The Catechism of the Catholic Church tells us that individuals and companies have a responsibility for the common good, and thus it is morally obligatory to pay taxes that are due.
David Palmer
Chief Executive Officer, Epworth Investment Management Limited.112
At a meeting discussing the UN’s Sustainable Development Goals (SDGs) with a reporter specialising in Environmental, Social and Governance (ESG) issues, the question of taxation came up. There are 17 SDGs which were adopted by the 193 member nations of the UN in 2015. They are designed to “end all forms of poverty, fight inequalities and tackle climate change, while ensuring that no one is left behind”.113
Our discussion concluded that these goals omitted an overarching target that could finance and support most of these objectives – that every institution, company and individual should pay their fair share of tax. We called this tax justice. It has been estimated that the world is losing nearly $245 billion each year due to corporate tax ‘planning’: that is enough to cover 9.2 per cent of the world’s health budget. Lower income countries proportionally lose more than the developed world.114 Society’s attitude to the prioritisation of shareholder returns over a contribution to the broader economy is evolving, with a growing recognition that companies should contribute to the education, personal safety and infrastructure costs that enable and sustain their performance.
The United States Conference of Catholic Bishops set out, thirty-seven years ago, three principles against which to judge a nation’s tax system. They are: that it should meet the needs of the poor; that it should be a progressive system so that those with greater capacity to pay tax should pay proportionately more than those with less; and that tax should not be a burden for those who struggle to get the necessities of life.115 However, a core assumption underlying these principles is that the tax system will secure the revenue that it is designed to collect. There is naivety here that those with the capacity to pay tax will not use some of that implied wealth to reduce or even avoid their tax burden. As the twentieth-century American businesswoman Leona Hemsley, dubbed ‘The Queen of Mean’, is infamously quoted as saying, “We don’t pay taxes; only the little people pay taxes”.116
For the practising Christian, the core challenge is whether tax evasion or aggressive tax avoidance should be regarded as a sin. A company chief financial officer often has, as his or her priority, the maximisation of the return to shareholders. Many individuals regard it as the government’s role to close the loopholes that allowed Leona Hemsley to avoid her tax obligations, while, if they fail to do so, then efficient tax planning is fair game. Most people would agree that an investment in a tax efficient product such as a pension scheme or an ISA is a sensible and prudent way of planning for the future. What is the difference between that and a film partnership, ruled illegal by a tax tribunal, that enabled 35 footballers, actors and other celebrities to avoid £1.6 billion of tax?117
In an encyclical Sollicitudo Rei Socialis (1987), Pope John Paul II denounced financial mechanisms which “although they are manipulated by people, often function almost automatically, thus accentuating the situation of wealth for some and poverty for the rest” (Sollicitudo Rei Socialis 16). In his encyclical, Pope John Paul II linked structural sin to the actions of the individual. Structures of sin “grow stronger, spread, and become the source of other sins, and so influence people’s behaviour” (Ibid 36). He continued that the reform of the world’s monetary and financial system had been inadequate. Pope John Paul II’s opinion is unlikely to have been changed by the developments of the last thirty-six years.
The Catechism of the Catholic Church tells us that individuals and companies have a responsibility for the common good (CCC 2240), and thus it is morally obligatory to pay taxes that are due. It can be inferred from this that they should pay a fair and transparent level of tax. Aggressive tax planning, although arguably legal, is therefore sinful. It detracts from the common good and harms others by depriving them of the fiscal support that finances the safety nets that we have chosen to put in place for our vulnerable. Aggressive tax avoidance by the wealthy only increases the burden on the less well-off to support the needy.
The “Fair Tax Mark” is an accreditation that examines and tests a company’s tax policy.118 It demands transparent financial reporting. Where does a company earn its revenue? Where does it employ its people? And where does it pay its tax? It demands an explanation of extraordinary tax rates: that is, why the company’s tax rate is so low. Is it because of brought-forward losses or genuine capital expenses? Or is it because of the use of a financial mechanism that has no purpose other than to reduce the company’s tax burden?
Epworth Investment Management became the first investment manager in the UK to obtain the Fair Tax Mark in 2020. We have since engaged actively with companies in which we invest to encourage them to apply for this accreditation. Of the 23 companies that we have approached, two have achieved the Fair Tax Mark, six are seeking the accreditation and nine are amending their tax disclosures.
We encourage all investors to ask their fund managers, or the companies in which they invest, about their attitude to tax justice. A company that acknowledges and fulfils its obligations to all stakeholders is not only ethically worthy of investment but demonstrates the long-term planning that will make it a successful, sustainable investment. Our society has established a system to educate, protect, heal and support our young, old and vulnerable. We have determined that a progressive tax system is the equitable approach to financing these core functions in our world.
As Jesus teaches us: “Everyone to whom much was given, of him much will be required, and from him to whom they entrusted much, they will demand the more.”119 For companies and individuals to seek to avoid this obligation, and in doing so increase the burden on the less fortunate than themselves, is sinful, and so is any system that enables them to do it.
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112. Epworth Investment Management Limited (“Epworth”) is authorised and regulated by the Financial
Conduct Authority (FCA Registered Number 175451). It is incorporated in England and Wales
(Registered Number 3052894), with a registered office at 9 Bonhill Street, London EC2A 4PE and is
wholly owned by the Central Finance Board of the Methodist Church. Founded in 1996, Epworth is an
investment manager dedicated to serving the needs of Churches and Charities.
113. United Nations, The Sustainable Development Agenda (accessed 16/8/2023).
114. Tax Justice Network, The State of Tax Justice 2020: Tax Justice in the time of Covid 19 (2020) p. 4.
115. United States Conference of Catholic Bishops, Economic Justice for All: Pastoral Letter on Catholic
Social Teaching and the U.S. Economy (1986) 202.
116. ‘Maid Testifies Helmsley Denied Paying Taxes’, The New York Times (12/7/1989) (accessed
13/9/2023).
117. For details of the legal case and full decision, see Ingenious Games LLP and Others and The Commissioners for HM Revenue and Customs: [2019] UKUT 0226 (TCC).
118. Fair Tax Foundation (accessed 18/8/2023).
119. Luke 12:48.
What a just and loving approach to taxation might look like.
The Church, from her origins, was a movement of the poor and the powerless. The fact that her founder, Jesus Christ, was born in poor circumstances necessarily made concern for the poor one of its founding commitments.
The framing question for this reflection is whether addressing the national debt from the response to Covid-19 will require cutbacks in expenditure or increased taxation or both
The calls on tax revenues to finance welfare would be diminished if people received a just wage as is called for in Catholic social teaching.
