Vol. 29 No. 2 (February 2019) pp. 16-19

CORPORATE TAXATION AND SOCIAL RESPONSIBILITY, by Axel Hilling and Daniel T. Ostas. Stockholm, Sweden: Wolters Kluwer Sverige AB, 2017. 169pp. Hardbound. $90.00/Euro 82.00. ISBN: 9789139114826.

Reviewed by Benedict Sheehy, School of Law and Justice, University of Canberra, ACT. Email:

The unassuming title does not do justice to this outstanding book. Axel Hilling and Daniel T. Ostas’s new book, CORPORATE TAXATION AND SOCIAL RESPONSIBILITY, makes a very significant contribution to the urgent issues of eroding global tax bases and massive multinational enterprise (MNE) profit shifting, and the critical debates in law, policy and politics that need to be brought together to address the issue. Through their intricate and carefully crafted arguments, Hilling and Ostas have produced a first-rate volume that is so sharply written, focused and consistently argued, that it reads more like novel than the work of scholarship that it is. In a mere 155 pages of text they not only introduce the concepts necessary to engage in the argument, but also lay out and argue even-handedly the parameters and major substantive issues in the whole law and policy space. This work is a major achievement in an area of increasing importance for global policy makers, tax professionals, judges and academics.

The book, set out in eight chapters, is divided roughly into two parts: the first part is on tax and the second on social responsibility and law. Tax can be daunting for those unfamiliar with its intricacies. However, Hilling and Ostas manage to take the bite out of tax by identifying the areas of law and policy specifically relevant and explaining them simply so that the reader is able to follow the analysis intelligently. They begin Chapter 2 with an explanation of tax policy, namely, the three reasons for tax: revenue raising, regulation of behavior and redistribution of wealth. These reasons operate, they argue, within the fundamental constraint of any government—that tax be seen as legitimate, itself a function of fairness and rule of law.

Hilling and Ostas examine the fairness of tax through the perspectives of legal philosophers in relation to taxation from the polar opposite perspectives of Rawls and Nozick. They next turn to Hart’s principle, quoting him directly: “‘When a number of persons conduct any joint enterprise according to rules and thus restrict their liberty, those who have submitted to these restrictions when required have a right to a similar submission from those who have benefitted by their submission’” (Hart 1955, p. 185). In its specific application to tax they argue that “fair taxation is measured with reference to the burden imposed on taxpayers… and their expectations of each other” (p. 37). This insight and its application provide a cornerstone and a common starting point for the arguments and evaluation throughout the rest of the book.

While fairness allows for a range of approaches, two facets of the rule of law create profound problems in this complex area. The first problematic facet is the necessity of certainty. Rule of law requires the law to be clear and precise so that citizens can know what is expected of them with reasonable certainty. In financial matters and particularly in tax, citizens must be able to order their affairs with certainty, and this includes dealing with potentially significant taxes. The second problem from rule of law arises from its important role in placing constraints on government action, and, in this case, the range of judicial discretion. In law, this doctrine is mobilized by narrow construal of statutes— [*17] a fundamental cannon of statutory interpretation. In practice, this works by interpreting a statute to limit government powers and in favor of maximizing citizens’ liberty. Thus, rule of law is a shield for citizens against capricious, overreaching government; however, in the case of tax statutes, rule of law becomes a sword in the hands of creative tax advisors whose questionable professional ethics combine with an overly technical approach to thwart government public policy objectives. As Hilling and Ostas put it, the rule of law is used “to circumvent the legitimate policy goals sought by the legislature and then tax courts feel unable to address that circumvention” (p. 21).

Explaining the additional basic tax concepts necessary for the tax novice, they next review the concept of “jurisdiction to tax.” Two core approaches are taken: income-based source jurisdiction or jurisdiction based on tax-payer residence. While the benefits principle attempts to ensure that the jurisdiction providing the necessary public infrastructure (both social and physical) reaps the tax rewards, residence-based jurisdiction attempts to acknowledge the state ties and connections of the particular taxpayer. The challenges that these conflicting approaches pose for states attempting to tax international persons such as multinational enterprises are obvious, and out of these challenges a global industry aimed directly at avoiding taxes has been created by those enterprises, tax haven jurisdiction and their advisors, who have clearly understood the jurisdiction approaches. Hilling and Ostas then review three of the wide array of strategies employed to create “stateless income,” providing insight into the nature and extent of the problem.

Chapter 3 deals with the state’s inability to respond individually to the problem and the corollary inability to coordinate a solution at the international level, leaving it to the executives and their advisors to consider and address the tax problem. The problem requires them to consider the role of their enterprises in society, or, perhaps more precisely, to consider the role of society in the creation, operation and maintenance of their enterprises. For explanation, analysis and evaluation of these issues, Hilling and Ostas turn to the concepts and arguments of Corporate Social Responsibility (“CSR”). In this regard, they note the challenges posed by the growth of the shareholder modeled corporation, the wide regulatory environment created post-New Deal and the varying libertarian and progressive political philosophies. This collection of actors with their different focal points and conflicting philosophies inform the approaches taken to tax. Hilling and Ostas develop that the idea of CSR, including Milton Friedman’s, not only allows for business taking account of both law and ethics in the pursuit of profits, but requires it. In this regard, they argue that CSR creates a duty for executives to not only comply but to go beyond and cooperate with public officials.

The strong voice of libertarian political philosophers today requires additional attention for anyone making cooperative arguments. Hilling and Ostas deal carefully and thoughtfully with libertarian thought. They bring out the underlying commitments and analyze them on their own terms in reference to virtue ethics. In the case of corporate tax they argue that the commitment to the virtue of liberty creates a coincident virtue to obey the law. They conclude that, “even within libertarian thought, ethics comes first in discussions of CSR, with economics and politics playing secondary roles” (p. 71).

The fourth chapter brilliantly connects the fundamental legal theories, formalism, realism, natural law and pragmatism to the approaches taken by lawyers, judges and advisors in approaching tax law interpretation and advice. Each of these theories has something different to say in terms of tax law. The argument they put forward is that the law can be interpreted as a formalist and informed by political [*18] libertarian philosophies, but a pragmatic philosophy connects with law’s fairness principles and allows modern societies to function. While taking account of capture theory and public choice theory, they make a carefully argued and convincing case for following “Public Interest Theory” which, as advocated by Breyer (1982) among others, promotes a cooperative approach toward law and regulation.1

In the fifth chapter Hilling and Ostas deal with the twin problems of under-enforced laws (laws which are not enforced on the basis of cost-benefit analyses) and legal loopholes, defined as a “linguistic imperfection in a legal text, whereby a literal interpretation of a text does not conform to nor advance the spirit of the text” (p. 23). The chapter further deals with the conflicting conceptions of the lawyer’s role, as advocate and as advisor. While the former requires the lawyer to focus exclusively on the client’s interest against all other parties, the latter requires the lawyer to lay out all options and provide advice with ethical reflection. The authors emphasize the ethical obligation on tax advisors and especially lawyers to provide professionally honest advice—a real challenge given that well-paying clients are looking to them for advice that allows them to avoid billions of dollars of tax.

Chapter 6 explores the conflicting views of tax: as private burden to be avoided versus a public benefit view which acknowledges the role of the state in creating and maintaining the institutional environment that allows profits to be made. They note the courts’ preference for private burden interpretations and the conflict those interpretations create against the broader societal preferences expressed in tax law, including redistribution and greater levels of equality. By combining a public benefit view with the duty to obey the law, Hilling and Ostas make a strong argument for compliance. It further engages with the libertarian view of property that property is an innate right of the individual and taxation is viewed as a taking of individual labor or capital. The chapter notes the conflicted nature of tax legislation and judicial interpretation.

The seventh chapter reviews a variety of influential articles on the issues of tax and CSR. This literature, Hilling and Ostas note, is divided between the private burden and public benefit views. They brilliantly dissect the preferences and connect them to prior commitments and to specific political philosophies of property. One group prefers property as private domain and the other as stewardship. These political philosophies are correspondingly connected to legal philosophies, the former connected with formalism and the latter with pragmatism. The authors further explore the implications not only for individual taxpayers, but for broader policy outcomes by connecting these views to social responsibility and payment of tax.

Next, Hilling and Ostas identify the norm of shareholder wealth maximization as the problem driving the avoidance behavior. By the extreme focus on shareholder wealth and viewing tax as an expense or cost to be trimmed, executives are driven to minimize it. They argue that the company is no different from any other person operating a business. As they put it, “without shareholder profit maximization, the company would be on equal footing with any other tax subject in the society, and have to act accordingly, which would involve paying respect to all stakeholders in that society” (p. 141). Accordingly, they argue that the shareholder wealth maximization norm should not be take in isolation. Rather, they argue that the human nature relations including business relations requires profit to be balanced against other obligations, including the obligations to obey law and comply with broader ethical norms. Following both Milton Friedman and Archie Carroll, they argue that “the maxim of shareholder profit maximization is valid only insofar as it aligns with business ethics” (p. 142). [*19]

Using an eloquent turn of phrase, Hilling and Ostas state that “the letter of the law may have loopholes, but the spirit of the law does not” (p. 20). This sums up well the overall argument of the book. The solution the authors point to is that the spirit of law is purposive and embodied in society’s ethics. It is expressed in the business context through CSR which is a duty to cooperate with law makers whose laws are necessary for any modern business to operate. This understanding and related pragmatic approach to interpretation recognizes “law as an instrument of social policy” (p. 80).

The book’s strengths are many. It is extremely well thought out and it addresses an interdisciplinary problem using an interdisciplinary lens. Throughout the book the authors explain and work with the main pillars of all the relevant concepts, including tax law, CSR, legal philosophy and political philosophy. It is simultaneously theoretical and pragmatic, offering a very useful platform for discussion and debate among parties on opposite ends of the political spectrum. Finally, it is a well-written, tightly argued, and concise volume.

In terms of weaknesses, there are some initiatives and concepts that could have been further explored. For example, while the leading tax cases are raised and discussed briefly, I would have liked to see the analysis expanded to include more detailed analysis of the tax legislation. Additional discussion of policy debate and development of general anti-avoidance rule (GAAR) would have been interesting. These weaknesses, however, are minor personal preferences that in no way diminish the value of the volume. Indeed, a significant virtue of the work is its brevity. In addition, although the authors have done an excellent job of making the co-authored work seamless in style, themes and argumentation, the occasional editing error has slipped into the work. Again, this is hardly a significant criticism of a fine argument. It is, however, something one would hope to have addressed in a following edition.

In summary, the authors of this work have made a major contribution to understanding and navigating this convoluted and highly contested space. As I see it, this remarkable little volume belongs on the shelves and desks of jurists, policy makers, tax advisors and academics around the world.


1 Breyer, Stephen. (1982). REGULATION AND ITS REFORM, pp 1-11 (offering a normative critique of how an ideal regulatory regime would operate and suggesting that regulators typically regulate in the public interest), cited at p 84, n. 25.


Breyer, Stephen. 1982. REGULATION AND ITS REFORM. Cambridge, MA: Harvard University Press.

Hart, Herbert L.A 1955. “Are there Any Natural Rights?” THE PHILOSOPHICAL REVIEW, 64(2): 179-191.

Milton Friedman, “The Social Responsibility of Business is to Increase its Profits.” N.Y. TIMES MAGAZINE, 32-33, 122-126.

© Copyright 2019 by author, Benedict Sheehy.