After my return from a few days away I had my attention drawn to an article in The Times by Anatole Kaletsky, who wrote on 19 October that "If Mr Brown wants to stop businesses leaving Britain for tax reasons.. he should state explicitly that tax avoidance is a respectable aspect of business planning."
I banged off a letter to The Times, as is my habit, but it looks like I was too late to get it published, so I'll share my thinking here instead.
I am afraid that the Kaletsky's perception of reality is flawed. The reason is simple. Accountants and lawyers (and maybe Rupert Murdoch), to whom he is clearly pandering, might argue that tax avoidance is a normal part of business planning but that is simply untrue. Tax compliance is the part of business planning that is normal and respectable, for when one pursues tax compliance one seeks to ensure that a business is paying no more tax than it need to, but that it does so in the right place and at the right time. Tax avoidance on the other hand seeks to ensure that less tax is paid than might be required by law, and that it is very often paid on profits declared in the wrong country, and is often paid some time later than a proper interpretation of the law might suggest appropriate.
Of course, those self same accountants and lawyers will deny this, trotting out the defence that "avoidance is legal and only evasion is illegal". But to be sure one is not evading one has to work within the letter of the law. That is tax compliance. When one seeks to work between the letters of the law as tax avoidance does then one always faces the risk of having committed tax evasion, as those whose tax avoidance schemes fail find out, to their cost.
Put simply therefore, tax avoidance is not a right, as Kaletsky claims "to take advantage of whatever freedom [taxpayers] enjoy in current tax laws" because those pursuing such activities seek to avoid such laws, as the name implies. They do not therefore seek a freedom "in" current tax laws but instead want to undertake an activity "outside" such laws. That is at best unethical conduct unbecoming any professional person, at worst taking risk as to the legality of the action being pursued. In either case the practice is anti-social and any government has the duty to crack down on it, as this one has.
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If avoidance is wrong why does HMRC collect tax by application of rules even if the result is unfair. (I can give many examples) A very small error in drafting a contract or timing of a transaction can be caught. Do I hear HMRC offering not to pursue.
Therefore what is the difference in tax payers using these rules to save tax. As always this is a one way arguement. HMRC will strictly enforce rules but when you use the rules to save tax you are a nasty avoider.
I believe there is an impending funding crisis appearing due to government mismanagement the money has to be found somewhere.
The French have a general rule that using tax loopholes in a abusive manner is “contrary to the spirit of the law” and the use of such loopholes is condemned by the Courts.
If the UK government is serious about tackling such abuse, how easy would it be to legislate in this direction?
I agree with David that govenment should not abuse the rules. I protest when they do. The remiander of his argment is, I’m afraid, without foundation.
Charles is right. This has just crept into UK law (and very welcome it is too) via what is called the Halifax ruling from the ECJ. The Revenue would love such a provision. The Treasury claim it cannot be drafted. I doubt that. I think it can be, but the spirit is not willing enough as yet. That’s because they continue to look at rules, not principles.