Tax compliance, avoidance and evasion. Getting the language right.

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After my return from a few days away I had my attention drawn to an article in The Times by Anatole Kaletsky, who wrote on 19 October that "If Mr Brown wants to stop businesses leaving Britain for tax reasons.. he should state explicitly that tax avoidance is a respectable aspect of business planning."

I banged off a letter to The Times, as is my habit, but it looks like I was too late to get it published, so I'll share my thinking here instead.

I am afraid that the Kaletsky's perception of reality is flawed. The reason is simple. Accountants and lawyers (and maybe Rupert Murdoch), to whom he is clearly pandering, might argue that tax avoidance is a normal part of business planning but that is simply untrue. Tax compliance is the part of business planning that is normal and respectable, for when one pursues tax compliance one seeks to ensure that a business is paying no more tax than it need to, but that it does so in the right place and at the right time. Tax avoidance on the other hand seeks to ensure that less tax is paid than might be required by law, and that it is very often paid on profits declared in the wrong country, and is often paid some time later than a proper interpretation of the law might suggest appropriate.

Of course, those self same accountants and lawyers will deny this, trotting out the defence that "avoidance is legal and only evasion is illegal". But to be sure one is not evading one has to work within the letter of the law. That is tax compliance. When one seeks to work between the letters of the law as tax avoidance does then one always faces the risk of having committed tax evasion, as those whose tax avoidance schemes fail find out, to their cost.

Put simply therefore, tax avoidance is not a right, as Kaletsky claims "to take advantage of whatever freedom [taxpayers] enjoy in current tax laws" because those pursuing such activities seek to avoid such laws, as the name implies. They do not therefore seek a freedom "in" current tax laws but instead want to undertake an activity "outside" such laws. That is at best unethical conduct unbecoming any professional person, at worst taking risk as to the legality of the action being pursued. In either case the practice is anti-social and any government has the duty to crack down on it, as this one has.