faced with an ethical
choice when complying with and using legal rules (cf. Deak, 2011: 481). Thus, as shown
above, CSR companies accept that ethical responsibilities indeed may exceed the legal
ones. But this is only one side of the relationship between law and morality, for CSR
companies should be aware that, on the other hand, the fulfilling of legal obligations
(responsibilities) cannot do without invoking ethical ones. If these corporations accept
ethical responsibilities beyond the law, they will surely accept ethical responsibilities
with regard to interpreting and using the law. This second category of (legal) responsi-
bilities is more basic, less encompassing than ethical responsibilities, for ethical respon-
sibilities come on top of legal responsibilities in the CSR pyramid.1
To sum up, according to Carroll businesses legal, responsibilities boil down to obey-
ing the law, that is, societys legal system. The framework of legal requirements set forth
by the societys legal system is often conceived of as a body or rules distinct from mor-
ality. CSR companies adopting this rule-based view of a legal system nonetheless should
treat these rules with due respect. Of course, they may plan their affairs to achieve a
favourable tax treatment within the limits set by law but they should interpret these limits
from an ethical perspective. Paying taxes is not only a legal obligation but can also be
seen as an ethical obligation, namely, contributing (financially) to society. Concretely,
strictly complying with the letter of the law seems to be rather at odds with professing
to accept ethical obligations beyond what is required by the law. This very strict legalis-
tic attitude towards societal obligations does not match the commitment to broader obli-
gations towards society which are not limited to legal obligations, a fortiori not limited to
legal obligations interpreted in a rather minimalist way. The beyond compliance obliga-
tion towards society is clearly violated when legal structures result in hardly paying any
(corporate) taxes at all. Nonetheless, a company may face ethical dilemmas, for ethical
obligations can conflict. In extreme circumstances, there may be a moral conflict
between the obligation to pay taxes according to the spirit of the law and the obligation
to take employment into account. As a rule, however, CSR companies should not engage
in creative or aggressive compliance with the rules. The reason for this is clear, for xam-
ple, accepting ethical responsibilities beyond the law means accepting ethical responsi-
bilities within the law, that is, interpreting and using the body of rules in a respectful way.
Thus, the line between tax law as codified ethics and morality is somehow blurred.
There is no strict separation between a companys legal and ethical responsibilities. This
is the more so because, as I will argue, legal rules themselves necessarily have a basis in
morality.

Gribnau 241
Rule Following Guided by Legal Principles

As shown above, corporations that accept CSR as a guideline for their actions should
take into account ethical considerations when using and applying legal rules. Again, Car-
rolls CSR pyramid distinguishes legal responsibilities from other responsibilities. Pay-
ing taxes is one of these (economic and) legal responsibilities. It is a moral obligation
fixed by an institutional decision, by law. Although in this (formalistic) interpretation
of CSR, the law is separated from morality in that law itself is a body of rules without
moral content, CSR companies admit the law should be handled prudently. I will now
argue that they have all the more reason to do so because legal rules themselves neces-
sarily have a basis in morality, namely, the internal morality of law, which is made up by
legal principles. This view on law may fit well in with a less formalistic (legalistic), less
rule-based CSR position.
As shown in the last section, one may be tempted to view rules as the only behavioural
norms of a legal system by which a business is expected to function. It may be rewarding
to have a closer look at this idea, for may a legal system really be reduced to a body or
rules?
Dworkin famously argued that law itself is more than a body of rules. Legal rules are
not free-floating but are embedded in legal principles. Legal principles embody the
moral core of law and the basis of rules. Compliance with the law therefore cannot be
restricted to (strict) rule abidance. I will now elaborate on the relationship between rules
and principles.
Law is connected to the fundamental norms and values prevalent in a society of free
and equal citizens by means of fundamental legal principles. Lon Fuller formulated sev-
eral aspects sub-principles of the principle of legality, which are all also aspects of
legal certainty. These principles make up the internal morality of law (1977: 200224).
Dworkin defines a principle as a standard that is to be observed because it is a require-
ment of justice or fairness or some other dimension of morality (1977: 22). Therefore, a
legal principle is to be observed as a standard because it is a requirement of the internal
morality of law (not so much of the external, non-legal, dimension of morality). Legal
principles are standards that are specific to the law, that is, consequently they are not
purely moral principles. The development and actual meaning of legal principles are
coloured by extralegal influences, like the prevailing norms in society or the practice
which the law aims to regulate. Legal principles, therefore, are internal standards gener-
ated and developed by the legal system itself although they are influenced by prevail-
ing morality. Well-known principles are legal certainty, equality and proportionality and
the principle of ability to pay (a principle of distributive justice).
Principles are the normative core of the legal system and the basis of legal rules and,
therefore, at a high level of abstraction (Gribnau, 2014). Legal rules should be the result
of a process of weighing and balancing colliding principles. Rules may be seen as oper-
ationalizations of principles, which in their turn constitute the normative basis for the
creation, interpretation and application of rules. Consequently, rules have a more con-
crete and technical character than principles and are normally less value laden.
Rules, in the form of general and established laws, form the basis for governments
interference with the liberties of the citizen. Government of laws and not of men is rule

governance. However, legal rules must meet certain minimum standards. Legal princi-
ples constitute these fundamental standards. The legislature should show respect for
principles, strengthening the internal morality of the law. Principles act as potential con-
straints on governments production and use of legal rules. The legislature, for example,
is bound by the principles of legality that Fuller enumerated (they may be labelled prin-
ciples of proper lawmaking; Popelier, 2000: 325).
Unfortunately, the regulatory urge of tax legislatures often goes at the expense of
this principled guidance to the detriment of the integrity of tax legislation. Nonethe-
less, principles are fundamental standards for the conduct of the legislature. Not any-
thing goes. They act as restraints on the legislatures conduct even though the
legislature enjoys a wide margin of appreciation with regard to tax law (according
to the European Court of Human Rights; 22 June 1999, Appl. No. 46757/99, Della
Ciaja/Italy). Moreover, the interpretation and application of rules by the tax adminis-
tration should be guided by principles in the Netherlands, for example, the principles
of proper administrative behaviour. These principles comprise procedural norms but
also substantive norms. Thus taxpayers are protected against improper actions and
decisions of the administration, for example, by the principle of legitimate expecta-
tions (Gribnau, 2014: 210213).
However, is it possible that the internal morality of law, made up by legal principles,
somehow restrains the actions of citizens? Could legal principles offer guidance to tax-
payers who want to exercise self-restraint when engaging in tax planning? I would sug-
gest that they may do so. According to Dworkin, citizens can only identify with (the
binding force of) law if it satisfies the model of principle. Then, they accept that they
are governed by common principles, not just by rules hammered out in political compro-
mise (1986: 211). Thus, legal rules should be in conformity with the fundamental prin-
ciples of the legal system. In this way, principles justify and determine our (legal)
obligations towards each other, paying taxes included, as laid down in rules. Principles
are the basic justifications of tax law and regulation. As such they can serve as norma-
tive tools for making and justifying beyond-compliance policies and practices within a
framework such as corporate social responsibility (Norman, 2012: 46).
The point is that rules as operationalizations of legal principles are never exhaustive
of the law. There always is a normative residue, which is embodied by legal principles.
Thus a taxpayers obligations to society are not exhausted by rules. Of course, rules are
of vital importance to a legal system and therefore to a system of tax law. It is the respon-
sibility of states to determine a fair share and lay it down in legal rules. Established rules
provide taxpayers with legal certainty a fundamental, though not absolute, legal value
(Gribnau, 2014: 198201). However, this inevitably imperfect body of rules is but the
surface of the legal system, ones obligations towards community cannot be reduced
to a body of rules. The same goes for tax obligations, as argued above, for taxes are indi-
rect payments to society. Principles determine these obligations, especially in hard cases,
for example, when rules are unclear or when there seems to be no rule applicable. Tax
planning should not only be legal, that is, in conformity with legal rules but also in con-
formity with principles, at least for companies engaging in CSR. The fair share principle,
a concretization of the ethical ideal of distributive justice in taxation, is of special impor-
tance with regard to tax planning. Thus, compliance with the tax laws often cannot

Gribnau 243
simply be a matter of following rules, especially in matters of ambiguity, gaps and so on,
which allow for a use of rules that evidently does not result in paying a fair share of taxes.
Principles should be fleshed out in more concrete principles or rules, for they are often
too abstract to provide guidance for human conduct. Moreover, as shown above, princi-
ples may compete. To solve these conflicts of principles, we have to supplement the prin-
ciples at play by subsidiary considerations (Den Hartogh, 1999). First, there are many
questions to be answered when applying a principle. A detailed discussion of hard cases
is needed here. Considerations of application concern the question as to what these prin-
ciples exactly require, for example, they demand to look at the details of the case at hand
carefully. What are the characteristics of this case? One has for example to determine
what a person or company wants, why does he choose for a certain course of action?
Moreover, we need to interpret the principles and value(s) involved. What exactly do
they amount to? Besides these considerations of application, there are considerations
of specification. In case the relevant principles cannot be both satisfied, which set of
actions do satisfy them to the largest possible extent? Hence, principles have to be sup-
plemented by subsidiary specifying considerations to flesh out such abstract concepts as
fair share (as stated above, the fair share principle reflects the ideal of a fair distribution
of the tax burden). Thus principles may provide guidance. Considerations of application
and specification of the meaning of principles are context dependent. Abstract principles
can be elaborated in more concrete and specific principles attuned to a particular context
(Gribnau, 2014). One such context is taxation and even more specific international
income taxation. Principles have to be fleshed out in this specific context to have guiding
power for conduct in this field of taxation. To be sure, principles do not provide clear-cut
answers, and they are not comparable to hard and fast rules in this respect.
As shown above, tax law is often a muddled, inconsistent body of rules, which some-
times violates important value and legal principles. The use of tax legislation as a reg-
ulatory instrument goes at the expense of the fairness of the tax system. Lack of
transparency as to the values and principles the legal system aspires to harms its capa-
bility to provide guidance for conduct. The legislature, therefore, should take legal val-
ues and principles seriously, thus strengthening the internal morality of the law (cf.
French, 2013: 89 on the concept of moral clarity, which is closely related to that of
legislative purpose). The fairness of the tax system should be made more transparent
by using tax legislation as a regulatory instrument less since such usage is a major cause
of tax law complexity. The legislature should show more concern for the clarity of the
fair distribution of the tax burden, one of the fundamental purposes of tax law.
In the same vein, states should cooperate to reinforce the internal morality of interna-
tional tax law. However, especially in international tax law, there is hardly any consen-
sus on fundamental principles. Jurisdictions may have competing calls on profits and
allocation may be an issue (Freedman, 2006: 383). Peters points at the lack of consensus
with regard to the underlying values and objectives of international tax law. This is likely
to be the more so, taking into account that Western views may differ from those of the
Brazil, Russia, India and China (BRIC) and Mexico, Indonesia, Nigeria and Turkey
(MINT) states and developing countries in general (Peters, 2014: 297304). Nonethe-
less, some companies are acting less tax driven than others. Some even acknowledge
their responsibility to contribute a fair share to society and do not view tax as a profit

centre by itself. Therefore, it must be possible to build consensus on responsible beha-

viour respecting the integrity of international tax law. A fixed idea on principles of tax
fairness lacking, taxpayers and states (and other stakeholders) should try to agree on
these principles in an ongoing debate, whereby states bear a special responsibility
(Peters, 2014: 304307). To my mind, therefore, the starting point should be to aim for
consensus on a bottom line, that is, an effective tax rate no (corporate) taxpayer should
want to go below. Therefore, the aim should not be to establish what a fair share entails
but what evidently should be judged to amount to not paying a fair share. In practice, it is
far easier to agree on evident instances of injustice than on what counts as justice. People
disagreeing on some abstract proposition like fair share may be able to lower the level of
abstraction (cf. Sunstein, 2001: 4951 on incompletely theorized agreements). In this
way, they may find that that they agree on a more narrow principle like evidently not a
fair share without agreeing on an abstract theory of fair share (the ideal of a fair distri-
bution of the tax burden). Furthermore, though some companies may want to pay their
fair share, companies have the legal right to choose the most favourable share. Agree-
ment on principles sustaining a bottom line for example, hardly paying any (corporate)
taxes at all not counting loss relief and the use of tax incentives seems the best way to
go therefore. Not least because agreement on a fair share being not feasible in such cir-
cumstances. Consensus on a bottom line can be starting point for a richer theory that
should account for the different meanings of these principles for taxpayers and for dif-
ferent lawmaking actors taking into account relevant differences and agreements.
Here I will not elaborate on these principles. The point of this contribution is just the
underpinning of the importance of principles. It will suffice to mention some starting
points. Although they come with different backgrounds, they may be ingredients for a
fruitful debate. One possible specification of fair share in international income taxation,
for example, is the single tax principle, as advocated by Avi-Yonah (2008a: 810). He
proposes that the resulting revenues should be divided among taxing jurisdictions
according to the benefits principle (2008a: 1113). From a broader perspective, Dowl-
ing examines 10 common tax principles, 7 of these having a positive social respon-
sibility theme (2014: 181183). The Dutch Association of Investors for Sustainable
Development (VBDO) (2014), also putting the fair share debate in a broader perspec-
tive, has crafted six principle-based guidelines on what this non-governmental orga-
nization thinks good tax governance could be (2014). Of course, there may be other
possible specifications. Agreement on the best specification may be reached after the
arguments pro and contra different specifications have been widely discussed. Com-
pliance with ethical obligations, then, should focus on clarifying and fostering princi-
ples, not exclusively on conformity to rules, whether rules-based legislation or rule-
based treaties.
Again, under the rule of law, fleshing out abstract principles in concrete rules is pri-
marily the task of the legislature. The legislature clearly has the responsibility carefully
to devise and put in place a body of precise rules but, in my view, there remains some
moral responsibility for the taxpayer. As Dworkin argues, a member of a community
of principles cannot allow himself a permissive, self-interested attitude but should
reflect on the community scheme of principles if explicit rules are unclear or incomplete
or because the abstract rights it deploys conflict in some way (1986: 300). Law as

Gribnau 245
integrity demands a reciprocal interplay between law and morals in ordinary practical
life, even when no lawsuit is in prospect and each citizen is judge for and of himself
(Dworkin, 1986: 301). Tax law should not be seen as an exception to the ideal of law
as integrity, for the cases for legitimacy and integrity are at least as strong in taxs
empire as they are in laws (McCaffery, 1996: 107).
This is a view that CSR corporations should endorse. Of course, they may arrange
their tax affairs as they wish within the boundaries of the legal rules. However, these
companies accept ethical obligations beyond (strict) compliance with the law. Legal
obligations, therefore, should not be narrowed down to the letter of the law nor should
they use and manipulate the tax rules without regard for the underlying principles in
order to minimize their tax liability. They should fall back on the scheme of principles
underlying the tax system in hard cases when possible use of the rules evidently does not
result in paying a fair share of taxes. Principles then should guide and if necessary cor-
rect the use of rules. This way, CSR companies see legal responsibilities in conformity
with the internal morality of tax law. They do not need to appeal to confessed ethical
responsibilities on top of their legal responsibilities, for these legal responsibilities can-
not be separated from their (internal) moral dimension. Admittedly, it is a fine line to
draw, ethical responsibilities on top of their legal responsibilities versus ethical respon-
sibilities within legal responsibilities. That said, it does away with the idea of the law as a
bunch of rules without any ethical flavour especially in hard cases.
Conclusion
People want to plan their life and the taxes they have to pay in the course of their life. Tax
planning is nowadays all the more important because the tax legislature often tries to
steer citizens behaviour to achieve all kind of policy goals. In this way, the tax legisla-
ture stimulates taxpayers to adopt a calculating attitude towards the tax system and some-
times consciously disregards the internal morality of law by violating fundamental legal
principles. The upshot is that tax legislation has become a very complex and often incon-
sistent body of rules. Moreover, the legislature, by using tax incentives to affect tax-
payers behaviour, breeds a rule-based mindset focused on tax planning.
Taxpayers engaging in aggressive tax planning manipulate the legal system in order
to minimize their tax liability. They are bending the rules. However, tax rules established
by the legislature are inevitably imperfect. These imperfectly drafted rules account for
loopholes (gaps in the law) and ambiguities in the rules that demand interpretation when
applying the rules. Should companies include ethical considerations in their tax decision-
making framework? The answer to this question is twofold. Taxpayers may arrange their
tax affairs as they wish. However, companies endorsing CSR accept ethical obligations
beyond compliance with the law. Beyond compliance may seem to express a strict
separation between between law and morality, with morality coming on top of the law.
In my view, CSR companies should agree that the interpretation and use of tax rules are
based on a moral choice, which is all the more important because it concerns the distri-
bution of the tax burden, which is a moral phenomenon. The use of legal structures
resulting in hardly paying any (corporate) taxes at all does not reflect a CSR corpora-
tions ethical obligation to contribute to society.

However, CSR companies should take one more step in endorsing a less narrow and
formalistic view on (tax) law, one that argues that tax is a body of rules itself grounded in
principles that make up the internal morality of law. Therefore, they should take these
principles seriously because, as they accept ethical obligations beyond the law, they
should certainly accept ethical obligations embedded in the law conceived of not sim-
ply as a body of rules. Hardly paying any (corporate) taxes at all prima facie fails to do
justice to these principles. This is the answer to the question of whether the legal system
contains specific guidelines for ethical conduct that go beyond the (letter of the) law.
Acknowledgements
The author wishes to thank Dominic de Cogan, Judith Freedman, Rem Hamers, John Snape and
Henk Vording and two anonymous reviewers for their valuable comments on a previous draft
of this article.
Note
1. In this respect, a distinction between a basic stage, with a mindset of legal compliance and pay
taxes, and other more engaged stages of corporate citizenship is a bit artificial. For such a
framework with five stages of corporate citizenship, see Googins et al. (2007: 75 ff.).
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