Is there any room for tax planning in my world?

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I’ve been asked:

In your view, is there any room for legitimate “tax planning”? In a “perfect” world what would the role of the tax profession be?

Sorry if this has been previously dealt with, as I said in the other post, I am quite new to your blog.

My answer is an emphatic ‘yes’.

Tax planning must, I think, be tax compliant. Tax compliance is 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.

To put tax compliance another way — it means you can place all your cards face up on the table in front of your tax authority and know thee is nothing there they would want to challenge. Everything you have done is legal, above board and in compliance with the spirit of the law.

All of which allows enormous scope for tax planning because the law in most states, and most certainly in the UK, allows many options and choices that match those available in the commercial world. So, and taking a simple example, a new piece of equipment may be bought or purchased by a business. The law provides tax relief in differing ways for different businesses when these choices are made. It is quite appropriate to ask what those choices are and to decide between them and to claim the relief in any case is justified if the transaction has actually been undertaken in the form for which relief is claimed. The law intends that this should happen.

What is wholly unacceptable is deciding to create structures abusing those same laws so that the deal is treated as leased in some places and acquired in others with more than one tax advantage secured along the way across an international divide. That does not accord with the economic reality of the transaction: the location of the deals may also be artificial.

There are two stages required to undertake this planning. One is good knowledge of the law. The other is a moral compass. Some lack the former; many seem to lack the latter. A general anti-avoidance principle is needed for those who lack the second. Either a moral compass or a general anti-avoidance principle should ensure we get tax compliance, but that does not mean the end of tax planning. It just imposes upon it the ethical process we all expect of or MPs and professional tax advisers alike.