When I first met Mr Koh Yong Guan more than 20 years ago, he had just been appointed the Commissioner of Inland Revenue. One thing he said then and which has stuck with me ever since was: "Tax evasion is illegal - and tax avoidance is immoral."
The Inland Revenue Authority of Singapore eventually became a client of my technology consulting firm, and I would often caution my staff that we should be whiter than white in our personal tax returns, especially with a tax commissioner who thinks like that.
That said, my feeling then was that Mr Koh was unique in his view of tax morality. In fact, I knew, and still know, of more than a few chief financial officers and accountants who consider it not only fair, but their very duty, to minimise, as much as possible, the taxes they and their companies pay.
Indeed, a whole "tax planning" industry has sprung up to help individual and corporate taxpayers push the envelope in tax avoidance, and so, legitimately pay little or no tax.
Turning the tide
However, events of recent years suggest that society may well be coming around to Mr Koh's point of view. There is a palpable change in public opinion towards each person and corporation paying their fair share of taxes, and not getting away with merely paying what might be within the tax rules of the game.
In the 2012 United States presidential election, one of the issues which dogged Republican Mitt Romney's campaign was how his tax bill was lower than the average American's despite his income placing him in the top 1 per cent of earners. "I pay all the taxes that are legally required and not a dollar more," he said in his defence.
In December 2012, Starbucks announced that it would voluntarily pay the British taxman about £10 million (S$21 million) more a year in 2013 and 2014 than it was required to pay by law. The company was not doing so under any pressure from the tax authorities. Rather, it was responding to British consumers, who were upset over the revelation that multinational corporations (MNCs) such as Starbucks, Amazon and Google were paying little or no taxes despite their massive sales turnover.
Ironically, it is governments who are encouraging this notion of minimising tax by dangling tax incentives and schemes in their quest to attract targeted individuals and companies to their countries.
During its first 14 years of operations in the United Kingdom, Starbucks, for example, paid a total of only £8.6 million in taxes. This was less than 0.3 per cent of its sales turnover of more than £3 billion. Based on its tax submissions, it was profitable in only one out of those 14 years.
However, Starbucks admitted that its British business made large payments for coffee to a profitable Swiss subsidiary and large royalty payments to another profitable Dutch subsidiary.
Among MNCs, it is common and legitimate for the cross-charging of goods and services between subsidiaries (known as "transfer pricing"), or for one subsidiary to charge another for the use of intellectual property and other rights (known as "royalty payments"). When the transfer prices or royalty payments are artificially high (or low), then what could be profits in one subsidiary is effectively "shifted" to another subsidiary - which is often located in a tax jurisdiction where that subsidiary pays little or no taxes.
By itself, a tax authority can do little as what the MNCs do taxwise are entirely within the rules of each tax jurisdiction. However, governments are recognising that, taken collectively, in effect, the total tax revenue is reduced (what is called "base erosion").
Perhaps encouraged by the public mood swing towards a new tax morality, governments are implementing tax reforms and banding together as they seek to recoup lost revenues from the economic downturn.
A key focus is the tax avoidance schemes enjoyed by MNCs and high net worth individuals.