Dogma, in religions and other places

Most people are familiar with the dogmas promoted by powerful religious institutions such as the Roman Catholic church, evangelical protestant churches and some branches of Islam. The institutions claim they have sole possession of the truth, direct from God, and that anybody that does not agree is a heretic, someone to be avoided, and who may be punished.

Dogmatism is annoying, anti-social and causes a great deal of misery, both for people growing up under the power of the institution proclaiming the dogma and for some of those that interact with them.

It’s also pretty well recognised. One need only mention religious dogma and heads start to nod. People know what you’re talking about.

Despite the negative connotations the word has for most people, the leadership of the RC church does not object to the term and still uses it as a core part of its teachings. They invented the term, and use it without shame to describe propositions that the church says RCs are obliged to believe. When I was an RC I never thought to ask what happens if one does not believe a dogma. It seemed too impertinent. But now when I research it, the answer that appears fairly consistently across different RC sources is that it is not a sin to disbelieve the dogma, as long as you don’t say so aloud, because that might encourage somebody else to disbelieve it. That would be heresy, which is a grave sin, punishable by an eternity in hellfire. A few centuries ago, the punishment was lighter – a mere burning at the stake.

Although the RC church invented the word ‘dogma’, it is not the only institution to proclaim dogmas. There are plenty of dogmas in evangelical protestantism, and some variants of Islam are heavily dogmatic. Perhaps non-RCs would reject the application of the word ‘dogma’ to their essential beliefs, given the pejorative sense in which the word is mostly used these days. But it would be hard to argue that concepts such as ‘biblical inerrancy’ or ‘justification by faith alone’ are not dogmas for some protestant sects.
It would be a mistake to equate dogma with religion, because most religions are not dogmatic. It is just our misfortune that the three most dominant religions of our world: Roman Catholicism, Evangelical Protestantism and Islam have many adherents that assert an obligation to believe the relevant dogmas.

I am not aware of any pre-Christian religion that had obligatory beliefs. Judaism had many rules, but they were about practices, not beliefs. Even for worship, the injunction was to not worship other gods, or idols in particular. As long as you didn’t bow down or offer sacrifices to golden calves or statues of Ba’al, it didn’t matter whether, in the privacy of your own thoughts, you really believed Yahweh was the greatest god. In fact the Torah says nothing at all about obligatory beliefs, so far as I recall. Other pre-Christian religions, like Buddhism, the many variants of Hinduism, Mithraism, Zoroastrianism and the ancient Greek, Roman and Egyptian religions also appear to set no expectations about their members’ beliefs.

Dogmas appear in places other than religions. Just as some protestants, while abjuring RC dogmas like the Immaculate Conception or Trans-substantiation, insist on their own dogmas, people who are opposed to all religions – the so-called New Atheists – can be as dogmatic as those they criticise. Classic New Atheist dogmas are things like ‘it is wrong to believe anything that cannot be proven to be true’, or ‘for all questions and human challenges, science is the best means to an answer’. For some militant atheists it even seems to be an item of faith that adherence to any religious belief at all must be a sign of stupidity. I know these dogmas because for a while I was a born-again atheist and subscribed to them. I used to listen to podcasts of debates between Christians and atheists about whether God exists, cheering on my side and hoping for the unconditional surrender of the other. Looking back, it seems such an odd thing to do. Neither the debaters nor their supporters in the audience ever changed their views one iota. Each side had their dogmas and stuck steadfastly to them. They may as well have both been shouting into the wind. But really I suppose they were just playing to their supporters. I believe such debates can never get anywhere because it is impossible to prove or disprove the existence of a god, and any attempt to do either relies on presuppositions – usually unstated –  that one side will accept and the other will not.

I have not completely forsaken atheism. I am still atheist on Mondays and alternate Wednesdays. But I have forsaken the dogmatism that accompanies the more aggressive variants of atheism.

Dogmas manifest in wider circles than the theological and anti-theological. Other areas where they crop up are philosophy, politics, economics, psychology and sociology. People debate whether there is such a thing as objective morality, whether equality is more important than liberty, whether wealth really does ‘trickle down’ in a capitalist society, and whether most psychological disorders can be traced back to early childhood experience. Debates between evangelical christians and militant atheists seem mild and friendly compared to the vicious passions unleashed in a debate between a Berkeleyan Idealist and a Materialist acolyte of GE Moore about whether a tree that falls in a forest makes a noise if there is nobody there to hear it.

I’m not suggesting that none of those things matter. It matters very much what political and economic theories are adopted by governments. They affect many people’s lives. Even some sorts of philosophy have huge effects. One can trace the roots of many important social movements to the ideas raised by philosophers, such as the influence of Enlightenment philosophers on the American and French revolutions. It’s hard to see how the ‘actual existence’ or otherwise of impossibly distant galaxies could affect our lives, but other similarly meaningless topics, such as whether the Holy Ghost proceeds from the Father and the Son, or just from the Father, have led to wars, the rise and fall of empires and many burnings of people that had the misfortune of siding with the wrong opinion.

The common element of dogmatic claims is not their capacity or otherwise to affect our lives, it is their total immunity to proof, disproof, or experimental testing of any kind.

There is no dogma about the law of gravity, no dogma of quantum mechanics or a doctrine of the periodic table. A good biology teacher will not demand that her class believe that cells of mammals have a nucleus containing bundles of DNA and little packets of RNA. A good mathematics teacher will not demand that the class believe that the method being taught for long division works. The teacher is saying: “Here is a method, or an approach to understanding something. Most people find it useful in getting important things done“. The teacher could add – but generally doesn’t bother – “If you don’t like what I’m teaching and want to go and invent your own method of long division (or theory of the elements), be my guest! I’ll still be here to help you learn this method if you change your mind.

It is both ironic and predictable that the claims about which we humans get most dogmatic are those about which it is least possible to be certain. When there is a high level of certainty – as with Newton’s Laws of Motion – there is no need for dogmatism. You can take it or leave it. More fool you if you leave it. But when there is little to no certainty available, as with doctrines of neo-liberal economics (or, to be fair, Marxist economics), doctrines of the nature of the Holy Ghost, or proofs and disproofs of the existence of god(s), people generally ramp up the dogmatism and turn the volume to eleven. They use dogma and noise to make up for their lack of confidence and inability to provide any concrete evidence for the proposition.

This has led to my strongest philosophical position being anti-dogmatism. No matter what proposition somebody makes, be it about religion, ontology, economics or politics, and regardless of whether I sympathise with the belief being promoted or not, I now instinctively react against it and look to debunk it, if it is made dogmatically. That doesn’t mean I don’t hold any opinions on those topics. I have loads. Some of them – mostly the political ones – I hold very strongly and am prepared to march the streets, donate to a cause and publicly argue to try to persuade people over. But I hope I never get to the stage of believing that I am unquestionably right about something and that those who disagree are unquestionably wrong. That seems a poor way to live. I have sometimes been like that in the past, but I think I am not now and hope I won’t be again. For me, unquestioningly accepting a dogma is the coward’s excuse for not thinking for oneself.

That is my opinion, which I acknowledge may be mistaken.

Andrew Kirk

Bondi Junction, April 2019


Fair Dinkum companies – putting an end to shell company skullduggery

It is well-known that multinational companies use complex group structures, involving a rats’ nest of bewilderingly interconnected companies, to shift profits to places where they are taxed lightly or not at all. If the structure is complex enough it can become impractical for government agencies to invest the considerable time needed to understand the structure and work out whether it is hiding something socially harmful. Tax avoidance is not the only practice that can be masked by such deliberate complexity. Money laundering and putting assets out of the practical reach of creditors are other ends that can be achieved. Employment and environmental standards may also be avoided.

This essay outlines a law reform proposal that I believe would dramatically reduce the complexity of corporate groups, and thereby make it harder for them to hide socially undesirable practices. In short, I propose changing tax laws so that money cannot flow through a company without penalty unless its owner has convinced the government that allowing that to happen provides some benefit to society.

The proposal

Under my proposal, a country, call it N (for nation), would maintain a register of ‘Fair Dinkum’ companies (‘FD companies’), which would include both companies based in country N and companies based in other countries. For my non-Australian readers, ‘Fair Dinkum’ is an Australian adjectival phrase indicating that the person or thing to which it refers is honest and generally wholesome.

Any company, domestic or foreign, could apply to the government of N to be granted FD status. If granted, the company would be added to the register.

The incentive for companies to apply for FD status is that any payment made by a company subject to country-N tax law to a company in the same corporate group would only be able to be used as a tax deduction if the company to whom it was paid is Fair Dinkum.

Requirements for a company C being given FD status, and for retaining it, would be:

  1. The social benefit test. A convincing argument that granting the status to C would allow beneficial business activity to take place that otherwise could not take place to a similar degree. ‘Beneficial’ means beneficial to society in general, and can be interpreted fairly widely. If the activity creates jobs in an activity that is not regarded as harmful to human well-being, or generates taxable profits that would otherwise not occur, or provides a non-harmful service that people would be expected to want, that would be seen as beneficial. But it is not enough that the social benefit would be expected to arise after the company was given FD status. The government must also be convinced that the same benefit could not be achieved without that status. In particular, there would have to be a reason why the corporate group could not achieve the same goal using the FD companies it already had.
  2. Company C makes no tax deductible payments to any non-FD company in the group.
  3. Company C is based in a country that has tax laws and rates deemed by country N to be reasonable. That is, C cannot be in a tax haven.
  4. If any other companies in the group ceased to have FD status in the previous five years, an explanation of the reason would have to be provided for each one, that removes any concern that the group might be using ‘burner’ companies to flout the intentions of the framework.
  5. Company C does not own shares or debt instruments of any non-FD company in the group.
  6. No company in the group has a mortgage or other lien over any assets of Company C, either over individual assets or a floating charge over all assets.
  7. An application would have to be sponsored by a country-N resident, who would be held personally responsible, under threat of criminal penalty, for the correctness of information provided to the country-N government by company C in support of its obtaining or retaining FD status. This resident will be called the company’s ‘sponsor’.

At the end of each tax year in any tax jurisdiction to which company C is subject, the sponsor would be required to certify that C had met all the above requirements throughout the year, and that the full amount of required tax had been paid to the relevant tax authority.

In the first instance, the tax deduction incentive acts only as a reason for a company in a corporate group that is subject to country-N tax to apply for FD status. However the above set of requirements make that status unattainable unless all companies that receive tax-deductible payments, directly or indirectly, from the first company are also FD, and all companies that are directly or indirectly owned by C are also FD. Hence any corporate group whose structure is deliberately over-complex will be unable to earn profits in country N without a heavy tax burden, unless it creates a very simple, quarantined, sub-structure within its group for that purpose. Because of the simple nature of the sub-structure, it will be very difficult for it to avoid tax, launder money or put assets beyond reach of creditors.

The application would be assessed by officials of the country’s government. A non-trivial fee would be levied to cover the cost of the assessment. Since the assessment would be personal and not automated, this would need to be of the order of one to two thousand dollars.

In order to ease the transition, companies existing at the date of the announcement of these measures would be granted temporary FD status, that would cease after a few years unless a full application had been made and accepted. Companies formed after the announcement date would get no such period of grace.

The status would expire and need to be renewed every few years, at some frequency set out in the law. The renewal process would be less onerous than the initial application, but the company would need to certify that it had not undergone a major change in either ownership or business activity. If it had, a new application would need to be made. The purpose of this measure is to prevent corporate groups from gaining FD status for a company on the basis of one projected use of the company, and then using it for a different purpose, or selling it to another entity that uses it for a different purpose. Spot audits would be conducted on the statements made in renewal applications. The company sponsor, and all directors of the company would be required to sign renewal applications, thereby placing the responsibility on them to ensure the statements were truthful.

A significant change in the business activity of a company with FD status would cause its status to immediately lapse. So companies would need to apply for a renewal of status if their business activity changes significantly. Such an application would be required to be made within some specified period – say three months – after the change of activity had occurred. There would be capacity for the status renewal to be backdated in order to allow companies nimbleness and flexibility of movement, such as a snap takeover bid for which the company would be disadvantaged if the company’s bid became known to the market before the deal was closed. But the backdating would not be guaranteed. If the new activity was not deemed an acceptable use of the status, the renewal would be denied and loss of status would date back to the time the new activity commenced. Again, if it was discovered through spot audits or other means that a FD company’s business activity had significantly changed and the company had not either applied for renewal or relinquished the status within the specified period (again, say three months), the directors of the company would be liable to criminal penalties.

Here, a ‘change in activity’ is not so much about a decision to add a new widget to the range of widgets the company currently makes. That would create undesirable bureaucratic obstacles to good business practice. Rather, it is about opening up new channels by which significant slabs of the company’s revenue either come in or go out to/from other companies within the group. Details of this would be encoded through relevant definitions in the law.

Impact of, and Reasoning Behind, the Proposal

Under the proposed framework a non-FD company could no longer be used as part of funnelling profits through labyrinthine channels to move them either to a low tax jurisdiction or from a jurisdiction with lax controls on money laundering. Why? Because these labyrinthine structures rely on money coming in to such a company and then going straight out again, with no tax impact. But for a non-FD company the money coming in would be taxable while the money going out would not be, making the transaction economically non-viable.

The reason for the non-deductibility of intra-group payments to non-FD companies may not be obvious. There will often be worthy reasons for company C operating in country N to set up a local subsidiary that conducts its sales and other operations there, so FD status will be easily achieved for such a subsidiary. But we do not want to allow profits to be shifted from that company to an offshore company that is subject to a less careful regime, where they may be eventually channelled to a tax haven. Dodges such as ‘transfer pricing’ make this easy to do and hard to police. Requiring the recipient company to be FD would make this much more difficult. For a start, the criteria deny FD status to any company in a tax haven, even if that company is the group’s ultimate parent. Secondly, no group company to which the domestic subsidiary transferred revenue by anything longer than a very short chain would be granted FD status. It is hard to imagine any genuine reason why payments should have to pass through more than two intermediate sets of corporate hands within a group before reaching the ultimate parent company. If this rule forced a company to channel payments from country N to the parent company via a shorter, simpler route than that used for payments from subsidiaries in other countries, that is a consequence of the group’s choice to have a complex global structure, and it is in the group’s power to change that if it does not like having to deal with the extra accounting work involved in having two separate payment streams. Note also that the constraint on payments is only on tax-deductible payments and so would not include dividends on ordinary shares.

We can imagine that less scrupulous companies might seek to develop sneaky ruses such as bouncing revenue off a non-group company in a tax haven and then back into the group through a sweetheart deal with that external company, in order to avoid the tax deductibility problem. However any such ruse would need to be highly contrived and would be subject to the usual rules and penalties that apply to any arrangement that is constructed with the primary aim of evading tax.

I have not managed to convince myself of the impossibility of avoiding some amount of tax in the year in which a company ceases to be FD. As soon as a company relinquishes that status it is free to make any payments it likes. I can imagine a company somehow storing up wealth in a tax-effective way while FD and then suddenly ceasing to be FD and paying the stored wealth out to a group company in a tax haven. But I think the potential for such abuse is limited. Firstly, the accumulation of wealth cannot span across tax years, as the company has to either pay a fair amount of tax on any profit in the year it arises or lose FD status. Secondly, if the company is subject to country-N tax, it would not get a tax deduction for the payment. Hence the profits that built up the payment would be fully taxed. It is conceivable that some losses may occur in the year of ceasing to be FD, but that final year would be only a small part of the time that company is FD, as long as the group doesn’t churn FD companies. Such churn is prevented by the requirement within the application process to justify any cessations of FD status within the group.

Potential Reaction, and a Comparison to the History of Companies

Extreme free-market libertarians might howl in protest, liberally sprinkling their complaint with terms like ‘red tape’. But it would be in vain. First, this proposal would cut red tape, not increase it, since it would dramatically reduce the number of companies in a corporate group, and hence the amount of pointless legal and accounting work, not to mention subsidiary board meetings, that the presence of all those companies necessitates.

Further, the suggested action is not unprecedented. Commercial companies have only existed since about 1600, when the East India Company was formed, followed by the Dutch East India Company in 1602. Formation of these companies required royal assent, which presumably required quite a high level of work, cost and currying favour to get it granted. In 1720 the British government forbade the establishing of companies by the British Bubble Act, which remained in force until 1825. Limited Liability did not become a feature of British corporations until the Limited Liability Act of 1855.

It was only in the early twentieth century that the widespread use of companies really took off. I don’t know when the creation of labyrinthine corporate structures using two-dollar shell companies began, but I suspect it was much more recent than that.

So we see that companies have only been a feature of the economic landscape for a small part of the period in which international trade and other economic activity occurred, and for a large part of even that short time, the formation of companies was very far from the rubber-stamped, automatic right that it is taken to be now.

Conclusion and Commendation

Nothing in this is proposal is hostile to the formation of companies. I fully accept the argument that allowing companies to be created enables business to be generated, with the social benefits of employment, services, profits and tax revenue following from that. But it is exactly that social benefit that my proposal would require to be demonstrated before allowing a company to be used. Demonstrating that would be very easy for companies that actually do useful activity, and for most non-shell companies that have existed since companies were invented. But it would be very difficult for a company whose sole purpose is to complicate a labyrinthine structure and thereby aid in tax avoidance, money laundering or otherwise evading a corporate group’s responsibilities to the society without whose rule of law it would not be able to function at all.

Implementation of this proposal would make a national tax office’s task of ensuring that appropriate levels of tax are paid by a company that sells goods and services in that nation much easier. It would make money laundering more difficult and it would make it harder for companies to put their assets out of reach of deserving creditors.

I commend this idea to the law makers of the world, in the hope that some nation may take it up, and maybe start a trend leading to most nations doing it. Of course, implementing the proposal would not prevent all tax evasion, money laundering and other corporate hoodwinkery. But I believe it would greatly reduce it.

No doubt there will be some wrinkles to be ironed out and perhaps some unforeseen obstacles to be surmounted, but I am hopeful that the core of the idea is sound, practical and effective. This essay may change as people point out loopholes that need to be closed, or undesirable obstacles that such a framework would create, and the proposal adapts to remedy those. At worst, somebody may point out a fatal flaw in the proposal, in which case it will become petrified as a monument to the powerful yet hard to fulfil human wish to stop or at least reduce exploitation by the rich of the not so rich.

We shall see.

Andrew Kirk

 

Bondi Junction, March 2018