It’s been argued — even to their shame by Labour politicians — that it’s inappropriate to target individual companies when protesting about tax avoidance. That’s wrong, for three reasons.
First, the decision to tax avoid or not is that of the individual company. No one asks them to. Despite the claims made by some company directors and some apologists for this abuse, company directors are under no obligation to minimise their tax bills. Indeed, if doing so increases the risk within their companies it’s quite easy to argue that they’re acting against the best interests of their shareholders when doing so. In that case the main reason why many companies do it is to increase short term earnings that trigger director’s bonuses — and that has to be wrong for everyone throughout our economy except the already overpaid directors.
Second, it’s not necessary to tax avoid. It’s quite clear that some companies don’t and get along well all the same. They seek to be tax compliant, which means that they seek to pay the tax that the law intended they should pay in each place that they operate, and no more. We can’t argue with that. No one has to voluntarily pay more tax than the law expects.
Third, it is certainly true that government is responsible in a very real sense for tax avoidance; after all, it is government that creates the laws that are avoided. However, no government invites people to abuse the law, and secondly, far too much of that law (including the loopholes in it) now exists as a result of the lobbying and advice of business itself. For some people to suggest that there is, somehow, some clear and absolute divide between the government and the rest of society when it comes to tax law is just wrong.
The reality is that big business and those with wealth and the people who act for them have enormous impact on the way in which tax law has developed. This happens in three ways. First, they fight the laws we have through the courts to undermine them. The classic example was the 1936 case involving the Duke of Westminster — who paid his gardeners using a wholly artificial device called a deed of covenant to save himself tax. As a result he won a concession from the House of Lords that said that:
Every man is entitled if he can to order his affairs so as that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure this result, then, however unappreciative the Commissioners of Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax.
This has been the tax avoiders excuse for their abuse ever since.
Second these companies, and most especially the tax profession, lobby for taxes that suit those with high incomes and in the process invariably ignore the burden they place on ordinary members of society. Two examples will suffice. The Association of Chartered Certified Accountants has argued for flat taxes in the UK. These would remove all higher rates of tax, which would massively advantage those who no pay them. Many tax institutes argue for similar ‘simplifications’ that seem to have the same net effect. PricewaterhouseCoopers, the biggest firm of accountants in the world, has regularly argued for the replacement of higher rates of tax on income and profits by Value Added Taxes. When doing so they usually fail to note that this move would be regressive — shifting the tax burden from those most able to pay to those least able to pay as a result.
Third, big business and the tax profession set up the mechanisms for tax abuse. So, for example, the Big 4 firms of accountants that dominate the profession world wide — PricewaterhouseCoopers, Deloitte, KPMG and Ernst & Young — are present in all the world’s major tax havens. That’s not chance: their presence underpins the credibility of these locations and lets big companies use them for tax avoidance. If they weren’t there then those companies couldn’t have their tax haven subsidiaries audited. But the relationship is stronger than that: in many cases the Big 4 proactively support the creation of tax havens as PricewaterhouseCoopers are doing in Jamaica, or support their abolition of taxes on business, as PWC (again) did in Jersey in 2004.
So, most certainly government has a very clear role to play in tackling tax abuse. But don’t for one minute think that because tax avoidance is legal it isn’t firstly a crime against society and secondly that large companies and their advisers aren’t guilty of it, because it is, and they are.
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Would the debate be enhanced and be less confrontational if you were to preface any discussion on Tax Avoidance with the caveat that when you talk about “Tax Avoidance” it is avoidance as defined by yourself and not avoidance in the generally accepted sense (and the sense used by governmemnts, courts, academics, revenue authorities and practitioners throughout the world).
Your definition of Tax Avoidance would appear to be far to narrow in that you have focussed on loopholes and spirit of the law etc without looking at artificial and contrived transactions (or parts thereof) which do not rely on loopholes, perceived gaps in legislation or the letter of the law for their effeectiveness. Your definition also doesn’t take account of the fact that there are genuine situations where a taxpayer is faced a with a choice in structuring or effecting transactions he is totally entitled to take the option which results in less tax being paid than the other option(s).
If something is legal, how can it be a “crime against society”? I think you have to define “crime against society”.
😀 This is a very bold and accurate blog, coming from a person who is himself a Chartered Accountant. Professional ethics have been out of the window for a long time, and accountants are businessmen first, second and third. Tax avoidance advice pays very well, so it is good for business. However, it is totally unethical. And guess what – accountants and lawyers are not ashamed by this behaviour. They should be. And hats off to you Richard for your courage and conviction.
The Duke of Westminster ruling was not a “concession” and the House of Lords sitting as part of the judiciary do not give “concessions”, they merely state the correct interpretation of the law.
The judgement was merely a restatement of one of the principles opf common law that anybody is free to do any thing that they are not prohibited from doing under the law, and as a subsidiary provision, nobody is obliged to arrange their affairs so as to please their tax inspector.
@Richard Murphy
“The Big 4 firms of accountants that dominate the profession world wide — PricewaterhouseCoopers, Deloitte, KPMG and Ernst & Young — are present in all the world’s major tax havens.
That’s not chance: their presence underpins the credibility of these locations and lets big companies use them for tax avoidance.”
And some “go native” the minute they step off the boat/plane.
Tell us about it!
So a ruling from the highest court in the land that what you are doing is lawful is ‘an excuse’ now? Do you stand higher than the law?
What would it take to have an equivalent of Gregory v. Helvering, 293 U.S. 465 (1935) incorporated in UK jurisprudence?
Just wish to add my congratulations to Richard for such a clear and logical summary of the issue while at the same time highlighting the ambiguous role of the Big 4 accounting firms and professional bodies.
As module leader of an undergraduate Tax course I’ll be pointing my students at this ahead of next week’s lecture on Tax Planning – thanks for an excellent and topical posting
I fully support this blog.
As a director of a very small limited company, I have had great trouble convincing accountants that tax avoidance is not the reason I became limited.
It is up to the directors to “choose” their interpretation of the law and as stated is usually to facilitate their own dividend payments. This is then usually followed, in big companies, by the hypocrisy that wages for the lower paid must be restricted.
Please tell us who are the companies that do not avoid task as I would like to protest positively and support them if possible.
@Chris Worthington
Thanks
@Justin
See http://www.taxresearch.org.uk/Documents/TaxLanguage.pdf
I linked it
@Alex
But is I am driving in a 30mph limit nothing requires me to drive at 30, always
Not is anyone required to minimise tax
Especially when tax law is not as clear as 30 mph
In addition, note tax law is interpreted legally, not in accordance with common law principles
@Jim
No of course not
But I am allowed to interpret the law
And seek to change it
@Million Dollar Babe
See my blog on a GAntiP
That’s pretty much what it does
@Tax Research LLP
I believe it is for the courts to interpret the law, and decide what its statutes mean in practical terms for individuals. You or I do not have that power. We may have our opinions as to what is the case, but the courts are the final arbiter.
You are of course entitled to campaign to change the law, but not to demand that individuals and companies comply with some nebulous ‘spirit of the tax law’ that appears to be defined only by what you agree with.
@Jim
I never said otherwise
I just want them to have the real opportunity to do that
It would be interesting, and useful, to know if we have a core of ‘squeaky-clean’ tax compliant companies/corporations and who they are. I personally would be prepared to support them rather than tax avoiders and I’m sure other protesters would feel the same. If organisations saw their beloved profits going to others who are not morally dubious it may force a bit more compliance.
Or are they all at it?
@David Drinkwater
Start with the Coop
Then…..
Richard
Yep
Bank with the Coop and I’ve got a Divi-card, I even go to Waitrose when I’m flush. I’ve have been reading Gerry Cohen ‘Why not Socialism’ and the concpt of market socialism in prticular. Are you familiar – do you think it has legs?
@David Drinkwater
Sorry – no read it
I’m finite, unfortunately 🙂
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