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.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
I’d of thought in a “perfect world” tax planning would be entirely redundant!
Any decent tax system would be so simple and incontrovertible that the government simply sends a bill to the taxpayer, and the taxpayer pays it! What role is there for “planning” here? And compliance issues largely disappear too.
Interestingly, the number of taxable “persons” is at present far in excess of what is necessary. The fewer the taxable persons, the less potential there is for tax planning. For example, an upstream Carbon Tax on the economic rent of fossil fuel imported or extracted would only be paid by a few hundred taxable “persons” in the UK (similar to the UK’s Aggregates Levy).
So I see the role of a major “tax planning” “profession” as only arising with an overly complex system which attempts to collect payments from large numbers of people conducting large numbers of taxable activity. Cease taxing investments and transactions and most of the profession evaporates. The economy has much better uses for skilled, numerate logical people!
haha that is a fantastical world.
Richard, so what if a multinational has to choose a location in which to house its head office operations such as HR? Can it legitimately choose Singapore on the basis of a negotiated tax incentive?
What about its leasing organisation? Can it legitimately lease via a third country? Why is there anything inherently artificial in doing so?
you want to make more income by investing in a mutual fund, and you want to do it in a way that you pay less in taxes.
The more income you get, the more taxes you pay (that’s why they call it “income” tax).