Between midday and midnight yesterday something like 40 comments were posted on this blog.
Some I truly appreciated.
Many were nit-picking irrelevance.
I suspect 95% or more passed moderation, but at that rate of commentary I am challenged to rebuff so much of the rubbish - and without saying it's wrong I don't want it on my site
So I may have to apply the moderation policy more strictly if that rate continues.
I apologise, but only a little, in advance. As ever, those making serious contribution have nothing to fear!
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Without necessarily disagreeing with some of what you say, I do wish to make 2 points.
You ask how can it be ethical to avoid (in the sense of going around) a law? Easy, if you think the law is unethical and you are not breaking the law by doing so and, more to the point, honouring a higher law, namely, “Thou shalt not bear false witness”. Many people feel the only moral taxation is on land values, not on labour or capital.
Second, you say limited liability is a privilege for which you should pay tax. Not so, This is a historically and legally incorrect US economist’s argument. Limited liability came about in the 1830s in the UK by contract and through the deed of settlement company. The 1855 Act was an attempt to enforce some liability intead of none which was de facto being achieved. Further, limited liability can be conferred by foreign States or subdivisions thereof. Further, on this logic, professionals with unlimited liability would not be taxed.
If a law has been passed by a democratic government I think it very hard ethically to say you’ll pick and chose which you’ll avoid
As for limited companies – sorry – I dispute your interpretation of law: limited liability was always granted by statute
And I’m not saying it’s the sole basis for liability to tax: respectfully, please do not be absurd. I am saying it why companies have a particular duty to be compliant when the reverse seems to be the case right now
With respect, the National Socialist Government of Germany was democratically elected. I am not saying that people can break laws, anyway – to avoid as you define it is not to break.. But our personal morals have a lot to do with how we deal with law – take, for example, abortion or homosexuality. What used to be criminal is now legal but is it moral? People do differ in their views.
As for limited liabilty, it was not granted by statute originally. If you read the history of the Commons Committee pre the 1855 Act and the case law on insurance contracts in the 1820s, you will see that limited liability was often achieved by contract or by the unweildniness of suit.
, merely that
With respect – that hardly reveals the whole truth about the Nazi party – and you should know it
And equally, with respect – you’re just wrong on limited liability
I don’t really want to disagree (and perhaps we really do not at bottom) but the simple point I was trying to make is that people do in fact pick and choose which laws or actions of government they ethically approve of and will or will not actively support. Germany was just one example of a democratically elected government with abhorrent laws. The non-enforcement in the North of the Fugitive Slave Law was another example – this time of active or passive resistance to an immoral law. One could also instance people in the UK allegedly breaking the Offical Secrets Act and leaking information about the General Belgrano in the Falklands War or now opposing the Iraq war or Libyan intervention or supporting Julian Assange. Even democratic societies can have totalitarian terrorism laws etc.
People can and do therefore choose which laws or actions they will avoid or not support (without breaking positive law) because they have views on natural law or higher ethical duties. They can obey positive statute law even though they disagree with its spirit and therefore may choose to “do no more than the bare minimum absolutely required”. They still obey the law because their personal morals may be better than the law’s – they may obey and respect Caesar even though they think his laws stupid or wrong but they feel an obligation not to lie or cheat or undermine civil society. But that does not mean they will feel obliged not to take advantage of a gap in the law if they can find it.
As for limited liability, the insurance cases from the 1820s and the report of the Commons Committee on Joint Stock Companies as well as the history of limited partnerships from Amalfi in the 1100s through to the French and Irish Acts do show that much of the legislation from 1855 was reaction and/or codification in response to what commercial men, trust lawyers and others had worked out for coparcenaries. You may not believe this to be true but David Landes, professor of economic history at Harvard in 1978 thought it was a trivially true statement. Hence the US franchise theory of corporation tax has always been a weak reed to rely upon.
I note your ethical points, beg to differ, and move on
I am not for a moment referring to US law when talking about limited liability
I am looking at the UK
What you say makes no sense at all – there is no limited liability in the UK without statute – and there was ample statute pre 1855 on which to base law
Your strand of argument looks utterly wrong / irrelevant to me
Haven’t you noticed the mass os legislation on forming joint stock canal and then railway companies by that time?
I am sorry you beg to differ. I can only say that I doubt if most people find their ethics or morals in the minutiae of income tax acts.
Be all that as it may, the limited liability question is interesting. Yes, indeed, some chartered or other companies got limited liability by statute before 1855. But, for most business, the route was the coparcenary with too many partners to sue effectively, contracts made limiting creditors to the fund held by trustees and transferable partnership share interests which could be offloaded to men of straw in case of collapse. Liability could not really be enforced against partnerships of thousands. The UK legislature in 1855 was trying to regularize a position where unlimited liability had by then become practically theoretical for many business investors. There really is no logical or historical link between company tax and the conferring of limited liability especially since the UK in 1798 started with a partnership flow through tax system for companies. One weakens an argument by trying to make such a connexion.
Can you cite any sources?
I have never seen reference to any such issue ever – and am reasonably well read
You said –
“Re companies and limited liability — none at all
The limited liability you refer to was an agreed limitation on contract — hardly generic limited liability”
I am getting a bit confused about whether or not you are still arguing that limited liability has anything to do with company tax. I still see no necessary connexion.
But as to the history, statute law is not the only law or even the most important source of the law. It was under case law and the rules of Court that members of large fluctuating partnerships avoided liability. At its simplest, it was just too hard to sue a fluctuating body of 2,000 people when you had to find and name them all (some groups even paid members to stay away in France). This was effective limited liability outside contract and was a big reason for Parliament’s granting incorporation – not to help or aid these large partnerships but to make these non-chartered deed of settlement joint stock companies suable..The prohibition on outsize partnerships of more than 20 persons dates from the same time.
Hence, I think it is still correct to say that de facto limited liability had been achieved by non-chartered companies before limited liability was conferred by statute.
Incidentally, it is possible to have limited liability without incorporation – full LLPs are an example but there were others much earlier. Equally it is possible to have incorporation without shareholder limited liability as in the unlimited company.
This logical possibilities and the history are why it seems best not confuse tax arguments with claims about company tax being related in any way to benefits conferred through a statutory grant of limited laibility. You leave yourself open to someone who says “what benefit? We can get that without any help from Parliament.”
It therefore seems in your interest, so far as argumentation goes, to separate the issues.
Quite candidly I think that your arguments are limited liability are also way off the mark: saying that you could not sue large partnerships is very different from saying that they had limited liability. De facto is not the same as de jure.
Equally, I am really confused as to what entities might have had 2000 partners at this point of time. What are you suggesting? Please cite examples
Finally, please stop trying to detract from the argument about tax and limited liability entities. The point I’ve made is simple, straightforward and obvious to anybody who has any willingness to follow reason. It is that a limited liability entity is entirely separate and distinct from its members, as I’m sure you would agree. That process by which it is created is identical to the process that is used to create taxation law. I therefore argue that no limited liability entity has the right to claim that tax is illegitimate, but many do. Their challenge to the legitimacy of tax is akin to them challenging the existence of their entity but if one is legitimate, so is the other. That is the point that I’ve made. Please do not try to read more into it than I have claimed.
Dear Richard
I offer some final comments below.
You said “Quite candidly I think that your arguments are limited liability are also way off the mark: saying that you could not sue large partnerships is very different from saying that they had limited liability. De facto is not the same as de jure.”
Well, it was legally effective, it just wasn’t achieved by statute..
“Equally, I am really confused as to what entities might have had 2000 partners at this point of time. What are you suggesting? Please cite examples.”
Gower’s 1960s edition of Modern Company Law gives the necessary references to look up the history.
“Finally, please stop trying to detract from the argument about tax and limited liability entities. The point I’ve made is simple, straightforward and obvious to anybody who has any willingness to follow reason. It is that a limited liability entity is entirely separate and distinct from its members, as I’m sure you would agree.”
No, not necessarity. The Australian Gas Light Company was not incorporated but had a Royal Charter from William IV under which each of its partners had limited laibility. But I do agree that is not your argument..
“That process by which it is created is identical to the process that is used to create taxation law. I therefore argue that no limited liability entity has the right to claim that tax is illegitimate, but many do. Their challenge to the legitimacy of tax is akin to them challenging the existence of their entity but if one is legitimate, so is the other. That is the point that I’ve made. Please do not try to read more into it than I have claimed.”
So your point is that really that If you accept one statute as legitimate law, you must accept the other. You must take the system of statute law as a whole. You can’t take the benefit of Statute A while complaining about the reasonableness of the burden under Statute B.
But why not?
Especially if you can say to Parliamant, “Actually I can manage without either statute. I don’t really need your gift of limited liability and, if pressed, I would prefer to have neither. Obviously I will obey all statutes but don’t expect me to do more than I have to.”
(As for the entity itself if incorporated, it can well say, as Adrian has noted, “Well limited liability is no benefit to me, it is a benefit to members. I get wound up if I can’t pay. And the individual members can say that their legal personalities arise from common law, not from statute anyway. They exist before the State. It is the State which is a construct.)
Further, there is the 18th century view, resting on centuries, that law is really the common law and that Statutes should be sparse corrections and rarely done for fear of disfiguring its radiant beauty.
Having thought about it, it seems your argument is a “take it all or leave it” approach. I think I understand where you are coming from and your frustration that beneficiaries of a system might be seen to be cherrypickers when they complain But I do suggest it is a very weak argument.
If a tax statute cannot be defended on its own merits, it is a pretty poor defence to say “You can’t cavil at it because the same body of statute law gives you legal personality.”
Far better to say, it seems to me, that this is a good tax law because of X or Y and debate corporation tax on its merits.
Personally, I think company and income taxes and VATs are much inferior to land value taxes if you are worried about avoidance or evasion. If you are worried about loss of revenue offshore you should tax your land values which can’t be hidden or run away and use the money to cut income taxes and encourage your people and companies to stay home. This was Hong Kong’s secret and it worked well.
Interesting points Terry.
Of course, companies don’t have limited liability. Shareholders do.
If we assume as Mr Murphy suggests that a tax is the price to be paid for limited liability, then presumably that is an argument for taxing company profits in the hands of shareholders (who benefit from limited liability), not in the hands of the company itself.
I personally prefer taxes on consumption and property. But if we are going to tax corporate profits, I would prefer to tax it in the hands of the ultimate individual shareholder. Whilst the problems of offshore havens etc would not vanish, they would significantly lessen.
I don’t particularly agree with Mr Murphy’s argument that tax should be paid as a price for limited liability any more than we should attach a price as such to any other right bestowed by statute. But if it helps move us towards taxing the individual shareholder instead of the company, then fine.
As ever, you people distort, abuse and debase the very logic of argument itself
My argument in corporate tax avoidance is not who does or does not have limited liability or who is or is not taxable but that the same basis of statute law gave rise to both tax and the limited liability entity and therefore the corporate entity has no right at all to challenge the legitimacy of the process
And yet you all do
But then, could I expect a libertarian to understand legitimacy? Or ethics?
“My argument in corporate tax avoidance is not who does or does not have limited liability or who is or is not taxable but that the same basis of statute law gave rise to both tax and the limited liability entity and therefore the corporate entity has no right at all to challenge the legitimacy of the process”
Ok, but again, it isnt the company that benefits from that statute giving limited liabilities. The shareholders do.
Unless you think BP just an agent for its members your argument makes no sense
If you see it as an entity in its own right then as I think any reasonable person, the courts and its Board of Directors most certainly will, then of course it has limited liability. Try and sue a member of the board for their contribution to a loss and see how far you get. Your argument is nonsense.
For sources on the history of limited liability, see the references in the 1960s early chapter of Gower’s Modern Company Law. There was also a book by Cooke on Trust and Corporation which traced it and gave references to the early cases where the judges (much against their wont) agreed that if a man was silly enough to make a contract on the basis that the liability of the obligor was limited to a specified fund’s assets then they would not set aside the contract.
As for company tax, Australia has an imputation systeme where tax is refunded to shareholders. It has actually improved corporate tax compliance since most companies want to pay enough tax to pay fully franked dividends to shareholders.
Moving on, as for the ethics of redistribution, what about the ethics of distribution? if one is concerned about the burden on working people what about the privatized taxes being levied on ordinary people by land speculation, patents and other monopolies? The moves to privatize water, take taxes off land, impose congestion charges, extend patents all add to the cost of living. Instead of shifting the tax burden off capital or trading income on to labour wouldn’t ageing European welfare states do better to think about taxing immobile land values and abolishing patent monopolies and returning natural monopolies like water, electricity and gas distribution back to non-profit, mutual or municipal ownership? These are things trade unions and workers should be interested in. They can never make internationally mobile financial capital pay much tax but they can get rid of monopoly profits supported by domestic legal arrangements and make transfer pricing harder (by abolishing patents),
In your last para there is some common ground
Re companies and limited liability – none at all
The limited liability you refer to was an agreed limitation on contract – hardly generic limited liability
“If you see it as an entity in its own right then as I think any reasonable person, the courts and its Board of Directors most certainly will, then of course it has limited liability. Try and sue a member of the board for their contribution to a loss and see how far you get. Your argument is nonsense”.
Sorry, I really am confused by this. You are disagreeing with me and repeating my own point at the same time.
If I sue the board (individuals) for BP’s debts as you suggest then I will indeed (ordinarily) be unable to claim against them. They (and I think you mean shareholders, who are also separate legal persons) have the limited liability.
BP does not have limited liability for its own debts (unless agreed by contract with a specific creditor). If it has £100 of assets and owes me as a creditor £110, I can sue it down to the last penny. No limit. BP as a separate entity has unlimited liability up to the point of its ‘death’ (ie liquidation). Reference to limited liability refers to that of shareholders (and other individuals involved in the company if you like, eg directors/employees).
You are assuming that the company is a mere agent for its owners. That is nonsense. Even accountancy now recognises that. It is an independent entity in its own right, and yes, those involved in it have limited liability: when they run out of assets they do not have to pay. And individual employees have no liability for their actions at all. If that is not limited liability, what is?
Stop pretending that there is a world where shareholders owning and running companies, to act on their behalf, when it no longer exists, as we all know.
Stick with it Richard, at least the Nit pickers understand what’s going on! One has to wonder what the recipients of Sky News, BBC radio 4 Today and the mainstream (tory/Murdoch) press think in that they only get the propoganda headline bite sized quotes.
I appreciate you wanting to block the trashy comments Richard. Yes you have a duty to present display a fair range of arguments, but you also have a duty to yourself and your serious readers/commentators to maintain a high (and therefore interesting and useful) standard of discussion. I know which I’d rather read! Stick with it.