An American judge once said “Taxes are the price we pay for a civilized society.”
He was right. Tax is central to our way of life. It pays for a vast range of things we need — and which the market has never supplied, and could not supply.
But it does more than that. It pays for government itself. And without government to enforce law and order, our right to own private property, and to enforce the contracts that underpin business then we wouldn’t have a private sector as well as not having a state sector. It’s not too bold a claim to say that tax is fundamental to our well being.
There’s a problem though: it seems that some who want to live in civilised society don’t want to pay tax and so want to get round the rules that underpin any fair system of government.
When it comes to tax there are three forms of cheating. First there are tax evaders. They simply break the law by making false declarations or no declarations at all to tax authorities and so don’t pay their way.
Second there are those who admit they owe tax and then just don’t pay it: a surprisingly large number of people and organisations — mainly businesses - abuse the law and society in this way.
Lastly there are the tax avoiders.
Tax avoiders do — as the advert claims - “what it says on the tin”. In other words they try to avoid the law. They do this by finding loopholes in the tax law of one country or between the tax laws of different countries or between tax and company law, all of which means they try to claim that they can legally pay less than a parliament that created the tax law they’re avoiding intended they should.
Tax avoiders aren’t breaking the law. If they were they’d be evaders. As a result they claim that they’re doing nothing wrong. But that’s as good as claiming those practicing apartheid in South Africa weren’t doing anything wrong when it was legal to undertake that abuse. Tax avoidance isn’t as personally offensive but it’s an abuse against society and each law abiding person in it just the same. What the tax avoider does not pay someone else must pay if everyone — including the tax avoider — is to get the services they want from society.
Tax avoidance is, then, an offence against society at large even if it’s not illegal. And it is, like apartheid, heavily targeted abuse. To avoid tax you have to first of all owe tax; secondly you usually have to afford the advice on how to tax avoid, and very often you must have income in excess of your current needs, as a lot of tax avoidance is about shifting money around — and if you need every penny you earn to live then that’s not possible. The result is that tax avoidance is a crime against society that shifts wealth from the poor to the rich and tax burdens form the rich to the poor in any society. In its worst cases — in developing countries — it is helping continue assign whole populations to poverty though lack of education, health and other essential services. Some have argued as a result that tax abuse is the organised commercial crime in existence since the abolition of slavery, and I agree with them.
That doesn’t mean that everyone doing tax planning — like claiming the allowances due to them in law for business expenses, pensions paid or extra tax relief because they’re old — is a tax avoider. They’re not. The law makes clear people are intended to get these tax reliefs, so anyone is entitled to them if they have, of course, paid the expense in the course of their business or the pension contribution in question or really are old. Claiming those reliefs is what we call ‘tax compliant behaviour’. That’s making appropriate tax returns to ensure you pay the tax that the law intended you should pay, and no more.
Tax avoiders don’t do this: they try to pay less than the law intended and still claim what they’re doing is legal. Typical abuses include:
¬? Businesses artificially shifting profits out of the UK to tax havens;
¬? Businesses claiming allowances and reliefs to which they’re not entitled — but which loopholes permit until they’re closed;
¬? People shifting income within families to people who haven’t really earned it, to pay lower tax as a result;
¬? Trying to claim that income is actually a capital gain — when capital gains are taxed at lower rates than income.
These abuses are common. And may are widely endorsed by accountants, lawyers and bankers who sell these schemes to their clients. But that doesn’t make them acceptable. It’s been estimated that they cost the UK £25 billion a year — although H M Revenue & Customs say it’s somewhat less, but on the basis of statistics that seem hard to justify.
Whatever the true story — and whatever the true number — there’s not a doubt tax avoidance happens, is a real problem to tax authorities, and a cost on everyone — and most especially those least well off — in society.
Tackling it is vital. If one third of it were stopped each year then I estimate £8 billion of extra funds would be available to the UK government. That, by itself, won’t stop all cuts. But it would:
1. Pay for school sport;
2. Provide free university education;
3. Ensure the sure start programme was properly funded.
That’s three ways of increasing equality, access to education, well being and economic growth in society.
Tax cheats stop that.
That’s why stopping tax cheats is the right thing to do.
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Your quote is from Judge Oliver Wendell Holmes, Jr, the man who also said:
“Free competition is worth more to society than it costs”
http://en.wikiquote.org/wiki/Oliver_Wendell_Holmes,_Jr.
@Gary
Sure
I’ve never denied it
But without tax and government you have no society in the first place
Carts and horses….
Quite agree – for example, without taxes to maintain law and order we would be at the mercy of the thugs. I’m grateful for the state’s protection (amongst other things).
But I do pay quite a lot of taxes, and I do feel it is a reasonable quid pro quo to ask the state to spend my money carefully. My own experience is that it regularly does not. One of many examples which come to mind was when the govt asked my opinion about a proposal to spend £1.5bn on a private telecom network. I secured for them an alternative quote for £400m (1).
I suspect support for taxes and the state would grow considerably if the state could instill a sense of confidence in the taxpayer that so much money wasn’t being wasted frivolously.
(1) no they didn’t take the saving – they delayed, the quote lapsed, and the vested interests built the network anyway. Another billion wasted.
“Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to
choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase
one’s taxes.”
Judge Learned Hand, in Helvering v. Gregory.
@JayPee
Sure
But democracy is still the best way we have of organising society – and tax underpins it
And now tax avoidance is the best way of destroying it
So Wendell got it right and Hand wrong
But what you show is something more worrying – an inability to think or discriminate when assessing the evidence
That’s typically right wing – and of course, what brought us to the mess we’re in
@Richard Murphy
The boundaries of taxation behaviour cannot be set by the public opinion or by the media – these boundaries can only be set by legislation. There is nothing remotely right wing out this.
Similarly, defining tax avoidance by public or media criteria does nothing to further the debate on tax avoidance. You have to waork within the existing parameters if you are going to alter the situation.
There is a critical dynamic between the governments desire/need to raise revenue and the taxpayers reluctance to pay over what he believes to be his (subjective) fair share.
What is a taxpayers “fair share” is a matter of constant argumentt, and as Wheatcroft wrote in 1955, the taxpayer is probably the wrong person to determine what his fair share is. That is a job for the legislature and the courts.
You refer to thinking or discriminating when assessing evidence – but yet you failed to show what the yardstick is that such evidence is to be weighed against.
Democracy and the role of the state are not a taxation issues, these are mattesr for the ballot box!
@Justin
But legislation reflects public opinion and the media
And the ballot box
Do you really not get the connectedness of life?
“To avoid tax you have to first of all owe tax”
The point about tax avoidance is that as a result of the avoidance there is no tax liability. So the sentence should read “To avoid tax you have to arrange your affairs in such a way that tax is not due”.
“That doesn’t mean that everyone doing tax planning — like claiming the allowances due to them in law for business expenses, pensions paid or extra tax relief because they’re old — is a tax avoider. They’re not. The law makes clear people are intended to get these tax reliefs, so anyone is entitled to them”.
BUT
“Tax avoiders don’t do this: they try to pay less than the law intended and still claim what they’re doing is legal.”
Actually no – it is the courts that provides that judgement as to what was intended; not the judgement of Murphy. And it is parliament that is able to pass laws to close gaps if it sees fit.
@alastair
And in a democracy I am allowed to seek to influence those processes
Your problem with democracy is?
Because it sure as heck looks like you have one
Like most of the tax profession
@alastair
Richard accuses you of being part of the tax profession – is that true? If you are you should declare so, becuase such a handicap would clearly impair your judgement.
@Richard Murphy
I’m not necessarily agreeing with alistair, but I questioning why ‘its as sure as heck’ that he has a problem with democracy?
You are of course welcome to influence the democratic process and the debate around it, but law *is* set by parliament and interpretation *is* performed by the courts. If you disagree you can obviously say so, but until your view prevails in the courts and/or in parliament, you cannot *say* what the law intended. You can say what you want/wish/expect/believe/hope the law intended, but you cannot say what the law *does* intend.
[…] the decision to tax avoid or not is that of the individual company. No one asks them to. Despite the claims made by some company […]
@Gary
I wouldn’t see it as an accusation, but in fact although I am an accountant I am not a tax accountant. Couldn’t be doing with learning all those complex rules. 😀
@Richard Murphy
Democracy is great. It contains checks and balances to limit what single issue protesters can achieve. I love it to bits.
@Richard Murphy
the bit my comment was missing – your problem is? Tax avoidance is already tackled. There is nothing wrong with the system. Its not broken. There is nothing to fix.
One of the strengths of our democracy. Tax avoidance is legal but we can have a debate about the rights and wrongs of what individuals do or don’t do without censorship or fear of retribution. We can even debate the merits of the system that applies.
Of course the democratic process requires that if you want to change the system you have to get parliament to act, and you depend on the courts for interpretation of those acts. You can of course protest about the outcomes, but overstep the mark and you have to account for your actions. Ahhh, there are those checks and balances again.
[…] the decision to tax avoid or not is that of the individual company. No one asks them to. Despite the claims made by some company […]
@Richard Murphy
Why did Hand get it wrong – haven’t you read the mass of judicial pronouncements that support his view?
And it has nothing to do with the right wing – perhaps you should study a bit before pronouncing: Hand was an extremely progressive jurist and a well known liberal thinker.
@JayPee
But also note what happened – he ruled substance not form
I think you’ll find that the basis of tax compliance
Tax compliance is defined as 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.
It’s also the basis of my version of a GAntiP
@Richard Murphy
So Hand got it right!
Most countries apply the substance over form doctrine, and rightly so. So too do the Uk courts
@JayPee
No they don’t
Read Westmorland
We now have a contractual basis
Barclays mercantile proved it