Those who are supporting Jimmy Carr (and others) argue that because what he's done is not illegal it's OK, so there's no reason to condemn what he's done.
There are three responses. The first is that there are many things that are legal which are clearly wrong and so immoral. Over time let's just mention slavery, apartheid, sex discrimination which were legal and all morally wrong whilst homosexuality was illegal and that illegality was morally wrong. Let's not ever presume the law is a guide to what is right and wrong.
Second, there's the fact that there is common law which can be, and often is, used to attack tax abuse. It's the law on cheating. http://en.wikipedia.org/wiki/Cheating_(law) summarises it. As that notes:
In most cases the codified statutory form of cheating and the original common law offence are very similar, however there can be differences. For example, under English law it was held in R. v. Sinclair [1968] 3 All 241 at 246 that "[t]o cheat and defraud is to act with deliberate dishonesty to the prejudice of another person's proprietary right." However at common law a great deal of authority suggested that there had to be contrivance, such that the public were likely to be deceived and that "common prudence and caution are not sufficient security against a person being defrauded thereby".
The Revenue often prosecute people for cheating. They're right to do so.
Third, let's be clear; Carr can't say that this scheme is legal. What it does is exist in the spaces between the law. By exploiting company law, trust law, contract law and tax law in more than one jurisidiction the scheme seeks to get round what is the law - to pay tax on income. Is that legal? Who knows? Is it illegal? Again, who knows? It simply hasn't been tested yet.
So on the "it's legal" argument the best we can say is maybe it is, but no one can be sure.
And what we can also say is maybe it isn't legal, but we don't know.
In other words at best the legality of this planning is uncertain.
But what we do know is that it's immoral and that's becasue its objective is to cheat. And cheaeting can itself be illegal.
Not a great basis for doing somethign, is it?
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Cheating is illegal.
Gold star for that one. But this is very thin ice you’re skating on. Carr–the target– is a hypocritical idiot who relies on people buying tickets to see him. Therefore his capitulation is hardly a surprise since it’s only six months to his next Christmas DVD.
But we all cheat by avoiding tax. ISA? Duty free booze and perfume? 2 for 1 in the supermarket? All legally sanctioned but according to this argument, morally wrong.
Many of the schemes that were allowed to flourish under the last government were set up as incentives to fund the film industry via tax deferrals. Suddenly, this is being thrown up as morally repugnant?
Wake up and smell the coffee, people.
This isn’t just spin, it’s the Hotpoint on superfast dry cycle.
I would suggest you take a look at this:
http://www.cps.org.uk/blog/q/date/2012/06/21/tax-avoidance-is-not-immoral/
I will paraphrase just 2 paragraphs from this excellent article:
1/ “The implication for what they (you)’re saying is …that other people have a right to the money you’ve earned, even when you’ve paid all your legal dues. And more than that, the state has a monopoly of moral rectitude — anything you decide to do with your money is immoral compared to the social good the state would have achieved through utilising it.”
2/ “Is it moral, as we found out recently, that the state uses our money to lobby itself for causes actively designed to restrict our personal freedoms? Was it moral to plunder the pension-funds of hardworking individuals? Where was the ‘fairness’ in piling huge debts onto future generations? What was the ‘fairness’ dimension of the massive extension of state surveillance? More generally, the principle of any taxation by coercion (let alone avoiding legally) is morally wobbly- it amounts to confiscation to meet the priorities of those who feel their values and principles are morally superior to your own…..to vilify people who choose to keep more of their own money for personal use as ‘immoral’ is misguided, and takes us down a dangerous path towards collectivist ideology.”
And I am not an accountant.
And respectfully, if you think a two for one supermarket scheme is tax avoidance then you have no clue what tax avoidance is
Sorry – but in a 2 for 1 deal the producer offers a 50% price cut.
VAT is charged on the price charged – not some deemed market value
Halve the price, halve the VAT – but not for one second has tax been avoided
And to say so is just plain…well, daft, as well as wrong
And respectfully, you clearly can’t see when someone’s got their tongue in their cheek.
The whole point of mentioning 2 for 1 is to see where we draw a line in the sand. You obviously don’t consider that tax avoidance, some people would. And you can bet that somewhere, somebody is taking the moral stance that since they are paying less VAT for an enticement to spend, it’s morally wrong and probably don’t ever buy the 2 for 1 offers.
That’s how daft it is.
To quote Peter Mullen, “If tax avoidance is immoral, then our laws and our morals have parted ways.”
No – that’s not tongue in cheek – it’s just wrong
Exactly the right amount of tax is paid – no ifs or buts about it
The person who can’t see that is just missing the point
Clearly you aren’t an accountant because you have no understanding of the law or tax, but hey, maybe you do know about agriculture!
There is also an undercurrent of misunderstanding and maybe even outright hostility to democracy and the very concept of taxation.
Farmerbox
The logical corrolary of you argument that it is ok not to pay taxes to the state because it has no moral basis for levying taxes would be that it is ok to take property from those who are not morally entitled to such property – which of course is an excuse commonly applied by thiefs and tricksters everywhere. Or do you think that property rights some how have a higher status than the collective right of society to regulate itself through democratic institutions?
The DT are now going down the ‘it’s not really tax dodging that’s immoral; it’s tax itself’ line.(http://www.telegraph.co.uk/news/politics/9350321/Lower-and-simpler-taxes-would-be-morally-right.html). Many of the doctors they were criticising for taking totally legal strike action to prevent the government taking more money off them in the form of pension contributions, probably pay 50% tax and can afford to employ tax accountants to stop the government taking more money off them, this that the DT say is acceptable because it is legal (http://www.thisismoney.co.uk/money/news/article-2163090/Tax-avoidance-schemes-Doctors-dentists-face-HMRC-probe.html) So, DT; is it moral for people to take all steps to prevent the government taking money from them or not? If it is legal, and in some people’s eyes moral, to avoid tax, then should people be castigated by such as The DT for using their legal (moral?) right to take strike action to stop government taking money off them for other reasons, such as reducing deficit that was widened by a recessional decline in tax receipts caused by tax dodging banks such as Barclays, exacerbated hugely by other large scale corporate and personal tax dodging?
Richard,
You’re on to something explosive here. In fact, having listened to what the purveyors of these exposed schemes told undercover Times reporters, it is quite clear that much of what passes for avoidance will be caught by the common law offence of cheating the public revenue is directly applicable.
The ingredients of the offence in its modern form were set out by the Court of Appeal n R v Less as follows: “The common law offence of cheating the Public Revenue does not necessarily require a false representation either by words or conduct. Cheating can include any form of fraudulent conduct which results in diverting money from the Revenue and in depriving the Revenue of the money to which it is entitled. It has, of course, to be fraudulent conduct. That is to say, deliberate conduct by the defendant to prejudice, or to take the risk of prejudicing, the Revenue’s right to the tax in question, knowing that he has no right to do so.”
I have to confess I had research this offence, having come across it in the detailed but excellent written evidence by the HMRC whistleblower. http://www.publications.parliament.uk/pa/cm201012/cmselect/cmpubacc/1531/1531we07.htm
The whistleblower suggested that the way the avoidance scheme employed by Goldman Sachs regarding that controversial settlement was implemented might have crossed the line into evasion, and provided a very useful explanation of how HMRC’s policy allows big companies to call what would otherwise be evasion avoidance. This is fairly long but very revealing (in paragraphs 2.2 to 2.10 of his evidence):
“HMRC’s Criminal Investigation Policy
2.2 The former Chancellor of the Exchequer, Dennis Healey, explained memorably that “the difference between tax avoidance and tax evasion is the thickness of a prison wall”. As Lord Templeman put it in an article – ‘Tax and the taxpayer’, (2001) Law Quarterly Review 575, at 587 – “The tax evader commits a criminal offence punishable with prison, penalties and fines. The tax avoider commits no offence and only risks failure to avoid the tax”.
2.3 However, there is a vast grey area between pure avoidance and pure evasion, and as the then Director of the Inland Revenue Compliance Division noted in 1997:
“if an ‘avoidance’ scheme relies on misrepresentation … or concealment of the full facts, then avoidance is a misnomer; the scheme would be more accurately described as fraud”.
2.4 The Commissioners’ powers of collection and management of revenue extends to the prosecution (through the Revenue and Customs Prosecutions Office (RCPO) of taxpayers suspected of fraud or evasion in relation to all of the taxes, charges and duties within those powers. The wide range of offences available for this purpose include statutory offences such as false accounting (section 17 Theft Act 1968), fraudulent evasion of income tax (section 144 Finance Act 2000), fraudulent evasion of national insurance contributions (section 114 Social Security Administration Act 1992), and fraudulent evasion of VAT and furnishing false information (section 72 Value Added Tax Act 1994). HMRC’s main weapon for dealing with serious tax evasion is the common law offence of cheating, which applies equally to all of the taxes, charges and duties within the collection and management of HMRC, because of its harsher penalties (the maximum penalty on conviction is life imprisonment and/or an unlimited fine, in addition to the confiscation of the benefit of the tax evasion).
2.5 However, in exercise of their collection and management discretion, the Commissioners have adopted a published HMRC Criminal Investigation Policy. It provides, amongst other things, that:
“It is HMRC’s policy to deal with fraud by use of the cost effective Civil Investigation of Fraud (CIF) procedures, wherever appropriate. Criminal Investigation will be reserved for cases where HMRC needs to send a strong deterrent message or where the conduct involved is such that only a criminal sanction is appropriate.
However, HMRC reserves complete discretion to conduct a criminal investigation in any case and to carry out these investigations across a range of offences and in all the areas for which the Commissioners of HMRC have responsibility”.
2.6 Since 1st September 2005, Civil Investigations under by HMRC have been conducted in accordance with the principles set out in of Practice 9 (COP 9) and of Practice 8 (COP 8). The vast majority of cases of serious tax fraud are dealt with by HMRC under its COP, which offers complete immunity from criminal prosecution so long as further false statements are not made as part of the investigation. COP 8 applies to all civil investigations where the procedures in COP 9 are not used.
2.7 Where a taxpayer seeks to take advantage of an avoidance scheme designed to reduce a tax liability, the matter will be investigated under COP 8. Thus the investigation is undertaken with a view to the financial recovery of any tax, plus interest accrued and penalties that may be due. Civil investigation powers are more limited than the criminal investigation powers. Significantly, HMRC cannot obtain information from trust, companies, banks and other third parties located offshore during a civil investigation. However, it is only where evidence of serious fraud is discovered during the course of a COP 8 investigation that the matter may be dealt with under COP 9 or otherwise referred for criminal investigation.
2.8 Thus despite the fact that the Criminal Investigation Policy states, among other things, that HMRC will consider criminal prosecution in cases of tax fraud where documents are falsified or facts misrepresented in the course of an avoidance scheme so as to enhance its credibility, the effect of the above stated application of the policy is that large companies will not be investigated for evasion, even if they have used an “avoidance” scheme that relies on misrepresentation or concealment of the full facts and would be more accurately described as fraud or evasion.
2.9 However, it does not appear that this was fully explained to the TSC on 16th March 2011 when Mr Clasper asserted that “there is obviously going to be some case somewhere in the world where this is not true, but [UK] companies will not evade”, in support of Mr Hartnett’s evidence that he “cannot remember … seeing a case of evasion in very big business in the recent past”. Furthermore, Mr Hartnett told the TSC on that occasion that “every time we settle an issue … we look at the penalty position and if necessary we take legal advice; sometimes external legal advice”, and on 12th September 2011 he further stated: “Our people will have looked incredibly carefully at every case that we have litigated and won that involves avoidance, or that we have settled, to determine whether the law allows a penalty to be taken”.
2.10 The Goldman Sachs settlement appears to contradict these assertions, and is set out in considerable detail to illustrate the point.”
A letter to the editor of The Times says it all:
Sir, Politicians and journalists are too quick to refer to tax avoidance as “perfectly legal”. At best, the legality of many of these schemes is “untested”. Indeed, success often depends on a lack of challenge by an underfunded and incompetent HM Revenue & Customs. If a scheme is shown to be legal, it would be closed down in legislation.
Schemes are assumed to be legal if they are blessed by tax counsel. But often this blessing is little more than “In my opinion this scheme has a reasonable/good/better than even chance of success”. And the independence of this advice is questionable. Tax advisers are part of the tax avoidance sales team and practitioners often have their “favourites”. What sorts the men from the boys is not technical innovation but the willingness to add the blessing quoted above. Many of the larger practitioners would not touch these schemes with a bargepole.
Arguments about moral repugnance are a red herring.
Jude Edwardes
Woking, Surrey
Maybe the phrase should be changed to ‘wouldn’t touch this with a Delingpole”…
Well at least there are some accountants who think that there work has a moral/ethical element over and above legal compliance – for example
“We will deal with you courteously, with professionalism and respect and
we will always act ethically and positively” see here http://www.peakperformance.uk.com/source/documents/Peak-Performance-Service-Standards.pdf
The only little problem however is this is the same bunch who advised Jimmy Carr on the K2 scheme. Perhaps the disciplinary board of the accountants concerned should consider even if the law hasn’t been broken?
Given that there are reported to be 1200 very well paid people using the K2 scheme, some of which are no doubt well connected, I ‘m afraid that the chances of HMRC initiating a prosecution must be pretty limited. That said there would be nothing wrong with David Miliband promising to initate such a prosecution if he were to be elected? Or even a petition to Number 10?
Ed?
Yes and him too!!
Many well connected people did the Vantis gifting shares to charity scheme for which certain Vantis employees were sent to jail. So its not outside the realms of possibility that if HMRC get evidence of dishonesty they will criminally investigate the K2 scheme.
I watched several BBC programs this morning and one participant referred to our broken tax system. That is the part I find most morally repugnant. What we face at the moment is regulatory capture of HMRC by big business. HMRC increasingly lack the qualified staff and motivation to tackle abusive tax arrangements proactively. Their leadership has cosied up to big business in order to make up for the shortfall of funds to run their department properly that they have conspired with politicians like Gordon Brown and Roy Osborne to let happen.
The only saving grace is that if there is a change in polictical direction, tax law would allow more thorough investigation of K2 participants at anytime in the next 20 years, especially for those who do not make full disclosure about their involvement and or screw up the implementation of the complex arrangements, try and cover that up and then get prosecuted for the cover up.
Thank you Richard for putting forward a crystal clear case, and for putting into words what my conscience tells me.
I have to say,that I was very puzzled that it appears that a person can send untaxed income to another jurisdiction,and then support a good lifestyle on virtually untaxable repatriated money from the same jurisdiction(however it is described) without raising eyebrows at HMRC over the contrived deficit in UK tax liability,and for at least an investigation? Maybe one was made,but they considered their legal case was hard to prove. It`s pushing the “innocent until proved guilty” concept a little too far I feel!
Yes, and the argument I keep on seeing also, is that we need to simplify the tax system.
What’s more simple than paying INCOME TAX on your earned INCOME ? rather than construct artificial devices to dodge it.
The tax system only appears to be complicated because of all the cheats out there who go to great lengths to avoid paying their dues.
And lets not even get on to the subject of tax simplication and flat tax rate.
Lets face it if the tax rate was 5% these crooks would try to avoid it.
[…] Jimmy Carr got shredded on the telly over his tax issues. What’s made this episode particularly interesting is that it’s brought the issue of tax avoidance to the celebrity-magazine-reading types: i.e. something that’s gone far beyond the niche interests of the Westminster bubble and seasoned activists. Richard Murphy, who’s campaigned on this issue for quite some time goes for the legal vs illegal definitions. […]
I’m not tax expert, accountant, lawyer, politician or indeed, a member of a 90’s boy band of questionable competence but surely a hard law making it absolutley unavoidable for anyone to pay an absolute minimum of 23% tax should be imposed immediately. If the ‘dull grey masses’ on p.a.y.e. have to pay then why shouldn’t everyone else?
If an opportunity to cheat ‘legally’ is presented by an ‘expert’ then human nature dictates that it will be exploited. Take the human factor out of the equation and enforce ‘all pay tax’ laws.
Meyer Lansky? He liked to argue that what he did in relation to taxation was legal.
It is surprising the issues in UK are what these are in our part of the universe called India! The SC in Vodafone held the aggressive tax avoidance by transfer of shares in tax haven as “LEGAL” with the result that the FM had to resort to retrospective amendment that too bringing it from the beginning of the Income Tax Act, 1961. Now GAAR is there to meet such practice from the front. The view of 3 bench judges of SC does not find favor from 1985 judgment of SC consisting of 5 judges in famous McDowell observing what must find the piece of discussion here very interesting when the judgment lays down as under:
“In that very country where the phrase “tax Avoidance” originated, the judicial attitude towards (it) has changed and the smile, cynical or even affectionate though it might have been at one time, has now frozen into a deep frown.The courts are now concerning themselves not merely with genuineness of a transaction, but with (its) intended effect for fiscal purposes.No one get away with a tax avoidance project with the mere statement that there is nothing illegal without it.In our view,the proper way to construe a taxing statute,while considering a device to avoid a tax is….to ask…whether the transaction is a device to avoid a tax, and whether the transaction is such that the judicial process may accord its approval to it.” “It is neither fair and desirable to expect the legislature to….take care of every device and scheme to avoid taxation.It is up to the court….to determine the nature of the new and sophisticated legal device to avoid tax…expose(them) for what they really are and refuse to give judicial benediction.” Therefore, the time has come when such artificial tax planning device of avoidance of tax not be called legal legitimate tax planning device.Had our Apex Court considered in those term Vodafone judgment would have been different and retrospective amendment would have not come in to the annoyance of every foreign investor.
Richard
Your comment on ‘cheat’ is interesting. The FT article had a comment from a lawyer to the effect that “of course, we all know the loans will never be repaid, but they could be. If there was a letter confirming the loan would never be repayable then you’d move from avoidance to evasion”.
Except that if you hold that letter in a secrecy jurisdiction, HMRC will never know about it. Therefore the evasion will be, to all effects, avoidance.
Like Schrodinger’s cat, innit ?
An example of the “thin line” between evasion & avoidance. If nobody knows its evasion does that make it avoidance ?
Farmerbox
You come over as “hard of thinking” so I’ve tried to make this simple.
1/ “The implication for what they (you)’re saying is …that other people have a right to the money you’ve earned, even when you’ve paid all your legal dues. .”
Yes, taxation does require the state taking some of your earnings to pay for all the things the state does. Next question ?
2/ “Is it moral, as we found out recently, that the state uses our money to lobby itself for causes actively designed to restrict our personal freedoms? Was it moral to plunder the pension-funds of hardworking individuals? Where was the ‘fairness’ in piling huge debts onto future generations? What was the ‘fairness’ dimension of the massive extension of state surveillance? More generally, the principle of any taxation by coercion (let alone avoiding legally) is morally wobbly- it amounts to confiscation to meet the priorities of those who feel their values and principles are morally superior to your own…..to vilify people who choose to keep more of their own money for personal use as ‘immoral’ is misguided, and takes us down a dangerous path towards collectivist ideology.”
Put simply, if you consider the state takes too high a proportion of your income you can lobby MPs, you can demonstrate, you can stand for parliament yourself, arguing for a lower tax rate. What you can’t do, acceptably, is say, everyone else at my level pays x% but I’m only going to pay y%.
Something that is currently considered legal can at a stroke be made illegal, and in a retroactive way too, then we will be saying “yes what he did is now illegal”, and with punative charges levied on the tax that will then be owing I wonder how many would risk such structures in the future…
However what is the probability that Cameron will act ….
What is worth remembering about Carr is that he and over 500 others had previously been directors of Romangate which was another similar scheme which was to be used to evade tax (and that is the correct word) until Stephen Timms and HMRC put an end to it. So it is as though he de didn’t know that there were risks associated with schemes such as K2.
Incidentally, does anyone know where there is deatiled list of the Romangate directors – per press reports it includes quite a few accountants.
The annual return, presumably