Ongoing globalization and increased taxpayer mobility not only exacerbate current inadequacies when allocating taxing rights but also intensify already existing (harmful) tax competition between states as individual states have begun to use formal citizenship as a tax incentive when attracting more affluent taxpayers such as high-income earners, highly skilled workers and high-net value individuals. This novel tax incentive challenges the traditional perception of formal citizenship as the basis for bestowing political rights and benefits, and it may be argued that this practise erodes the value and meaning of citizenship itself in addition to emphasizing the differentiation between individuals regarding their state of origin (particularly noticeable when considering EU citizens compared to non-EU citizens which will become more evident now in the British case post-Brexit) and economic status.
At the present time, mobile individuals may, as a result of disparities between tax allocations, formal citizenship and voting privileges, contribute financially to a state yet not be afforded the opportunity to exercise influence over their tax situation due to the lack of formal citizenship and voting privileges in said state. The group who may influence taxation and public spending (tax and spend) through voting, therefore, is not always the same as those who pay taxes. This issue is naturally complex as the group of individuals excluded from such political influence is a highly diverse one encompassing high-net individuals to stateless persons seeking asylum who are subject to individual circumstances and needs.
In the British case, democratic disparities such as these are nothing new. British expatriates (expats) are in many ways affected by these disparities. Initially, they are excluded from voting in their new residence state due to the lack of formal citizenship. Additionally, when passing the 15-year mark of emigration they will lose their voting rights in the United Kingdom. Furthermore, Brexit has naturally exacerbated these disparities as expats residing in another EU Member State have, due to their EU citizenship, been able to remain politically active in the communities where they have sunk roots and paid taxes. Now these British expats will suddenly find themselves on the outside, with no say. The same can of course be argued for those in a reversed situation, in other words: those who migrate to the UK. British taxes will be paid on their British incomes, yet they are not automatically included in the democratic process and therefore left outside of influencing tax and spend. To be included in the democratic processes of the state one lives in is a natural way of integration and not only of great value to the individual in question and the diversity of society, but also an established human right through the UN´s Universal Declaration of Human Rights (Article 21).
The situation for expats is as such a vulnerable one, yet my research (so far) indicates that expats are not the most vulnerable taxpayer group in this context. Other groups such as immigrants (asylum seekers[1] especially) and cross-border workers (or as they are occasionally referred to as: frontier workers) are left out to a greater extent.
My article “Voting rights compared to income taxation and welfare benefits through the Swedish lens” (Florida Tax Review, vol. 23 no. 2, 2020) employs a Swedish case study in which a set of taxpayer groups based upon archetypes within the international tax regime[2] are in order to facilitate the description and analysis of three legal frameworks (taxation, access to welfare benefits and voting). The study resulted in a clear indication that those who chose to move (high-skilled workers, high-net vale individuals and high-income earners) had greater access to voting privileges and democratic influencing than those who were forced to move (primarily immigrants and asylum seekers). EU citizens received, not surprisingly, greater democratic inclusion than those originating from outside of the EU.
Consequently, I decided to explore to what extent an individual without voting rights could influence tax and spend through various constitutional safeguards and tax mechanisms offered by the tax code in a comparative study including Sweden, Germany and the U.S. This paper of mine, “Initial findings on how individuals may indirectly influence tax and spend in Sweden, Germany and the United States” (Intertax, vol. 48 no. 5, 2020, pp. 482-497), employed a functional method when identifying legal rules with similar functions (within the three studied legal systems) and subsequently analysing the similarities and differences between systems during this identification process. In order to make these identifications some basic assumptions were made, such as the reasoning that taxpayer protection will exist in all studied states and that this taxpayer protection may be expressed differently within studied legal doctrines as the rationale for differing legal doctrines would be deeply linked to civil law (Sweden and Germany) vs. common law (the U.S.). Finally, the importance and impact of legal cultures was also discussed, in particular the significance of Germany and the U.S. being federal states unlike Sweden being a unitary one.
The study concluded that affluent individuals often have greater access to such legal instruments, and as a result indicates that political power is awarded to the few rather than the many. An additional reflection would be that European states such as Sweden and Germany have, through constitutional restraints and safeguards, provided protection from legislative discrimination between citizens and non-citizens primarily through the principle of equality. The U.S. on the other hand appears to rely heavily on constitutional safeguards that protects through the possibility to appeal (tax decisions, public spending etc.) rather than constraining the legislator. The U.S. system offers, at least on paper, a stronger taxpayer protection yet the German system prevails when considering the application of these legal instruments and the factual outcome of them.
In conclusion, this research area is of great importance and its relevance will only increase due to ongoing globalization and political events such as Brexit. Leaving several important aspects of democratic influencing and inclusion outside of traditional formal citizenship to be explored.
Posted by Yvette Lind, Assistant professor in tax law at Copenhagen Business School
[1] Which I in my research consider as a future taxpaying group.
[2] Benchmark, temporary foreigners (less than six months in the foreign state), permanent foreigners (working in Sweden on a long-term basis), immigrants (individuals intending to establish residence and potentially seek citizenship in Sweden), two sets of cross-border workers (Swedish citizens cross-border working in an EU-state compared to a non-EU state) and expats.
British Association of Comparative Law 