Who Should Decide Whether the Apple is Rotten? Tax Disclosure and Corporate Political Agency

Benshalom, Ilan

Enron-type corporate financial accounting scandals in the beginning of the millennium have given rise to a renewed interest in corporate tax disclosure. Anecdotal evidence suggesting a connection between corporate fraud and aggressive tax planning has motivated academics and policymakers to reconsider tax disclosure as a way to monitor corporate governance and limit tax avoidance. This article offers a different perspective on tax disclosure, tying it to the broader question of how policymakers should monitor the political impact of corporate business activities.

The article claims that policymakers should view corporations’ tax planning strategies as part of a broader corporate political impact on social issues. This impact results from the genuine difficulty of bifurcating corporate business decisions from their political ones. This difficulty is a result of many judgment calls required in such decisions, which relate to individuals’ moral and political preferences. Tax planning is one of these mixed business-political decisions, and the article advances the notion that policymakers should analyze tax planning not only as a law enforcement issue, but also through corporate governance lenses. To establish this inquiry, the article explains why the investor-shareholder relationship gives rise to political agency problems, which neither traditional nor critical corporate law literatures recognize. It then demonstrates how the costs associated with this type of agency relationship could be reduced via disclosure of information about the impact of corporate activities on issues of political concern. The article uses insights from financial markets theory to explain how disclosure of non-financial information would help to better align corporate actions with the political preferences of shareholders, despite shareholder rational passivity and apathy. It is then illustrated, through the Apple case, how policymakers can use the theoretical conclusions reached through this analysis to formulate a real world policy proposal with respect to corporation tax planning. Through its use of a wide range of interdisciplinary resources, this article aims to reformulate the multi-layered inquiry over the benefits and costs associated with corporate tax disclosure.


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Columbia Journal of Tax Law

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September 29, 2015