Mark Lee is a man for whom I have a lot of respect and time, both professionally and just because he seems to me a very decent human being. So, when he challenges one of my assumptions on this web site I need to respond.
He said:
Notwithstanding my earlier comment on this thread I must question this statement Richard:
“most people do not want to avoid tax”
On what do you base this premise? I accept that many people do not want to ‘abuse the law’ which you suggest is the definition of tax avoidance. Although it’s not a definition I recognise.
However I think that most people DO want to keep their tax liabilities to a minimum. They ask their accountants (and their friends) “What can I do to pay less tax?” “How can I pay less tax?” “How can I avoid having to pay all this tax?” And of course the weekend papers are full of ads for guides as to how to AVOID IHT.
To me this all indicates a desire amongst the general public to AVOID paying more tax than necessary.
I disagree: but we’re into semantics here, but important ones. As I said in Closing the Floodgates:
1. Tax evasion is an illegal activity undertaken to reduce a person’s tax bill. It might be for example that the person:
a. Fails to declare all or part of its income;
b. Makes a claim to offset an expense against its taxable income which it did not incur or which is of a type not considered suitable for tax relief in the country in which the claim is made;
c. Makes a tax claim which looks legal but only because a relevant fact with regard to that claim has not been disclosed to the tax authorities, and if it were the tax claim would be denied.
2. Tax compliance is the other end of the spectrum from tax evasion. When a person seeks to be tax compliant they do the following:a. Seeks to comply with tax law in all the countries in which they operate;
b. Makes full disclosure of all relevant information on all their tax claims;
c. Seeks to pay the right amount of tax required by law (but no more) at the right time and in the right place.
This activity attracts remarkably little attention, but some people do practice it.3. Tax avoidance is the grey area between tax compliance and tax evasion. When tax avoiding a person seeks to ensure that one of these happens:
a. less tax is paid than might be required by a reasonable interpretation of the law of a country, or
b. tax is paid on profits declared in a country which does not appear to be that in which they were earned, or
c. tax is paid somewhat later than the profits to which it relates were earned.The difference between tax avoidance and tax compliance is that tax compliance seeks to ensure that tax is paid in accordance with a straightforward interpretation of the letter of the law whilst tax avoidance seeks to reduce tax paid by working between the letters of the law. Both can claim to be legal, but only tax compliance can justify that claim with certainty. Tax avoidance relies on the existence of doubt for its validity. The practices referred to in this report fall largely in the area of tax avoidance, and suggest ways in which companies seek to minimise their tax bills whilst working around the law of one or more countries.
Of course there are choices available, completely within the spirit of the law, that can answer the questions you pose. People need hell to find out what the law is and what it allows. That’s OK. Like HMRC I do not think this avoidance: I think it compliance. Avoidance is something else altogether. I might add it often relies on non-disclosure, as does evasion.
It’s my own experience as a practitioner that proved there is a massive market for tax compliance. I think practitioners promote avoidance using misinformation on what it is, what it entails and what the risks are.
I happen to think offshore practitioners are dependent upon this. But equally, so are many onshore. I dislike it either way.
