The debate on tax avoidance is now inextricably and correctly linked to a debate on tax and morality. To explain this let me reiterate what tax avoidance is. It is getting round tax law to obtain an advantage parliament did not intend. So tax avoidance is not paying money into a pension within allowed limits or subscribing for an ISA. Parliament intends those reliefs. Tax avoidance is instead finding loopholes and discrepancies in and between tax and accounting laws either in the UK or between the UK and other places so that income falls out of the UK tax net.
It is, of course, often said that tax avoidance is legal. I dispute that. Correctly it is not illegal. But nor is it sanctioned by parliament. It is in a grey area where the law is in doubt, and very often the application of law is, in the absence of a general anti-avoidance provision, also in doubt.
That is precisely why this is a moral issue. When the application of law is uncertain, and it can be, morality has to take its place as a guiding principle as to right action. The inclusion of morality in tax debate is appropriate for precisely this reason. Deciding to use those grey areas to secure an advantage is a moral decision. That is, surely, impossible for anyone to deny. In that case tax avoidance and morality are issues that are inextricably linked.
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You have chosen to define “Tax Avoidance” in the way you do just to make your point. If only it was so simple. At what point avoiding paying taxes legally moves from the perfectly reasonable to the morally wrong is completely subjective. And one person’s morality is not the same as another’s. Whilst I don’t dispute that some schemes teeter towards the amoral I hesitate before I condemn them. I don’t particularly like what Richard Green and Lord Ashcroft and Roger Moore ( and the rest) do but will defend their right to do it. No, we must rely upon the law. If clever people and smart companies avoid tax in a way that was not intended by Parliament then tighten the loophole and stop them. Because I don’t want you, and you don’t want me, to be the determiner of what is right of wrong. That would be far too arbitrary.
All you’re doing is maintaining the right of some to abuse
If you said you supported a General Anti-Tax Avoidance Principle and the rule of law that would be fine
But as it is you’re simply defending abuse
And that’s immoral
What about a small business who rent out additional space as a supply of land as opposed to vatable income and thus doesn’t register for vat. That additional income allows them to take on an extra apprentice, improve the conditions for other staff, pay maternity without laying off and generally create a more secure working environment but not improving their own income. The government then come along with Tribunal decisions using them retrospectively against the business owners and bankrupting them. please explain the morality?
How about the morality of the rule of law?
That said, VAT penalties have never made sense
It’s not the rule of law, it’s an exception to the rule of law applied to a specific sector, you have to get several hundred pages into vat rules to find anything, tax doesn’t have to be taxing? when even your accountant is wrong! Madness.
Just a point of detail but whose morals are we going to use to determine where we draw the line on the spectrum of tax compliance to unacceptable tax avoidance: yours, mine, Troy Alstrom’s, Margaret Hodge’s, Tim Worstall’s, Bill Dodwell’s or someone else? If it’s the consensus then why isn’t the law – put in place by democratically elected a body – the best option and nothing more?
That’s why we need a General Anti-Tax Avoidance Principle
then we’d have the law
What about before a the GATAP (i.e. now)? Specifically whose morals are we using if it can not be the law as it stands today?
Those of HMRC
Which should reflect their ministerial masters
Which reflects democratic choice
Really? See link:
http://www.telegraph.co.uk/finance/financial-crime/9716421/How-one-family-were-brought-to-their-knees-by-the-taxman.html
That was not an avoidance issue
It seems to be an evasion one
Suppose you only take the letter of the law as your moral guide. Is that really a sufficient definition of morality? There is a point when we all have to decide individually if we think something is immoral and be prepared to defend our position. The payment of tax has an immediate impact on the quality of all of our lives. This is not an issue anyone can afford to be flippant over. Avoiding tax, acting outside of the spirit of the law in order to mitigate your liability to the society that enabled your wealth, is immoral. It is damaging to society, it is damaging to individuals.
I am confused. I was brought up to believe that I could do what I liked as long as there was not a law prohibiting it. Nobody ever mentioned ‘the intent of parliament’.
The very clearly your education was at fault
Some people think that the moral thing to do is pay as little tax as possible.
You disagree. And so do I (though if there was a way to only avoid the tax that went to pay for foreign invasions and nuclear missiles then I’d be rather conflicted). But that’s the problem. Just as the commentator above asks… whose morals are we going to use?
Your response is that we need a GAAR… so we have law… well that has nothing to do with morality except for in the wider (philosophical) sense that all law is rooted in morality. A GAAR is about imposing professional judgement.. ‘did the taxpayer act contrary to the intentions of parliament’ is NOT the same as ‘did the taxpayer act morally’.
I thought invading Iraq was immoral, Tony Blair thought that not invading Iraq would have been immoral. I think denying women sovereignty over their bodies is immoral, millions of people believe that abortion is immoral. I think that opting out of your side of the social contract you freely choose to enter into is immoral, but I also think that a powerful state abusing it’s powers of taxation to impose (in effect) retrospective tax law on those who – whether innocently or by design – are able to circumnavigate the tax rulebook.. is immoral. I think that doing that by reference to some subjective and unknowable ‘morality’ is exceedingly so.
Morality is a private matter. Where the we, as a nation, wish to impose a common morality on everyone, we need to write it down.. then, and only then, is there a mandate to enforce it. If parliament intends something, then it’s incumbent on parliament to write it down.. that way, the rest of us have a fighthing chance.
All this talk of morality just lets them off the hook. So much avoidance comes as a result of the unintended consequences of them using the tax system to try and manipulate people into doing things that *they* think are good. I won’t lie… I find it hard not to smile when people find ways to turn that manipulation against them.
Of course, if people could do nothing but shout their moral assertions at each other, we would be in the bind you suggest. (And sometimes, of course, they do, and that does make many people suppose that all we can do morally is shrug our shoulders and give up.)
But in fact, we are capable of advancing moral *arguments*.
Arguments, of course, have premises, and might be rejected by those that reject their premises. But even if this is what happens, progress has been made – we see that a disagreement about one thing rests on a disagreement about another, and so attention shifts to the question of whether *that* issue can be resolved.
But often arguments help people see implications of their own moral commitments that they had previously not noticed.
I gave an example of this below.
I think it’s instructive even in the case you consider: some (roughly, libertarians) think that people should pay as little tax as possible, others (roughly, welfarists) think that more-than-minimal taxation can be justified on welfare/justice grounds. OK. Seemingly intractable conflict over your view of the state and of justice in distribution.
But in fact, on closer examination, this is a disagreement about what the state should and should not be doing – i.e. on how the laws and policies should stand.
Most welfarists *and libertarians* will ALSO think that, given disagreement on these matters, the policies of states should be decided by some process roughly like the our democratic processes, and that we all ought to abide by the outcome, regardless of whether it was our preferred outcome.
So, in fact, most actual libertarians who think that (in ONE sense) they “should” pay as little tax as possible, *also* think that (in ANOTHER sense) they ought to pay in accordance with the outcome of a democratic process.
i.e.
– the lawmakers ought to have done x.
– but since they have done y, I ought to abide by what they have decided.
This is where talk of morality can get us – careful argumentation can show someone what their values commit them to, in ways that they may not have noticed.
(There are some circumstances that call for civil disobedience, but that’s another matter.)
Since lawmakers very often make clear their intentions (e.g. in preambles to laws, statements of principles, etc.) there is often a range of cases with regard to which their intentions are perfectly clear.
It may additionally be possible to show that some systems of morality are better than others, and that some are simply incoherent (internally inconsistent), but nothing in the above depends on this. It simply is a matter of making progress in moral argument based on what people are themselves prepared to agree to.
Forgive me, but if I understand your example, what you’re saying is that if Libertarians think really hard then they’ll realise that they agree with statism. I’m reminded of (the almighty) Brian Clough.. ‘If a player and I have a disagreement, then we’ll sit down and have a nice chat about it and then decide that I was right all along’.
The whole point of a moral objection to something (be it tax, abortion, meat eating, whatever) is that it trumps the sort of reasoning that you’re looking for. It’s akin to a religious value. A Libertarian may well begrudgingly accept that the view of the majority is that they should pay taxes.. and, thus, pay those taxes. However, that doesn’t change the idea that the taxes are immoral.
Hi, Lee T,
There’s a lot that’s right in what you say, but I think you’ve not quite got the argument. It’s not supposed to show that libertarianism is wrong. The argument is neutral about who’s right between libertarians and welfarists (both are statists, btw). It’s supposed to show that tax avoidance involves a particular kind of stance / attitude / disregard to democracy and one’s fellow citizens.
Of course, some people may regard lowering their own tax payments as morally trumping all other considerations, or as more important than their democratic / civic obligations. I guess the argument won’t work for those people. But I think that most people, including most libertarians, don’t hold this rather extreme view – at least not about tax (it’s possibly more plausible when it comes to e.g. life and death issues).
The situation of most libertarians, then, is more or less as you imply: this is an immoral policy, but I’m bound to abide by it, until or unless I can get it changed by democratic means.
I think this especially applies to the very large proportion of conviction Conservative voters whose views fall short of out-and-out libertarianism (they like the NHS, etc.) but incline strongly in that direction (especially when it comes to taxes).
It’s also pretty much the situation of the welfarist under much current government policy. Hence the recourse to protest, campaigning, and legally/democratically recognised forms of industrial action.
(Of course, I do actually think – as presumably lots of libertarians do about welfarists – that if the other lot thought hard enough, they ought to realise that I’m right. However, nothing in the argument advanced depends on this! Still, those that aren’t naive about these things realise that it’s complicated: people’s views get entrenched by social factors, confirmation bias, subconscious pressure to avoid cognitive dissonance; and also, possibly, when the arguments pro/against these views are evaluated in detail, it turns out that they turn on issues like the level of human misery one thinks it is ok to tolerate, or how effective free markets are at producing properly distributed welfare outcomes, or how likely the existence of genuinely free markets is, or how strong the moral presumption against certain forms of coercion is, etc..)
This is obviously correct. Pretty much everyone (whatever the fine details of their moral views) recognises that some things that are legal can nevertheless be immoral. Cheating on your partner, for example. Slavery didn’t become immoral when it became illegal, nor did women become morally entitled to contribute to public life when they became legally entitled to vote: in all of these cases, the law is simply recognising existing moral features (not creating them).
Of course, there are cases where there is widespread moral disagreement, and although of course in these cases each person / group should make the best moral judgements they can, there’s room for (a) some humility about the possibility that “we” might be wrong, and (b) recognition of the need – within limits – to respect the integrity of others, where those others are acting the way that they do consistently with a recognisable, consistent, and reasonably plausible set of moral beliefs.
What about tax?
It seems to me that there’s an issue of a person’s commitment to democracy and to respect for their fellow citizens here.
Of course, the argument that follows won’t be compelling to anyone who cares nothing about democracy or their fellow citizens. It is aimed at those who do care about these things but perhaps don’t realise that (certain kinds of) tax avoidance are incompatible with, i.e. that they violate, values that they themselves hold dear.
Democratic procedures of law-making, including taxation, are our ways of settling how we’re going to do things as a society, given that there is disagreement on the details of how this should be done. What is valuable about democracy, for those who value it, is that it is (something approximating to) a fair way of taking decisions against a background of disagreement. Those who see its value should be committed, as indeed we all typically are, to abiding by what our elected representatives decide, regardless of whether our preferred candidate/party got elected, and regardless of whether this particular policy is the one we preferred. We all had a chance to vote / campaign / stand for election, and we all abide by the outcome.
Now, in the case where the intention of the elected lawmakers in making a particular law is clear, it seems to me to be an obvious violation of what is important and valuable about democracy (and a selfish disregard for the citizens whose electoral choices led to the passing of the law) to seek to avoid complying with what the lawmakers intended – even if that is strictly within the letter of the law.
I don’t think this argument applies easily where the intention of lawmakers is unclear.
But it seems to me that in the case of many of the taxes whose “avoidance” is under discussion, the intention is abundantly clear, and that many if not most of the cases of avoidance under discussion are not in the realm of unclear cases.
In essence, this is the point of Richard’s reference to a General Anti-Tax-Avoidance Principle. If one were recognised, of course there would be some unclear cases that might require adjudication, or would be un-policed. But it would make a huge difference because of the weight of cases that would be …. well …. clear! i.e. clear attempts to evade what our democratically elected representatives were trying to do in the legislation they passed.
Apologies for such a long posting.
Thanks
Your point was clear and well presented
In which case long posting are just fine
Jamie – the problem here is there’s huge differences in opinion on what is immoral in relation to tax (so you can’t simply draw a parallel with cheating on your partner or slavery).
For example, a commentator on Radio 4 on Monday said that TUI’s use of brought forward losses against profits was highly contentious. Whereas, Richard, is on record saying the use of brought forward losses is within the legislation and is acceptable tax compliance. There simply isn’t a consensus out there (the wide range of views on this blog demonstrates that). This lack of consensus leads to uncertainty and that in turn leads to unfairness between tax payers. That is why people have an issue with the moral debate on tax (although most people feel uneasy at the Jimmy Carr end of things) I’m afraid it is not that cut and dry in the lighter grey areas.
Oh, nonsense
Only tax cheats deny the reality that there is a smell test on tax we almost all agree on – but which some decide to ignore
That ignoring the tell tale signs os abuse is where the morality comes on
Thanks, Gary.
The examples (cheating, slavery) were used solely to show that our moral obligations extend beyond our legal obligations. And they do show that. (This point is untouched by the observations that the immorality of cheating, slavery and violating one’s democratic obligations are different in myriad other ways.)
Your example is interesting, but I had already said that in cases where the intention of legislators was unclear, it would be correspondingly unclear what (beyond the letter of the law) citizens were obliged to comply with. And perhaps in such cases that kind of inclarity would make it unreasonable to deem people obliged to confirm to the legislators’ intentions, if these would not be reasonably knowable.
Whether the example you give is such a case, I don’t know. I’ll duck out of that debate!
But I readily agree that there are such cases.
What I was keen to argue was that there is a VERY important range of *clear* cases, and you more-or-less say so in your own remarks.
In such cases, to avoid paying tax in the way clearly intended is to violate one’s obligations to abide by the outcome of democratic processes, and doing so exhibits a disrespect towards both democracy and one’s fellow citizens.
Thank you Jamie and what you say makes sense but I think Starbucks shows that it is not clear cut. I’m a tax inspector for HMRC and it is pretty clear that Starbucks acted within the intention of parliament. Most professional tax people would agree.
Oh dear
An HMRC inspector without backbone
Or the willingness to open their eyes
There is no way profit shifting is within the intention of parliament
I don’t know the details of the act, and I’m not a tax practitioner of any kind (just a tax payer and voter!), but frankly I’d be amazed if parliament intended this kind of profit shifting.
As I say, I’m out of my depth on the details. And I do recognise that IF parliament’s intention is unclear, there’s no clear obligation generated of the kind I set out.
What you say about yourself and your colleagues leaves me rather despairing about what voters can do to change things (since it implies that no matter how hard it tries, parliament is always likely to be taken to have been unclear about its intentions). So we voters and our representatives are left powerless to get our executive institutions to implement our desires. Sad if so.
One might add that if tax practitioners (within HMRC and advisory practitioners) wish to be regarded as a “profession” and as “professionals”, they need to show that they are committed to the public interest. Space doesn’t permit exploring the arguments here (must do that sometime), but it seems to me that a commitment to the PI probably entails something like a commitment to GAAP; and certainly the attempt to pursue or permit tax avoidance in compliance with the letter of the law but in violation of the intentions of parliament seems in obvious violation of the PI.
Agreed, wholeheartedly
Ethics and opposition to the public interest are incompatible
100% correct Richard. That’s why the UK has transfer pricing rules to prevent profit shifting through the arm’s length principle.
Which don’t work – as any decent inspector of taxes well knows
They work well enough to establish a fair price for coffee and determine what a a proper interest rate is. It’s not rocket science. The royalty payment is set at a level that independent business people (the franchisees) are more than willing to pay and they see value in it otherwise they’d go elsewhere. Other situations are more complex but not here.
Respectfully – if you can’t see that’s flawed go and do some reading
Have you no interest in doing your job properly?
Imagine you were a CFO of a large multinational making profits in many countries worldwide.
Do you:
(a) Reduce your worldwide tax burden by shifting profits to countries with lower tax rates / favourable tax regimes?
(b) Pay the tax on the profits in each country as if you only operated in that single country?
From reading the comments above, if the spirit of the legislation (if not always the legal form) was designed to prevent profit shifting then doing (a) would be immoral.
Of course counter arguments would revolve around intention of parliament and duty to shareholders etc but is it really fair (moral?) that a multinational has an inherent advantage over a non multinational in its *ability* to shift profits?
Surely we can all agree that a level playing field is a just and moral stance to take?
I don’t understand Richard Murphys point of view. For example, the law clearly allows for the sharing of profits and losses disproportionately to capital contributions in a partnership. Accounting principals determine how expenditure and income is treated. The consequences of the above can create an advantageous initial position for a tax payer that I know HMRC will argue is tax avoidance. But why is this immoral?
Let’s suggest misrepresentation of facts is cheating shall we?
I think that’s what you’re describing and what HMRC are challenging
Of course it is, but I am not talking about that! I am talking about a totally clear and transparent representation of facts. Why is my example in any way immoral? It simply is a by product of different partners with difference economic profiles, going into a business venture together!