Social+contract‍‍‍


 * Social Contract **

//“Paying taxes is perhaps the most fundamental way in which private and corporate citizens engage with broader society. Tax revenues are the lifeblood of the social contract […]”// - John Christensen, Tax Justice Network

The social contract is a relevant concept in the discussion on corporate taxation and aggressive tax planning in connection to corporate social responsibility and corporate citizenship, as it gives us a political/philosophical understanding of the context and the normative basis for taxation. It is here referred to as the idea in political philosophy that strongly arose during the time of Enlightenment. In political philosophy, the social contract is the foundation of a State. It is called a social contract, as it is can be seen as a conceptual contract between citizens, that gives up individual freedom in order to receive some general services back, that cannot be fulfilled without everyone being included in the "contract".

In the debate on tax planning and taxation, it is used as a way of legitimizing taxation in general, as taxation can often be seen as an essential part of the social contract, as can be seen from the previous quote by researcher John Christensen from Tax Justice Network. But it is important to point out that taxation is not necessarily included in the social contract, depending on various things such as nation, legislation and its relation to the social contract, and views on corporate citizenship.


 * Philosophical background **

To introduce the philosophical background, the reasoning of enlightment philosopher Thomas Hobbes is a good example. In Leviathan, Hobbes presents the idea of the social contract. According to his philosophy, it is in the nature of humans to guard their own interests purely in self-interest, through reason. Thus, without any government/state, there would be a “condition of war of every one against every one”, as no one has any duties to act in the interest of others or protect others.Due to this condition, it is wiser to transfer certain parts of freedom, such as using violence on others, to a certain group of people (in modern world, e.g. the police), in order to protect the people and avoid people hurting each other. Hobbes points out that it only works if everyone gives up their rights, otherwise there is no benefit for the individual in doing so – why should I not have the right to harm my neighbor if he has the right to harm me? So the main idea is that a state, or a social contract is needed to guarantee the safety of the people, and make sure that everyone follows the contract.

There are many variations on the definition or explanations of what the social contract is, or should be. Hobbes’ philosophy is based on an individualistic view of humans, also a very dark view of human nature. Jean-Jacques Rousseau is another famous philosopher who wrote a lot on the social contract. Rousseau, also a liberalist, had a different approach than Hobbes. According to Rousseau, individuals would be free, although being united in order to protect the whole people through a social contract.

//" 'The problem is to find a form of association which will defend and protect with the whole common force the person and goods of each associate, and in which each, while uniting himself with all, may still obey himself alone, and remain as free as before.' This is the fundamental problem of which the Social Contract provides the solution." - Jean-Jacques Rousseau//


 * Social Contract and Taxation **

The reasoning behind the contract, regardless the philosopher mentioned, is that everybody wins through the arising of a state. If there is no win in coming together for either reason, there is no incentive to “sign” this contract. The social contract varies a lot between nations. In many countries, things such as education and health care have been made responsibilities of the state. In other countries, the responsibilities of the state are much smaller, and tax rates are much lower. In the context of aggressive tax planning, avoiding taxes can often be seen as a violation of the social contract, seeing as taxes are part of the society and thus the social contract that every citizen is included in. Seeing as tax avoidance is not necessarily illegal, it can also be disputed that it is not a violation. But the social contract is not equivalent with the law, just like morality is not equivalent with the law.

As mentioned, there is no incentive to sign a contract if there is no win for both parties, which is sometimes used as an argument against certain kinds of taxation. Christensen argues that corporations do benefit from the tax revenues, as they need a decent society to operate in, e.g. working infrastructure and justice, which would not exist if it weren’t for the tax revenues and the social contract. But if big corporations are avoiding taxes, one might argue that the win is not mutual for both parties, as these corporations take the benefits from the contract, but do not give up their agreed amount of tax in return. Another researcher, Matti Vihanto, explains it like this:

"//An evasion of a tax by parties to such a social contract is unacceptable because, like all other breaches of contract in the community, it constitutes a violation of the contract rights of the other parties//."

In other words, if violations exist, there is a problem with the social contract, as the contract should be approved by the society it involves. Vihanto firther argues that in order to avoid violations, tax laws should be strongly based on constitution, so that the taxes are in compliance with the whole people:

"//One means for the government to enhance tax compliance on this view is to enact only tax laws that are in harmony with constitutional rules that meet with the unanimous approval of the people.//"

This follows Rousseau's idea of the social contract pretty well, in one way it uses the social contract as a basis for legislation.

The discussion is also strongly connected to __corporate citizenship__ and __corporate social responsibility__, as corporate taxes depend on what duties/responsibilities corporations can be expected to have in the society in question.