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ECPR Journals Virtual Special Issue

The Use of Legal Tax Shelters by Private Persons and Corporations. A Normative Discussion

Geert Demuijnck
Université catholique de Louvain
Geert Demuijnck
Université catholique de Louvain

In many countries governments have set of fiscal niches in order to stimulate particular types of investment (by corporations of individual persons), or in order to attract foreign direct investments, etc. For example, in France, people can be exempted from wealth tax (lmpôt sur la fortune) if they invest in woods, or corporations can be exempted for taxes on profits if they invest in certain areas (‘zones franches’). Of course, it is possible to point at different unwanted side-effects of these fiscal shelters. In this paper, however, I would like to analyze the normative justifications of these ‘exceptions’ in the tax system and to relate them to two other schizophrenic situations that are well-known in recent debates in political philosophy: first, the revival of Rousseau’s tension between the selfish ‘bourgeois’ versus the generous citizen in G.A. Cohen’s criticism of Rawls, and more particularly, of Rawls’s use of incentives in his theory, and, second, the tension between patriotism, i.e. solidarity with compatriots, and moral universalism.
The comparisons can be used in different perspectives. First, they reveals that tax shelters can possibly be justified as a second best solution in a situation of international tax competition, i.e. in the absence of a constraining governance system, but are highly questionable, from a normative viewpoint, in a domestic context. Secondly, the comparisons show how complex it is to make sense of the notion of corporate citizenship with respect to corporations. Third, the recent development of so-called ‘social enterprises’ for which many countries have set up specific legal frameworks, with corresponding tax shelters, turn out to be unexpectedly ambiguous instruments.
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