Nimmo Elmi Essay Introduction to STS Course

Nimmo Osman Elmi :Introduction to STS: Essay Autumn 2015

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Translating Tax Compliance TABLE OF CONTENTS

1. INTRODUCTION ..................................................................................................................................................................... 1

2. TAX COMPLIANCE ................................................................................................................................................................. 2

2.1 THE CONCEPT OF TAX COMPLIANCE ............................................................................................................................................................. 2

3. ACTOR-‐NETWORK THEORY ............................................................................................................................................... 3

3.1 FOUR MOMENTS OF TRANSLATION ............................................................................................................................................................... 4

3.1.1 Problematization or how to become indispensable ....................................................................................................................... 4

3.1.2 Devices of Interessement ............................................................................................................................................................................ 5

3.1.3 Enrolment ......................................................................................................................................................................................................... 5

3.1.4 Mobilization and Representation ........................................................................................................................................................... 6

4. CONCLUSION ........................................................................................................................................................................... 6

WORKS CITED ............................................................................................................................................................................. 7

NOTES ............................................................................................................................................................................................ 7

ABSTRACT

The global financial crisis led to a shift in the fight against tax evasion. While many actors and institutions were blamed for the crisis, some tax experts formulated models aimed at preventing and addressing the crisis. Using a sociology of translation approach, I analyse how despite the shift, several actors are constantly engaged in negotiations about the concept of tax compliance. The Enhanced Relationship Model, was formulated by the OECD to improve economic and social well-‐being of their member countries. In the midst of the crisis, the OECD strategically positioned itself as the leading advisor and policymaker. Using Callon´s study of the Scallops, I focus on unveiling how the knowledge is produced accepted as facts within member countries that adopt the policy. My essay will be concerned on how STS can contribute to an understanding of transfer of knowledge in the global realm of producing and sharing knowledge.


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1. INTRODUCTION In a recent conference I attended, a professor gave an example of how tax compliance is

performed in Ireland. The taxation agency published the names of the tax evaders in the newspaper once a year with all information regarding the offenders and arrears owed to the government. The professor explained that she uses this information to teach her taxation administration classes. Some of her students, she explained, would feel ashamed if their town was mentioned in the newspaper. She discussed about how the taxation agency used a social psychological approach to enforce tax compliance. I wondered whether this interpretive understanding of compliance was effective in creating compliant taxpayers? I then decided to use this case to build my argument about the strategies used to implement and enforce tax compliance in some European countries.

Tax compliance strategies in Ireland, as suggested by my example, appeal to the social values of the society to generate impact. Why have countries intensified their fight against tax evasion? The recent global economic crisis highlighted the growing problem of tax evasion in the world (Gemmell och Hasseldine 2012). Tax administrators and policymakers turned their attention to designing efficient tax policies and strategies. The OECDi, recognising the problems revenue bodies faced in the wake of the crisis, designed global coordinated responses. In 2008, the Forum for tax administrationii(FTA), which is under the OECD, published a study addressing the role of tax intermediaries and encouraged tax bodies to establish relationships with taxpayers. This led to the formulation of the “Enhanced relationship model”. The model was based on the Australian Tax compliance model iii, which according to several tax experts and academics, is one of the most efficient tax compliance policy (Heber 2011) (Wouters och Meuwissen 2001). Effective tax policies are measured based on a country´s tax-‐gap.iv

The OECD has long enjoyed this position of central importance in formulating and disseminating tax policies for its members (Wouters och Meuwissen 2001). However, as my example about the model in Ireland reveals, the outcomes were different. While the Australian model was based on a pyramid model of responsive regulationv, the OECD model was based on dialogue, mutual trust and transparency as its key tenets.vi The name and shame approach that was used in Ireland was highlights the obvious frustrations of enforcing a policy that is not adaptable to the local dynamics.

This translation of the compliance models is at the heart of my essay. The OECD model was adopted by several of its 34 member countries.vii The OECD objectives deviated from the Australian model adapting it to address broader issues. My essay will use the sociology of translation to unravel the power relations embedded in this model. I will give examples on how different tax authorities adopted this model and analyse how the model created power relations and networks based a common goal of fighting tax evasion.


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2. TAX COMPLIANCE

Tax compliance is defined as the degree to which taxpayers comply with the tax law (Boll 2011). How can researchers and academics in STS study the concept and process of tax compliance? Karen Boll (2011) employed an ANT approach to see how the phenomenon of tax compliance is assembled within various networks of actors (Boll 2011). While this has been very important in understanding how new actors are constantly being made, I felt like it did not provide explanations or demonstrate how knowledge about tax compliance is produced and made into a fact that is accepted and replicated in the global sphere. My approach is centred on how the processes of translation can reveal how the network of the knowledge production in tax compliance is built and maintain through interactions between tax experts, advisors, administrators and taxpayers. I aim to analyse how actors have positioned themselves to become very relevant in the global fight against tax evasion. I analyse how the knowledge has been translated through its networks and actors creating new forms of networks and actors.

2.1 THE CONCEPT OF TAX COMPLIANCE Tax policies are political and shifts in political leadership are followed with revised

taxation policies. The right wing governments are known to favour large multinational companies while the left wings give tax reliefs to the common citizens (D'Arcy 2011). Tax compliance is therefore related to the political, social and economical dynamics at play in the country. However as with many concepts, tax compliance, is translated in different arrays based on the above-‐mentioned dynamics.

It could be translated as a law enforcement approach, an economic model devised to increase tax compliance or even as behavioural psychological approach that aims to get tax payers to behave or perform in a compliant way (James & Alley 2010). However there are many factors that determine tax compliance because the state and the citizen are in constant negotiations about taxation. These negotiations happen vertically between the state and the citizens based on the services delivered in exchange, horizontally based on the extent on the citizen’s national consciousness and trust of the government and thirdly comparatively based on the equal treatment of the citizens by the state (D'Arcy 2011). These relationships mentioned above differ from state to state making it difficult to have symmetrical results from one compliance model like the enhanced dialogue.

The Enhanced Relationship model, states that revenue authorities have two methods of obtaining information from taxpayers. They could either use their statutory powers or obtain it voluntarily (Heber 2011,20). However, the OECD recommended creating an environment of trust and transparency would urge the taxpayers to voluntarily declare their taxes. What happens when the taxpayers do not comply with the model? In Sweden, the Swedish tax agency, Skatteverket, introduced this notion in 2012 with an objective of improving compliance


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among large companies. However it changed the name from enhanced relationships to enhanced dialogue (fordjupat dialog) highlighting guidelines for the dialogue agreement. viii The reason that was cited was that the taxpayers would take dialogue more seriously as the notion of relationship made the interactions very informal. Although the model was based on volunteer membership, the taxpayer needed to be reminded that they had a legal responsibility to comply with the administration. In the Netherlands, the tax administration renamed the model to horizontal monitoring. This would appeal to the trust and national consciousness of the citizens in the Netherlands. The model expected the taxpayer to conduct itself well in order to receive assistance from the administration. In the US, the IRS (Internal Revenue Service) adopted the model naming it “Anchoring change” (Heber 2011). The model in the US was aimed at strengthening the current tax compliance strategies rather than create new models.

3. ACTOR-‐NETWORK THEORY

Just like the scientists they study, they divided by continuing controversies (Callon, 1988, 199).

Actor-‐Network Theory (ANT) is an approach to social theory and research that builds on the relationship between human/non-‐human actors and networks. ANT network is conceived as a heterogeneous combination of textual, social, conceptual and technical actors. (Sismondo 2010). The actor, in ANT, is any agent, collective or individual who can associate or disassociate with other agents. The actors and the network in my case include the concept of tax compliance, the OECD network, the member state tax administrations, the tax experts and the taxpayers.

I chose this approach because ANT suggests that the work of science is not fundamentally different from other social activities asserting that science is a process of heterogeneous engineering in which the social technical, conceptual and textual are puzzled together and transformed (translated) (Sismondo 2010). The activity of techno-‐science is to understand the interests of a variety of actors and translate those interests so that actors can work in agreement. By bringing all actors together, we change the ways in which they act in translating their interests.

Michel Callon (1986) argues that the sociology of translation contributes to a new approach in the study of power (Callon 1986, 196). Translation, which is rooted in ANT, describes the process in which particular controversies get constructed and negotiated. For them (social scientists) nature is uncertain but society is not (Callon 1986, 196). Callon argues that previous methods of sociological analysis are not adequate to explain matters of science and technology in stylistic ways because sociologists censor actors; theoretical ways because social scientists act as if agnosticism that is applied to natural science and technology is not applicable to society as well and methodological ways as the identities of actors is problematic and needs to address as such (Callon, 1986,s.198-‐199).


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He writes:

“When the society described by sociologists confronts nature (no matter which description they give), society always has the last word. If the norms are removed, the science collapses. If the existence of social classes and their interests is denied or if the battle waged against scientists to increase their personal capital of credibility disappears, then science and technology comes to a halt, deprived of any outlet. (Callon 1986, 197)

Callon argues that social scientists need tools that can explain the emergence, development and eventual closures of controversies. He argues that sociologists have dedicated numerous studies to controversies without understanding why and in what conditions controversies occur or even how they end (Callon, 1986, s.211). Callon proposes faithfully following three methodological principles. Agnosticism (impartiality between actors engaged in the controversy, generalised symmetry (the commitment to explain conflicting viewpoints in the same term) and free association (the abandonment of all a priori distinctions between the natural and the social)(Callon, 1988,s.196). Callon sought to use the principles and moments of translation to problematize how scallops, which had become highly appreciated by French consumers, progressively dwindled in two cities, St Brieuc Bay and Brest. Callon (1988) uses this case study, about the attempts by the fishing community and the scientific researchers to increase of scallop population, to examine the development of new social relationships in the vast network of actors all engaged in the conservation process (Callon, 1988,s.201).

3.1 FOUR MOMENTS OF TRANSLATION

Callon argues that 10 years later, after the interventions had begun, scientific knowledge was generated and certified, a social group was formed and a community of specialists were organised in order to study the scallops and promote their cultivation. To examine this development, Callon (1988) outlines four moments of translation: Problematization, interessement, enrolment, and mobilization.

3.1.1 PROBLEMATIZAT ION OR HOW TO BECOME INDISPENSABLE

The first moment, problematization, describes how the researchers, determined a set of actors and defined their identities in such way as to establish themselves as an obligatory passage point (OPP) in the network of relationships they were creating. They studied the technique in Japan and concluded that it could be replicated in St. Breiuc Bay. However despite the species being cultivate in Japan and France, their views were never presented as an illusion or an error of judgement. The OECD, recognizing the challenged faced by revenue authorities, developed a tax compliance model was unchallenged. This is because they labelled themselves” the market leader in developing tax standards and guidelines” (Wouters och Meuwissen 2001). They became indispensable in the global fight against tax evasion that was sighted to be at the forefront of the global economic crisis. The model, enhancing relationships, was aimed to curb


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tax evasion and increase tax basesix among its members and networks through transparency and dialogue.

The OECD´s created an obligatory passage point for itself and they problematized the global financial crisis as something that could be avoided by boosting tax responsibility and behaviour. The OECD managed to include several actors in its attempt to close the tax gap of its member states. Similar to the researchers in St.Brieuc who presented the fishermen as a homogenous group of people excluding their individual contributions and understandings of the controversy, The OEDC has presented the member states as homogenous entities excluding their own local challenges and strengthens in the fight against tax evasion.

3.1.2 DEVICES OF INTERESSEMENT

During their problematization, the scallops, the fishermen and their colleagues join forces in order to achieve a certain goal (Callon, 1988). They carefully define their identity and goals or the inclinations of their allies. Callon hereby argues that the allies are tentatively implicated in the problematization of other actors. However, Callon argues that in order to interest other actors, devices have to be built in order to placed between them and other entities that want to define their identities otherwise. The researchers use collectors to ensure that the crustaceans are protected from predators and anchorage. For the fishermen and the researchers the interessement is founded on a certain interpretation of what the yet to be enrolled actors are and want as well as what entities these actors are associated with. For all the groups involved the interessement helps corner the entities to ne enrolled and construct a system of alliance.

The OECD redesigned the Australian model to the enhanced model creating a device for reducing global tax evasion. Their allies in this global fight of tax evasion include the tax administrations from their member and non-‐member countries. They represent what they think the taxpayer needs and even formulate plans for changing their tax behaviour. The OECD has managed to secure itself a position in this network and their alliance is now based on a common interest of fighting tax evasion

3.1.3 ENROLMENT

Callon (1988) argues that no matter how constraining the trapping devices, or how convincing the argument success is never guaranteed. Enrolment describes how the group of multilateral negotiations, trials of strength and trick accompany interessement and enable them to succeed (Callon, 1988,206). However, Callon argues that if the actors are to be enrolled they have to be willing. The scallops had to be willing to anchor themselves to the collectors (Callon, 1988, 206). Since its inception, OECD had been trying to establish coordinated responses to international tax evasion. It enrolled willing senior tax experts and tax


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administrations to draft a report, that legitimized the process of establishing, coordinated tax compliance processes. Once the tax administrations endorsed the enhanced relationship program, it was then easy to recruit lawmakers in their respective countries to adopt the model. Once the lawmakers adopted the model, they needed to recruit willing members who could pilot the program. The tax administrations gave the large-‐scale companies who volunteered incentives such as free advice on different issues especially risk management.

3.1.4 MOBIL IZAT ION AND REPRESENTATION

Who speaks on behalf of whom? Who represents whom? These questions according to Callon must be answered if the researchers are to be successful. (Callon 1986). Power is demonstrated through representation. Some voices are silenced through representation empowering the spokesmen. The few larvae who do anchor themselves have the power to represent the anonymous mass of larvae; the few representatives of the fishermen who accept without argument the proposals of the researchers have the power to make decisions on behalf of the fishermen: the authors of the research in Japan who represent the wider scientific community, have the power to influence the work of the researchers. Callon´s study of the mode of mobilization reveals the power relations within the networks. The OECD has created an opportunity passage point to represent all global economic research especially on tax issues. Their knowledge is accepted by a few tax administrations that have the power to now represent global tax administrations. The companies who are recruited to the pilot project generate knowledge that influences tax policy for other large companies globally.

4. CONCLUSION

The larvae failed to anchor itself to the collector; the fishermen no longer wanted to be represented and made the decision to harvest the few scallops that had anchored and the researchers who had an obligatory passage point were now faced with a controversy. Their scientific community now doubted their project and they were forced to take on new measures that included civic education about the project and its benefits. The OECD released a report in 2013, introducing the reformulation and renaming of the enhanced relationship project.x The new approach, co-‐operative compliance states that it is still has the same principles as the previous approach and included cooperation as an important tenet. The OECD cited that some taxpayers experienced the approach as exclusive to some taxpayers and name change would help achieve this. Heber (2011) explains that the tax compliance is measured by the size of the tax gap in the country. This approach failed to reduce the tax gap as expected because of the tenets that were used, trust and transparency. She argues that for such values to be used they have to existed strongly in the countries. She argues that the focus should not be in strengthening the compliant taxpayers rather focus more resources and research to understanding tax havens. This would help understand the controversy of the ever-‐rising tax


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gap. (Heber 2011, 31)

WORKS CITED Boll, Karen. Tax Assemblages:Laborious and Meticoulous achievements of tax compliance. Copenhagen: IT

University of Copenhagen, 2011.

Callon, Michel. "Some elements in the sociology of translstion.domestication of the scallops and the fisherman of St.Brieuc." Power,Action and Belief:A New Sociology of Knowledge, 1986: 196-‐223.

D'Arcy, Michelle. "Why do citizens comply? Legitimacy,Taxation and the African State." AfroBarometer, January 2011.

Gemmell, Norman, and John Hasseldine. Working Paper 09/12. Victoria Business School, Victoria: Victoria Business School, 2012.

Heber, Caroline. "The OECD Enhanced Relationship Model and Its improvement towards an International Dialogue between Revenue Bodies." www.business.auckland.au. 01 01, 2011. docs.business.auckland.au/dr.caroline.heber.

McCulloch, Tracy. "Beyond Compliance:Participation,Co-‐production and Change in Justice Sanctions." European Journal of Probation 7 (2015): 40-‐57.

Oudshoorn, Nelly, and Trevor Pinch. How Users Matter:The Co-‐Constructions of Users and Technologies. Mass: MIT Press, 2003.

Sismondo, Sergio. An Introduction to Science and Technology Studies. Second Edition. West Sussex: Wiley/Blackwell, 2010.

Wouters, Jan, and Katrien Meuwissen. "Global Tax Governance:Work in Progress." Leuven Center for Global Governance Studies:Working Paper 59, February 1, 2001.

NOTES

i The OECD stands for the Organisation for Economic Cooperation and Development.

ii The Forum on Tax Administration (FTA) was created in 2002 and is a unique forum on tax administration for Commissioners from 46 OECD and non-‐OECD countries, including every member of the G20. Our vision is to create a forum through which Commissioners can identify, discuss and influence relevant global trends and develop new ideas to enhance tax administration around the world.

iii http://www.oecd.org/tax/administration/39882938.pdf

iv The Tax gap is the difference between the amount of tax that should in theory be collected against what is actually collected (www.businessdictionary.com/defination/tax-‐gap.html)

v https://www.ato.gov.au/Print-‐publications/Developing-‐effective-‐compliance-‐strategies/page=22

vi The OECD Working paper 6 available at: http://www.oecd.org/tax/administration/39003880.pdf

vii The OECD currently has 34 member countries


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viiihttps://www.skatteverket.se/rattsinformation/skrivelser/skrivelser2014/13140941413111.5.15532c7b1442f256bae6751.html

ix Tax base is the assessed amount of an entity's assets or income that are subject to taxation. The concept is used to derive the tax income of a government entity.

x http://www.oecd.org/ctp/administration/Co-‐operative-‐Compliance-‐Preliminary.pdf

Nimmo Elmi Essay Introduction to STS Course

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