Toby Young is animated on the Telegraph blog this morning. It seems that my blog about his review of Nick Shaxson’s book ‘Treasure Islands” got retweeted by UK Uncut yesterday and Toby Young is upset as a result.
On the Telegraph blog this morning he has said:
Tax avoidance isn't morally wrong. It's perfectly sensible behaviour
I, of course, completely disagree. And since he adds:
Rather than trade insults with UK Uncut and others, I thought it would be more productive to set out the case for the defence here and invite them to respond in the comments. Hopefully, a playground spat can be transformed into a grown up debate.
He goes on to do two things. The first is to split the world into tax evaders (which he thinks illegal and wrong) and tax avoiders (an activity, legal and so right).
And he then repeats his claim, which is, in his own words, based entirely on the following argument made in his review of Nick Shaxson’s book:
The moral case for forcing the rich to pay more tax isn’t as clear-cut as Shaxson seems to think. One of the more amusing chapters in Treasure Islands concerns the Vesteys, for many years Britain’s wealthiest family, who Shaxson treats as a case study in financial chicanery. But as Edmund Vestey says: “Let’s face it, nobody pays more tax than they have to. ”
When you think about it that’s true. And far from being immoral, it’s perfectly rational. This argument was neatly summed up by Conservative thinker Andrew Lillico: “If you buy freshly squeezed orange juice, the price includes VAT. If you buy standard concentrated orange juice, there is no VAT. So if a key reason you buy concentrated orange juice is that it is cheaper, you are avoiding paying VAT. Is that wrong? Spirits incur higher alcohol excise duty than beer. So if you would fancy a whiskey but consider the price a bit steep and so buy beer, you are avoiding paying tax. Is that wrong? ”
The answer is patently no. Indeed, governments routinely increase taxes on certain things — such as cigarettes — in the hope that we will alter our behaviour as a consequence and avoid buying them. It would be odd if a government told us it was perfectly right and proper for ordinary citizens to engage in tax avoidance, but not the rich. Just because there’s more money at stake doesn’t make it immoral.
I thought I’d dismissed this yesterday, but let me return to it in more depth since Toby Young seems quite unable, so far, to see the error of hs ways.
Firstly, and very importantly, Toby Young is very obviously wrong to assume that because something is legal it is morally acceptable. I only have to refer to the fact that apartheid was legal in South Africa for many years to make the point for the benefit of the vast majority of the population. But for those in doubt still, the abortion debate rages quite independent of legality, as does that on many forms of discrimination. Surely Toby Young can see this? Surely he can see that to take moral guidance on tax avoidance from the law is very obviously wrong, precisely because the law is itself not a constant and is itself constantly changing, being informed by moral judgment, some of which we can rightly disagree with and so long as we do not break the law we can act on a different moral plain as a consequence. In other words, his criteria for determining morality in this case is entirely false.
Second, Toby Young seems to think that the only reason for charging tax is to raise revenue. He is, of course, wrong about this as well. As I have argued there are five reasons for taxation. Tax is used to:
1. Raise revenue;
2. Reprice goods and services considered to be incorrectly priced by the market such as tobacco, alcohol, carbon emissions etc.
3. Redistribute income and wealth;
4. Raise representation within the democratic process because it has been found that only when an electorate and a government are bound by the common interest of tax does democratic accountability really work; and finally to facilitate:
5. Reorganisation of the economy through fiscal policy.
Let’s ignore the fourth for now as it largely relates to developing countries, and let’s also ignore the fifth, as it is a macroeconomic issue and instead concentrate on issues 1 to 3. Toby Young only considers the first issue. He’s wrong to do so. He has to consider the other’s too.
And he also has to consider the language he uses. It is not just absurd, but very obviously wrong, to argue that someone paying into their pension is tax avoiding in the same way as someone setting up complex multi-jurisdictional offshore structure arbitraging different tax, legal and quite probably accounting systems to secure a tax advantage is tax avoiding. This is precisely why we had to create appropriate language for this debate. That language introduced the concept of tax compliance.
Tax compliance is different from tax avoidance and tax evasion because it is defined as seeking to pay the right amount of tax (but no more) in the right place at the right time where right means that the economic substance of the transactions undertaken coincides with the place and form in which they are reported for taxation purposes. The significant difference between tax avoidance and tax compliance is the intent of the taxpayer. A tax avoider seeks to pay less than the tax due as required by the spirit of the law by getting round the law (and so avoiding it). A tax compliant tax payer seeks to pay the tax due (but no more).
Tax law in this context does, however, have to be seen in its full context — using all the reasons for taxing, not just Toby Young’s selected one case of raising revenue. So, using his examples, the reason why concentrated orange juice is zero rated as a food is that there is a social reason for reducing the tax on this item to meet a social goal of ensuing people have access to a healthy diet at a reasonable price. Since vitamin C is a part of a healthy diet access to it is vital, and one of the cheapest ways to do that is by ensuring orange juice is readily available. So orange juice concentrate is an essential food and as such zero rated. But, that social objective is fulfilled by zero rating just concentrate, the form in which most orange juice is, in any event, made available. Freshly squeezed orange juice adds almost no extra nutritional value I suspect, and it is a luxury item. There is no social reason for subsidizing it at all.
The person who chooses concentrate over freshly squeezed is not therefore avoiding tax. They’re fulfilling the social (call them moral if you wish, it’s optional) goals of the government’s tax policy. They could not justify the price of fresh squeezed orange, but the social goal of ensuring access to vitamin C has been fulfilled by the deliberate choice to reduce the tax on concentrate. This is not therefore tax avoidant activity; it is very strongly tax compliant activity. The consumer is unwittingly choosing the option the government wants t make available through the operation of the tax system. So, to put it another way, Toby Young is wrong. Just as he is also wrong on the example involving alcohol. Again, the government wants to quite consciously wean people off hard licquor and onto lower alcohol drinks. So by making that choice the person is doing exactly what the government wants. You can’t be avoiding a tax when complying with the government’s wishes. That just is not possible. As a result Toby Young is wrong on both counts.
Toby Young clearly needs is another example, which explains to him, in simple terms, just what tax avoidance is. So let me offer him one. Suppose a person goes into a restaurant that also offers takeaway food. They order a takeaway, and having got it and paid they walk outside, turnaround, come back in, sit down at a table, and proceed to eat their food, then offering the excuse that it is raining outside so they can’t actually eat there. And maybe, if pushed, they’ll say that they are waiting inside for a friend to arrive who might then buy a meal.
Absolutely anyone will realise that this is a blatant abuse of the restaurant. The customer is deliberately abusing the dual price structure that is offered, differentiating between those who use the services of the restaurant, and those who take their food away. The customer has tried to find a technical reason for doing so, and some pretty lame excuses for their behaviour, but the restaurant is absolutely right in saying the spirit of its charging structure has been abused by the customer, and they can therefore throw them out even though the customer purchased the food that they’re consuming from it. Very obviously the customer is trying to free ride the system, and everyone would understand that this is unfair, abusive, immoral, and worthy of action, even if technically the food did leave the restaurant before being consumed.
As an aside, given that some takeaway food is VAT zero rated rather than standard rated, which it would be if served in the restaurant, the customer may also be pretty close to tax evasion, although their actions might possibly sit in the grey area in between the two so beloved of tax avoidance since technically the food will have been taken out of the restaurant before consumption takes place.
In this simple, and highly recognizable tale, the restaurant is, of course, a country like the United Kingdom. The customer is a tax avoider seeking to get round their responsibilities. The place “outside” is the tax haven to which the tax avoider sends their money for it to then be repackaged for a tax-free return straight to the United Kingdom, where the tax avoider then free rides the system.
This is what tax avoidance is: it is blatant abuse of our tax system by those with wealth, by multinational corporations, and by those lawyers, accountants and bankers who facilitate this process on behalf of those people, all of whom seek to free-ride the system by not paying the right amount of in the right place at the right time.
This is why tax avoidance is morally repugnant. Failing to use the right terminology; failing to understand morality; seeking legal justification for actions that cannot otherwise be defended; setting up completely artificial straw men as the basis for argument; failing to understand the reasons why a government taxes; failing to understand tax itself and despite that claiming that free riding the state is morally justifiable is in itself an unjustifiable act. Those are the accusations I levy against Toby Young.
That he is then seeking to capture the tax revenues paid by others to then pursue his own personal goals in setting up free school just adds insult to injury. But that is the side issue. Tax avoidance is the key one, and if he wants to debate, I am happy to at any time. But he’s certainly going to have to raise his game.
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Your restaurant analogy is incorrect. Coming back into a restaurant is not the equivalent of avoidance, it’s the equivalent of evasion, so the restaurant is quite within its rights to turf them out on legal, not moral grounds.
You also incorrect in assuming that all takeaway food is zero rated – virtually all restaurants serve hot food.
@Rod Cowan
Just not true
I deliberately added a legitimate reason for returning justifying sitting at a table – this is normal tax avoidance behaviour
and although I’ve not read the VAT rules on takeaway food for some time I think you’ll find that below ambient air temperature can be zero rate – unless the rules have changed
On Toby Young’s definition, someone who gives up smoking (probably the most highly taxed commodity there is) and spends their money on any other commodity instead is a “tax avoider”. Is there anyone out there who considers this a sane line of argument?
What takes the biscuit (zero rated or otherwise) for me is when Young brings in “Conservative thinker Andrew Lilico” to back him up. If the best he can do is use Lilico as back-up evidence then it’s pretty clear he’s had his (standard-rated) chips.
Great blog Richard. You really put Toby Young down. Why won’t selfish people like him realise that the more tax everyone pays the better the country will be? Everyone knows that the government never really wastes money, and is actually better at looking after us than we are.
Superb illustration of the abuse rich tax avoiders indulge in.
Thanks, Richard.
Thanks for the takeaway food analogy, Richard. I’ll use that myself in future.
Of course, the root of the difference between you (and many of us who read your blog) and Young is the degree or extent of our morality – where we set our moral compass (or indeed if we even have one). Combine that with an unwillingness or inability to look beyond the obvious (such as the statement about paying tax by Lord Vestey)to see the bigger picture and it’s easy to end up with (and be convinced by) the simplistic position Young arrives at.
The VAT issue was an aside.
The analogy was good because:
-The resturant is seeking to raise revenue to provide certain services.
-The customer was seeking to enjoy those services without paying a fair share of them.
How is this any different to a UK company seeking to offshore part of its profits? Companys want and need the protection of the courts, the police, the public to buy their goods, the state to educate and keep healthy their staff. This has a cost, and that cost is tax.
Why should the other diners pay for your table, your plate, your waiter?
The trouble is that this debate implies an understanding of the value, purpose and nature of society. Toby young may not have this.
whoops bad spelling meant ‘Companies’
I’ve spent more time than I’d like to think about arguing with people online about the definition of Avoidance. I suspect the definition Toby Young and his ilk use, seemingly that it includes ANY steps that reduce tax liability, is actually part of a deliberate effort to undermine arguments in favour of tackling avoidance.
Such a definition is, of course, entirely worthless, as Howard’s ex-smoker example clearly illustrates. Similarly, is someone a tax avoider if they quit work?
Moreover, such a wide definition is dangerous, as it brackets normal tax planning (1) in the same category as complex, contrived, artificial avoidance. This then sets up the fear in listeners’ minds that those who are arguing for curbs on avoidance are actually advocating withdrawal of things like ISAs. Cayman trusts today, personal allowances tomorrow is the sort of thing I’ve heard depressingly often.
I’m afraid I think this particular straw man is becoming more of a problem. What should be a semantic side-argument gets in the way of what should be the real debate, namely what to do about abuse of the tax system.
In response, I’ve been trying to avoid using the A word at all in online debate wherever possible. Instead I’ve been adapting the CIR v Willoughby definition by referring to schemes intended to legally produce a tax result different from that intended by Parliament.
This at least makes it harder for the other side to bring in the straw man, focusses debate on the offensive (and, dare I say, interesting) stuff, and makes it a little harder for them to claim that such schemes shouldn’t be tackled.
Admittedly it’s probably not catchy enough for most newspapers!
(1 – I prefer “tax planning” to “tax compliance” because the latter doesn’t encompass the fact that it is possible/acceptable to reduce one’s tax liability within the spirit and letter of the law; “planning” implies this without resort to the lengthy explanation – which, I might add, I otherwise thoroughly approve of – that frequently features in your blog.)
Hmmm, I disagree there Stew, I think use of the term compliance is far better than planning. Planning already has a significant chunk of dubious activity hiding under its umbrella.
Good blog by the way Richard
Just to be pedantic, Young doesn’t argue that because something is legal it is moral. What he says is very different: “And far from being immoral, it’s perfectly rational.”
I don’t think he has thought his position through. What is rational will always depend upon the person performing the action, rather than the person suffering the effects of it. In other words, if you rationally believe that there is no chance of being caught, burglary (or, though I doubt he would say it, benefit fraud) is rational.
What is rational will depend upon a whole range of issues – legality, the likelihood of being caught, the perception of one’s peers etc.
I’m left with the abiding impression that Toby Young isn’t rational, though.
One thing I have noticed about apologists for tax avoidance is that they all deleberately avoid talking about the consequences of tax avoidance – Increasing wealth inequality in society, lack of resources for those things provided to most people through taxation, increasing taxes for those who are not in a position to avoid. I suspect that they think these bad consequences are actually good! What we get instead is a load of irrelevant legalese designed to distract their readers from the real issues. none of them will ever address the consequences of the behaviour they are advocating.
You will probably also find that they are less keen on avoidance of legal obligations in other areas. I suspect that someone who was claiming benefits legally but which might seem inappropriate would get no sympathy from Toby!
@mad foetus
Good point.
@Stew G
My problem with planning is it is already used as a euphemism by the avoiders
@James from Durham
Agreed!
@James from Durham
It’s worth pointing out that most people would like to pay less tax, whether they are wealthy or not. And most people have engaged or been a part of tax avoidance or evasion at some point in their life. This obviously varies in seriousness, from paying cash-in-hand for some building work, keeping an offshore savings account or just not asking for a receipt when paying a tip in a taxi…..
LOL you won’t have a “delete” button in a debate with Toby Young. I will certainly be buying some popcorn
I clearly need to get out more because I’ve also been mulling over another analogy that helps to illustrate the differences between evasion/planning/avoidance (in that order). It involves three different ways of getting a return from a bookmaker.
If I walked into a bookmaker with a forged winning betting slip it would clearly be illegal and analogous to evasion.
Online bookies offer free bonus bets with the intention of luring new customers. The catch is that in order to qualify for, say, a £10 freebie have have to bet £10 of your own money first.
If I took advantage of a bonus bet, having first bet my own cash, and won both, then I’ve done well out of the transactions, but I’ve taken the risks that the bookie wanted me to take before qualifying for the winnings. We could call this “gambling compliance” (2)
But what if I want a return but don’t want to take the risk of losing my money (nor of grtting banged up for fraud)? I could try a “matched betting” scheme. Through a convoluted series of bets with both the target (i.e bonus bet-giving) bookmaker and another one, I can ensure that I extract (almost) all of the free £10 whilst not risking any of my own money! Through careful use of arithmetic, the return is guaranteed, regardless of the results of the sports events that are bet on as part of the scheme. (See the “matched betting” Wikipedia article for a fuller description of how it works.)
I could go further, as many people have, by creating accounts with multiple online bookmakers in order to extract free bonus bet money from each of them.
It should be clear that matched betting goes against the spirit, if not the letter, of the terms of the bonus promotions. They are offered with the intention of attracting new customers, but this is clearly not how matched betters are using them.
If, rather than a matched better, I were a shareholder in a bookmaker, I would expect their fraud investigation (or similar) department to be actively dealing with these schemes (as I’m sure they are in real life).
Realistically, bookies’ fraud investigators have four options for responding to matched betting:
1) Take legal action against perpetrators. If it can be established that some people are straying into fraud (such as by using false IDs to claim bonuses more than once) then prosecution may be an option.Alternatively they may be able to withhold winnings, as most bonus offers’ T&Cs reserve the right for bookies to do so if matched betting is suspected.
2) Make it harder for matched betters by changing the rules to introduce more hoops for them to jump through. For example, by making them re-bet the winnings from free bets multiple times before they’re able to withdraw them as cash.
3) Grin and bear it, if it’s found that the small amount lost to matched betting is heavily outweighed by the income it generates through new customers.
4) If 1 and 2 don’t work and it’s found that matched betters’ “abuse” is costing more than the income it generates through new custom, they may decide to close the loophole by withdrawing the bonus offers.
I won’t spell out the parallels with tax because this comment is already long enough, but hopefully they’re pretty clear.
(2 – OK, I’ll admit that it fits better in this context!)
“as Edmund Vestey says: “Let’s face it, nobody pays more tax than they have to…”
And not everybody (excepting the very rich and corporations) have privileged access to highly specialist lawyers, and accountants to enable them to construct complex trust funds and other slippery financial devices on the Isle of Sham (technical term meaning fa?ßade) to enable them to avoid paying taxes which the vast majority of ordinary UK citizens are compelled (by law) to comply.
Maybe Toby Young is experimenting with irony and satire and his real message is so heavily cloaked in cynicism that some of us have failed to appreciate the subtlety of his message? In the world of off-shore finance nothing is ever what it appears to be!
OK. I accept that. My real worry, however, is that so is “avoidance”.
@Ryan
Richard, I think you missed the sarcasm in this post!
@Greg
i am confident that not everyone who chooses to reside on Gearnsay suspects others of being serial tax evaders. and no; most people have NOT engaged or been a part of tax avoidance or evasion at some point in their life. do not judge others by your own standards which may be influenced by your environment …
The matched betting analogy is a good one. Note that if the bookmaker did not preclude matched betting in their T&Cs they would not have a leg to stand on (and why should they). Their T&Cs were badly worded and it is their own fault if someone found a way to “beat the system”. This is the equivalent of tax avoidance (the bookmaker/government made the rules and the customer/citizen followed them to the letter).
If you let the government interpret the laws it passes then it is impossible for the citizen to follow the law and you make everyone a potential tax evader/criminal.
The law has to be clear and this can only be the case if it interpreted literally.
The answer is better tax law, not arbitrary interpretation of the laws that we have now.
Toby Young’s reply at the Telegraph was:
“Good Lord. What a fabulously pompous response.
I’m afraid I wasn’t upset by reading your blog because — and this may come as a shock — until this moment I wasn’t aware of its existence.
I don’t at any point argue that not paying any more tax than you have to is morally acceptable because it is not illegal. Rather, I appeal to simple common sense. Common sense tells us that avoiding tax on a small case is not morally wrong, but perfectly acceptable. Why then is avoiding tax on a large scale morally wrong? Why does the scale of the avoidance alter the moral nature of the behaviour? Normally, when considering whether something is right or wrong we don’t take scale into account. Murder, for instance, is wrong whether you kill one person or ten. Why is tax avoidance any different? It’s a fairly simple question but no one has provided a satisfactory answer.
One set of answers (see below) involves distinguishing between avoiding tax in a way that doesn’t involve taking advantage of any loopholes and avoiding it in a way which does. So buying zero-rated orange juice isn’t wrong, but transferring assets to your non-domiciled wife is. Trouble with this is that it means you have to include behaviour in the “wrong” category that common sense tells us is acceptable, such as setting up a trust to minimise the tax burden on your children. Assuming that the assets you’re bequeathing to your descendants have been bought with after-tax income, why should your children have to pay tax on those assets? It’s tantamount to being taxed twice on the same income.
Your suggested solution to this problem is to introduce a new phrase: tax compliance. Tax compliance is morally right, non-compliance is wrong. But how do you define “tax compliance”? At one point you suggest it involves “complying with the government’s wishes”, but as an acid of whether something is right or wrong that is even more feeble than legality, which you rightly dismiss. The state’s directives do not carry moral weight simply because they’re issued by the state.
But you also come up with an alternative — and better — definition: “[S]eeking to pay the right amount of tax (but no more) in the right place at the right time where right means that the economic substance of the transactions undertaken coincides with the place and form in which they are reported for taxation purposes.”
This comes close to a principle that Nicholas Shaxson appeals to in Treasure Islands and, I think, gets to the nub of why people object to tax havens and so forth. The idea is that someone like Philip Green benefits from the existence of the British economy, that economy is dependent for its existence on the British state, the British state is dependent on tax revenues, therefore he should pay whatever tax would be due if he treated his earnings as wholly earned by a UK resident.
If this is the principle you’re appealing to, could you make an argument for it rather than simply stating it? I may be a moral idiot, as you claim, but there must be some arguments you can advance in support of this principle that even an idiot can grasp. I can see that the earnings of Philip Green are dependent on his customers spending money in Top Shop and that those customers are dependent on public services that in turn depend on tax revenues. But why is he therefore morally obliged to pay a proportionate share of the cost of the public services his customers benefit from? Himself and his employees, maybe, but his customers?!? According to this logic, people who own retail businesses should pay more tax than people who own property businesses since their customers, being more numerous, impose a higher burden on the public purse.
There’s another, practical problem which is the woolliness of the phrase “the economic substance of the transactions”. What if a person is wholly resident in the UK, but the “economic substance of the transactions” you want them to pay tax on occurs in another territory? Should they therefore pay the tax due in that territory rather than in the UK? What if the “economic substance of the transactions” doesn’t occur in any one territory but is split between numerous tax jurisdictions, as is the case with most multi-nationals? Your principle would seem to dictate that the relevant consideration for tax purposes is not where the company in question is based, but where it does business. So what tax rate applies if it does business in 37 countries, all with their own different tax regimes?
Quite apart from the practical difficulties of enforcing this principle, there’s the problem I flagged up in my review which is that if one country enshrines this principle in its taxation policy, but not every country does, then the country in question will be at a competitive disadvantage. If you insist that Philip Green pays more tax as a condition of doing business in the UK, there’s a risk he will relocate his businesses elsewhere and the upshot will be less money collected by HM Revenue & Customs. No doubt some people will produce clever arguments to show why Green won’t in fact do this, but some business tycoons undoubtedly will. Given that the richest 1% of UK residents paid 25.7% of the UK’s total income tax in the last financial year, this is an important practical consideration. If you toughen up the UK’s tax laws, closing the loopholes, as you would put it, you will almost certainly take in less tax revenue, not more. That will mean more cuts to public services, not less — surely not the outcome desired by UK Uncut, Nicholas Shaxson or yourself. In fact, lowering the highest rate of income tax from 50% to 40% might generate more tax revenue, enabling the government to make fewer cuts in order to reduce the deficit. In light of this (call it the Laffer Curve argument), UK Uncut should be campaigning for lower taxes.
I look forward to your response. I suspect that the thinking lying behind your pronouncements is the one identified as number 3 in your above list, namely, that you think it’s perfectly legitimate for governments to tax their citizens with a view to redistributing income and wealth. I don’t regard equality of income and wealth as morally desirable in and of itself and I suspect we’ll never agree about that. But perhaps we can get somewhere while bracketing that question.”
Richard
You state “So by making that choice the person is doing exactly what the government wants. You can’t be avoiding a tax when complying with the government’s wishes. That just is not possible”.
Quite – but I never expected you to say it.
The UK’s tax laws and anti-avoidance legislation are “the government’s wishes”. They and only they can change them. If a UK taxpayer is complying with those wishes then, in your own words, they can’t be avoiding tax.
The UK’s nondom rules are “the government’s wishes”. Anybody complying with those rules cannot, according to you, be avoiding tax. You may well argue that tax avoidance is morally wrong but that’s an academic argument because by your own statement they aren’t avoiding tax at all.
Charles Ward,
This strikes me as something of a straw man argument as I’m not sure where you get the idea that anyone is advocating this. In order to fulfill its duty of care and management, a fiscal authority such as HMRC must decide which schemes it deems to be problematic and it does this partly by identifying transactions it believes to produce a tax result contrary to Parliament’s intentions. This is not sufficient, however, for HMRC to “win” and nobody is arguing that it should be.
When such a scheme is identified, HMRC is in a similar position to the bookmaker. If it deems that the scheme works (i.e. HMRC has no legal challenges against it) it can choose to:
1) grin and bear it, if it is felt that the potential lost revenue is minor, perhaps because only a small number of taxpayers are in a position to use the scheme or because a foreign country’s laws, on which the scheme depended, have changed.
2) advise the Government to withdraw a tax incentive on which the scheme depends if it is felt that the tax leakage from the scheme outweighs the benefits (in terms of tax take and/or wider economic stimulus) that the incentive provides.
3) advise the Government to enact targeted legislation to close specific loopholes.
Note that none of the above negate the impact of the original avoidance. Instead they are intended to prevent the same scheme working in future.
4) Alternatively, HMRC may conclude that the scheme does not work and will challenge it, potentially by resorting to litigation. This may be because of implementation errors (for example, a scheme may have depended on a certain contract being signed on a given day but it wasn’t signed until later) or because HMRC believes that the scheme depends on an interpretation of the legislation that is unsupportable.
The very last phrase there comes back, I believe, to the crux of your argument. The key thing is that HMRC (i.e. the government) does not have the power to impose an alternative interpretation of the law from the taxpayer’s, and nor should it. HMRC can argue in favour of an alternative interpretation but only the courts are able to impose an interpretation that is binding.
It’s worth adding that, even if the courts agree that a scheme produces a result different from Parliament’s intention, that still doesn’t mean HMRC will necessarily win. Again, nor should it.
I would say that it is definitely helpful for law to be clear, but other than that I do not really agree with this statement.
First of all, the premise that only literal interpretations lead to clarity (which is a subjective concept anyway) is very questionable. In any case, the courts (not just in tax cases) have frequently held that certain pieces of law shouldn’t be interpreted literally. On occasion, the need for clarity has been deemed to be subordinate to other criteria that the law should meet, such as consistency, fairness and coherence. Given that the law must cater for a potentially infinite set of circumstances, it doesn’t necessarily follow that the “clearest” interpretation (nor drafting, for that matter) will lead to these being met.
I absolutely agree. Do you feel that I or others have argued otherwise and if so why?
“If you insist that Philip Green pays more tax as a condition of doing business in the UK, there’s a risk he will relocate his businesses elsewhere and the upshot will be less money collected by HM Revenue & Customs … some business tycoons undoubtedly will. …. In fact, lowering the highest rate of income tax from 50% to 40% might generate more tax revenue, enabling the government to make fewer cuts in order to reduce the deficit.”
A classic example of the Laffer curve.
Mr Young needs his mouth washing out with soap for dragging up inheritance, and the idea of being taxed twice, yet again. When will these people get it through their thick skulls that it is not paying tax twice on the same income. Income is income, whether it’s earned or a gift and should be taxed as income. They can pay their money to themselves, tax free, as much as they like. as soon as they give/pay it to someone else it becomes another income and should be taxed accordingly.
…which, as ever, is predicated on the assumption that the status quo is on the downside of the curve.
…which, as ever, is an assertion which not backed up with any sort of evidence whatsoever.
@Gerald
That really is a ridiculous argument. To argue that the government wants people to avoid tax is, and you know it, quite absurd
At that point everything you say falls flat on its face.
The government is seeking to prevent this activity. Therefore, you cannot equate the situations. And you know it. There is a spirit of the law, we know it, it is widely acknowledged, it is interpreted, appropriately, by the courts, and people have a duty to try to comply with it. Of course there will be doubt as to how it works, and that I acknowledge, but that does not prevent the attempt to comply. avoidance does the exact opposite. As such it tries to undermine the very essence of society, the market system, property rights and the whole basis on which democracy works.
@Charles Ward
It looks like you’ve signed up to much of this http://www.taxresearch.org.uk/Documents/Foundations.pdf
The difficulty for you is that you have done so selectively, and that does not work. All rights are matched with obligations, privileges with counterbalancing constraints. We recognise that. Do you?
@sadbutmadlad
No, not an example of the Laffer curve. An example of wishful thinking that the Laffer might exist and might actually work as you claim it does. Those are very different things
@Richard Murphy
I will be replying to Toby Young’s comment later, in a separate post.
Sorry, but I don’t think you are correct. You personally may have never paid cash in hand for services received, or tipped a waiter/waitress in cash, or bought a CD from a Channel Island based merchant….but i fear you are in the minority.
Just look at the evidence. A regular contributor to this blog (Richard Allen) constantly makes the point of how many CD’s are sold via the Channel Islands and thus avoiding VAT. The purchasers of these CD’s are engaged in tax avoidance.
Also, a study a few years ago looked at discarded cigarette packets at football grounds and found the amount of non-duty paid packets at some grounds at 40%.
For you to state that most people haven’t engaged in some form of tax avoidance at some point in their life is staggeringly naive.
“That really is a ridiculous argument. To argue that the government wants people to avoid tax is, and you know it, quite absurd”
Richard, I think the issues are quite a bit more nuanced than you suggest.
In some cases, Parliament does want people to avoid tax by deliberately putting a tax incentive to do a certain activity. Whilst it might not be 100% right to say that Parliament wants the tax avoidace per se, it is a cost it is willing to bear for the sake of the desired activity.
Second, identifying the intention of Parliament and the spirit of the law is a complex issue. ‘Spirit of the law’ is not the same as ‘spirit of the tax law’. There are other laws beside tax.
For example: is it within the spirit of the law to allow a woman to beneficially own all of the shares in a company in which she is a director but otherwise does not work day-to-day? Does it make a difference that the woman is not British and does not live in Britain?
Does it make a difference if she employs her husband in that business? Who may be British (or at least British resident). Does it make a difference whether they are married?
Does it make a difference if the majority shareholder is the husband (who works in the business) where the company also employs the wife?
Second, what is the spirit of the law here: a British company sets up a subsidiary in Luxembourg — a country with which the UK has signed a ‘free movement’ treaty.
@Adrian
Your argument fails from the outset. You cannot avoid tax by doing something that the law is deliberately set up to facilitate. Avoiding taxes involves getting round the law. Making a payment to a pension fund, where full tax relief is provided on the contribution made, cannot by that definition be tax avoidance. It is only tax compliant. As a consequence everything else you say makes no sense at all.
OK, a difference in our understanding of ‘avoidance’. I have always thought it to include any kind of structuring of your affairs that is permitted by law (regardless of whether that permission was explicit or implicit).
A definitional difference between us that really should not stop you understanding the rest of my question.
I have raised 2 relevant scenarios on which you claim to have a clear understanding of the spirit of the law, and would be grateful for your comment. If you don’t know, there is no shame in saying so.
Jeez, do you think you need to do yet another blog explaining the difference between compliance and avoidance? It’s really not a hard concept yet people continue to misrepresent it to support a position. Exactly the same as they use the red herring of being taxed twice to complain about inheritance tax.
As the concept of compliance is so easily understood then I can only surmise that the misunderstandings are deliberate.
@Adrian
As you are well aware, I suspect, the situation is that you describe a much more complex than your apparent superficial scenario building suggests
In particular, the question arises as to whether the husband or wife has settled property on the other with the deliberate intent of avoiding tax. This situation was foreseen in UK taxation, but has given rise to considerable complexity and dispute, and I’m the first to admit that ambiguity arises as a consequence.
When the ambiguity is hidden behind veils of offshore corporations and trusts, the possibility that the structure was tax motivated begins to look likely. I make no pretence that there are rights or wrongs in these situations, and no claim that there can be certainty because that is not possible in any taxation situation. However, there are occasions when structures do imply a significant tax motivation, and when that exists, in the scenarios that you describe, the possibility that a settlement has been created by one partner to a relationship to the benefit of the other, with the intention of avoiding tax, does suggest that tax avoidance behaviour has arisen, and the revenue do reserve the right to challenge this, and I think that is correct.
But, and I stress the point, counterarguments are possible, and I accept the fact. This is allowed for in my definition of tax compliance, and rightly so
The government wants people to avoid tax in many cases, all ‘sin’ taxes are intended to reduce consuption of things demed bad for us, most green taxes are there to reduce consuption of resources etc.
Pensions and ISA exist purely as a way to avoid tax in return for getting people to save more.
The bike2work scheme is not only avoidance, but tax evasion activily ecouraged by the government.
My points above have been further evidenced (I would like to say “proven”) by the “conversation” which followed! The proponents of tax avoidance dare not examine the consequences of their position. They merely take refuge in legalistic casuistry.
@David Moore
Just read this http://www.taxresearch.org.uk/Documents/TaxLanguage.pdf
And stop writing pure nonsense
Oh dear. Once again semantics get in the way of meaningful debate. We see how the pro-regressive taxation lobby has so muddled the popular perception of what the word “avoidance” means that it’s impossible to get past it in order to discuss the real questions.
This is exactly why I’ve stopped using the ‘a’ word and resorted to longhand references to schemes designed to legally produce a tax result different from that intended by Parliament.
Richard (#30)
But the government DOES want non-doms to avoid tax. The non-dom regime exists and has been maintained to proactively encourage wealthy foreigners to reside in the UK with special tax breaks. “The Government” is not proposing to abolish the regime. It is proposing to adjust the price of using the non-dom tax regime, which is explicit acceptance of its validity. If “the Government” wanted to abolish the noin-dom regime then it would do so, along with many other regimes which result in tax planning opportunities. Those are facts and you cannot dispute them.
So if a non-dom takes advantage oif the non-dom regime, which the Government expressly encourages, it cannot be “tax avoidance”, as per your original statement.
@sadbutmadlad
How on earth would Mr Green relocate his businesses and still have a business? He has 2700 outlets apparently, so quite how the logistics of moving them would work, and quite how he would continue to operate as a UK fashion retailer when his stores are no longer in the UK is beyond me.
This is perhaps a classic example of the Laffer curve…..being nonsense.
Until tonight I was unaware of this site. Fortunately it has much less of the diatribe and tripe found on other sites when discussing tax avoidance.
I only wish the problem was one of terminology, although you are probably correct to try and avoid the tired cliches of avoidance v evasion.
In many ways the problem with tax is actually a problem of our method of law. For good historical reasons we have a legal system which basically says everything is allowed unless there is a law to stop it. The result is that everything focuses on the detail of the precise words of legislation. If you couple this with the way courts rely on previous cases what you end up with is a legal system run on the basis of principles but very precise linguistic interpretation. Whatever the intent of parliament was is completely irrelevant, it is what does the precise words of the legislation actually say that is relevant.
The reason I take this view is that govt ministers (of all parties) are highly adept at announcing some major new tax break intended to benefit something then about 18 months later calling it a loophole and another year after that calling it tax abuse not because of wholesale morally dubious artificial structuring by the rich but simply because the tax break ended up being more popular and therefore more expensive than HM Treasury expected.
There is always one example I give which shows how difficult it is to draw a clean line between acceptable tax compliant tax minimisation and abusive tax avoidance. It is not that long ago that lots of people would hire a van, catch a day ferry to Calais and buy 6-12 months of alcohol in one go. They did so because beer, wine and spirits in France were a lot cheaper. They were a lot cheaper because the tax on alcohol was a lot lower. Is this tax compliant shopping or tax avoidance? There is no point in appealing to concepts such as artificiality or subverting Parliament’s intent (whatever that might be) because I would regard anyone who hires a van to buy 12 months of alcohol all in one go as being involved in something which is not really part of most people’s normal day to day activities. On that basis the Calais booze cruise would logical fall into the category of unacceptable tax avoidance – yet I doubt many people would agree with that categorisation.
@Justin150
I discuss many of these issues – especially about the legal issues – at about page 12 here http://www.taxresearch.org.uk/Documents/TaxCodeofConductFinal.pdf
Richard: your tax code of conduct is a fine document which contains many things which are impossible to argue against but (and this is a big but) also many things which are much more controversial.
For my part I am all in favour of much simpler tax systems (do we really need over 1000 different tax relief) but cannot accept GAARs for two reasons (1) they introduce uncertainty into law which should be certain and (2) based on the current proliferation of TAARs in UK tax law, it will not work.
By the way the courts already give a purposive interpretation to legislation where there is ambiguity.
One point that has occurred to me over the issue of barclays is that most of what little tax they do pay is collected on behalf of the government from their employees. In effect their lowest paid employees are being punished for doing what is required of them and they are also more likely to bear the brunt of criticism from dissatisfied customers rather than their most senior managers.
I would like to know if indidvidual employees have the ability to opt out of PAYE and find other mnore transparent ways of paying their tax.