Some people don't seem to like me calling tax avoiders cheats. Well, I am unapologetic: that is what they are.
Remember, there is not a hint of difference between HMRC 's definition of tax avoidance and mine (even if they don't consistently apply it). We agree that tax avoidance involves taking steps to secure a tax advantage never intended by parliament. This means avoiding the intention of the law - hence the name 'tax avoidance'. And if getting round the law (because to avoid something is to get round it) is not cheating then I am not sure what is.
Now I know those who defend tax avoidance say it is legal, so what is the problems? Actually, the problem is that tax avoidance is not necessarily legal, and no one can claim it is. It may not be illegal, but that's a long way from being legal.
There is no simple black and white dividing line between legal and illegal. There is a massive grey area between the two where no one can be sure whether things are right or wrong, legal or illegal, permitted or unacceptable.
It is in this grey area of uncertainty that tax avoidance exists. More than that, it is this uncertainty that it exploits. And it does so deliberately. But that uncertainty means no one can be sure that tax avoidance is legal, because by definition it has not been permitted by law, so that claim cannot be made.
And the decision to work in this grey area of uncertainty is a deliberate one that reflects a decision to free-ride the system knowing that this may create an outcome never intended by law and of uncertain legality.
If that is not cheating I am not sure what is.
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In a common law system, that which is not illegal is by definition legal.
Do we want to live in a country which only allows (legal) that which the government says we are are allowed? Not in these quarters.
Will the government have to pass a law stating that bright red trousers are legal to wear? After all, if the government does not specifically say so, it must be illegal.
Madness.
Not madness at all in this case
Tax is a legal construct
Its abuse is entirely possible
I did not say that was illegal
I said that such abuse was not legal
And anyone who thinks otherwise is clearly trying to excuse that abuse behind a charade of faux legality
Lighten up Richard. Some things are more important than tax abuse like SPOTY.
It would be better to state that in common law that which is legal is only legal until it is decided, by a court, that it is illegal.
Common law can, and is, altered case-by-case.
If a case goes to court and they are found not guilty of tax evasion, then by definition any avoidance must be legal.
99.99% of cases do not go to court
And that’s what avoiders rely on
The courts,not blogs,decide what is legal.End of.
Oh hang on
Heard of parliament?
And the right of the democratic process to influence it?
I suggest you think again
Richard, you are an accountant and an economist, not a trained lawyer. 7 years of undergrad & post grad legal education (including an Associate Fellowship of the Institute of Advanced Legal Studies) suggest to me that you are way out of your depth trying to argue constitutional legal theory. There’s probably a few philosophy grads slack jawed at your take on morality as well, but that’s not my area of expertise, so I’d rather defer to people who have a clue on that point than highlight the limits of my understanding.
What a curious comment
First you withhold your identity
Second you do not say what is wrong despite all your learning
Third, you want – as Cartesian logic demands – to split the world into tiny sub-components of micro-specialism so that the global view is denied
I refute that basis for working
And as for law and morality – you may disagree with me, but I think I know enough to hold my own
Now engage in debate if you wish, but playing the man has never come near a definition of doing so
“But that uncertainty means no one can be sure that tax avoidance is legal, because by definition it has not been permitted by law, so that claim cannot be made.”
This reveals a fundamental misunderstanding of English law. If something is not permitted by law, one cannot say that such a claim cannot be made. In fact, English law works on precisely the opposite premise: if something is not banned, it is in fact legal.
There is nothing in English law permitting me to go to the lavatory. Does this mean it is not legal?
Tax law is not common law
Not the same at all
One of the key hallmarks of tax avoidance is complexity designed to obfuscate what is truly going on. Obfuscation is close too, and frequently turns into cheating. The offence of common law cheat by denying the Crown its due has been there for many hundreds of years to deter tax cheats. Unfortunely not enough of these cases are prosecuted on a criminal basis in front of juries because politicians and HMRC seem to have lost their moral compass in terms of understanding what dishonesty is and actively seeking to deter it.
They prefer to take the money instead and in the process have rendered our tax and financial regulation system morally bankrupt.
To take Amazon’s ‘legal’ position in this context:
– they comply with EU single market legislation in basing themselves in one EU country and trading across the EU
– they comply with a treaty between Luxembourg and UK which specifically excludes warehouses as permanent establishments
They must therefore be legal, not cheating, not avoiding, abusing etc and are complying with the law.
It is my suggestion that PE law was never intended to be used in this way
And that they are clearly abusing it
You may disagree: but article 5 was never meant to be construed this way, I am certain
I stick wholeheartedly with Margaret Hodge’s view of this. Lawyers may seek to disagree: but I have not suggested illegality. Not once. Let’s be clear. I have suggested an outcome law did not intend. And that’s the grey area I suggest they are in.
I am not at all sure how you can deny it
Out of interest, what would your position be if Luxembourg had the same CT rate as the UK, so Amazon Luxembourg paid exactly the same amount of tax on profits as it would if based in the UK?
The effect would then be that all the tax would go to Luxembourg rather than to the UK, but Amazon would not be better off in cash terms.
I suspect that you would argue that country-by-country reporting should be used to allocate some profit to the UK and some to Luxembourg. To me, however, that sounds like a rather more complex way of dividing up the pie, compared to the PE route from the DTA, which relies on accounting and management concepts rather than looking at the operations on the ground, and so I can’t see why it should be preferred.
Country-by-country reporting is an accounting, not a tax, system
Unitary apportionment is a tax system
I think paying tax to the right government very important
PE, DTA and ALP can never, ever, produce the right tax result
Unitary can
And paying tax to the right government is vital, I think.
Why don’t you?
isnt that the crux of the point though – your “suggestion” is that it wasnt intended to be used in that way (which may or may not be correct) but the fact is that it is written in that way. If people are using the law in the way it is written to “avoid” tax then the lawmakers need to change the wording.
for example I might take the opposing view (for the sake of argument) and say I believe it was written to be used in the way amazon are using it. My assertion has the same weight as yours – so what we both need is certainty as to the draftsman intention.
Oh come on
A provision to allow people to hold goods in a dockside warehouse was not intended to cover a business entity manyfold bigger than the supposed entity in another location
your argument is, respectfully, that of the legal charlatan seeking to abuse the law
I wonder what is your opinion on the kindle store.
Amazon sells digital books from Luxembourg mostly due to the fact that Luxembourg applies the same VAT to digital books that is charged to real books (in the UK they are taxed at full VAT, which is bonkers in my opinion). There is virtually no presence in this business in the UK (maybe some servers are physically here but I doubt it especially not the transaction servers). Should they pay corporation tax in the UK for this business?
Making the case that the entire value generated by Amazon is down to the logistic infrastructure here in the UK seems unreasonable to me. They could structure the business as a separate entity which licences the software needed to run the UK site from an entity somewhere else (since it was not developed here, that seems pretty logical to me). What would be a fair price for the licence to use the Amazon.co.uk site software? I am not sure the logistics business would make much money. Amazon pretax margin in 1.9%, which even for a retailer is pretty abysmal… There is not much profit to tax. Re-implementing the software would cost the UK entity a prohibitive amount. There would be no value without the technology developed outside the UK.
I think HMRC’s position is pretty reasonable overall and that the tax fairly capture the value created.
The EU has suggested that Luxembourg must change its law on this VAT rate
Are you aware of that?
I’m not at all suggesting that paying tax to the “right” government isn’t vital. I’m just saying that there are different ways of deciding which one is “right”. I’d argue that so long as different people have different worldviews you can’t ever have anything which is universally accepted as “right”, but you can get something which is generally agreed to be a pragmatic approximation.
The point of the PE clauses in DTAs is that you have two states each with a valid claim to tax the income of the enterprise, and so there needs to be some split of the income between the two. The PE clause simplifies the calculation a bit by allowing some activities to be ignored; this is useful, and the cost of it evens out if one assumes that for every resident of state A trading in state B there is a resident of B trading in A: it’s symmetrical, and balances.
The tax problems come about when one state has a significantly lower tax rate and you get some asymmetries. Normally you’d be able to deal with that by things like CFC rules, but the EU treaty says that you can’t use them. So the problem really is that we have the EU, a place where asymmetry is to be ignored, within which there operate independent states which are able to introduce asymmetries. The only options are to weaken the EU treaty to allow CFC rules to be applied, or strengthen it to limit the powers of individual states, or put up with it (in the way that people in different parts of the UK put up with one-size-fits-all rules).
I don’t think unitary taxation fixes the problem, or at least it will only do so when there is a single tax and spending system across the EU, which in practice means a single EU government with no sovereign states. Although you’d then still have problems with non-EU activity, so in fact you’d need a single world government. That’s probably a good thing, in my book, but it’s a long way off.
In the mean time, we have a trade-off in the international tax system betwween fairness and simplicity. I think your unitary taxation introduces significant complexity without a significant increase in fairness, compared to the current system
And respectfully, I disagree
You will not publish this, you might not even read this, so be it. As a person with an affinity with a Theist based belief system I assume you have some notion of truth, reason and honesty. If so, you have to accept that your understanding of the denotation of ‘tax avoidance’ is not the same as HMRCs. To claim otherwise is misleading. At least be truthful, please! In omnibus caritas Austin
Our definitions are so alike it is fair to call them the same
http://www.hmrc.gov.uk/avoidance/aag-risk-assessing.htm
We apply them differently
An excellent link which more than proves your point, Richard. Maybe you should make more use of it?
@Augustine. Richard has indeed a ‘notion of truth, reason and honesty’. We know his name, we have seen him on TV. Who are you?
Not made any easier, or legal, by the Ramsey principle changing from case to case…
or even with an “a” before the “y” in Ramsay….duhhhh
I have remarked before that this ‘angels on a pin’ stuff about legality and illegality is a bore, because its entirely beside the point. Can I ask the “its all in the best possible taste” brigade to reflect on casinos? On the the long and interesting history of cheating and attempted cheating in casinos? Some of it is or was perfectly legal, some of it illegal. Either way, the casinos don’t sit about debating the definition of cheating, or hairsplitting about legality. They ban the cheats from entry, instantly, as soon as identified. Then they take immediate and vigorous steps to plug the hole the cheats exposed.
Good analogy
If we imagine a situation where there are patches of heavy fog on an A road. In these circumstances some drivers moderate their speed. Other drivers know that the law says they may drive at the speed limit so they do so without considering how their actions might effect others. The speed limit was never intended to offer an excuse to drive dangerously. Driving at the speed limit in the particular foggy weather described may or may not be ‘reckless driving’ or any number of other offences until the precise circumstances of that situation are tested in a court of law. Mind you that doesn’t mean we would all vigorously defend the right of the drivers to test the limits of legality.
I total agree with you Richard Murphy.
Take the case of Glencore, I have seen several documentaries (form independent film companies and the BBC) and read countless articles on them. Glencore tries to maintain the innocence about all these matters, however as time goes on they are facing more and more flak.
From the BBC program Why Poverty? Stealing Africa: they suggested that Glencore was “Transfer Pricing” without using “arms length principle”, so what does that mean? When trading between MNE (Multinational Enterprises) Transfer Pricing is used to try insure fare market trading between the different divisions of the MNE. “arms length principle” states you must sell things a reasonable rates, between the different MNE groups, so that the parent company is not bullieing the other division to sell or buy are rates that are artificial.
Glencore is accused of selling it copper from Zambia at a fraction of the true international market rate making all the profit in Switzerland and then selling it for as much as possible. Government could see this as the Glencore Zambia division as gifting the copper to Glencore Switzerland, which this gift is taxable.
In addition the Glencore Zambia is claiming that it is not making the profit is should do as the factories cost lots to make and maintain. Naturally you should expect the copper prices from the Zambia division to go up, but no, Glencore loan them money, make the problem worse. Everything in this case if very fishy.
There many comments I read against Richard Murphy view but most of them seem to have little understanding of the problems. Stop just read 1 news paper, spend a little time getting different information from different sources and put it all together.
Search the net for “Tranfer Pricing”, “Arms length principle”, “glencore tax”, “glencore health and safty”, “glencore environmental issues” and so on. With just a little reading or watching documentaries you will see things in a different way.
Glencore operates in the gray laws and does obfuscate in details.
You have stated that “tax avoidance involves taking steps to secure a tax advantage never intended by parliament”. This definition is indeed endorsed by HMRC and was set out clearly in the recent National Audit Office report on the effectiveness of DOTAS.
I assume that you must therefore agree that any reduction in tax liability through actions that were clearly the intent of Parliament fall within the definition of legitimate tax planning?
Have I ever said otherwise?
But remember – parliament does not endorse the use of offshore structures
Only partially true. HMRC managed a sale and leaseback arrangement with a Bermudan company (Mapeley Steps).
The intent of Parliament is exactly that. No one “intent” is stronger than another. If it were shown that there is intent to allow a particular use of an offshore structure then that must carry the same strength as any other stated intent, surely?
I think you’ll find parliament was not pleased with that outcome
Or other offshore PFIs
You mistake government and parliament here
Not the same