I rather liked this comment, from someone I know to be an accountant, on the blog this morning (I have edited slightly as I quote only in part):
HM Revenue & Customs live on a myth. That is the way their current systems are designed. Yes there might be a law of diminishing returns or a cost/benefit re the collection of further taxes but a) I don't think we have reached maximum tax take yet and b) you can't keep fleecing the tax compliant and ignoring the non compliant without the compliant waking up to that fact.
This is the myth and far too many politicians are willing to go along with it too.
The pretence is that we can't hit the poor SME sector harder - and that's right in a sense because those in that sector who are paying what is expected of them do settle a reasonable share of taxes in many cases (not all: I exclude some obvious avoidance schemes and arrangements such as umbrella companies). But the fact is that those who do pay are being seriously undermined - to the point that their businesses aren't viable - because HMRC persistently ignores the non-compliant and that is eroding the fabric of British commerce.
When will people realise that closing the tax gap makes business sense?
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I agree. But that’s why we need to stop all this nonsense about asking people to pay amount of tax that is ‘fair’ or ‘moral’. These are subjective positions which are of no use to taxpayers. We have to set our approach according to the law, otherwise we lose out to those who set their moral compass differently.
The politicians need to decide what’s ‘fair’ and legislate accordingly. Then they need to enforce the law’s they pass. HMRC, for their part, should – as you often argue – be properly resourced. This resource should then serve the interests of taxpayers who need clarity on their position. I have bitter experience of their failure to do this, and their approach – when combined with an absurdly complex tax code – is that business who take a ‘avoid now, worry later’ approach get a distinct advantage over those who seek to get HMRC guidance before embarking on a strategy.
I get bored by hearing that we should dismiss questions of ‘fair’ or moral’
Law can never be exact and no word has precise meaning
In tat case tax is always about morality all the time
To deny that is just absurd and intellectual fraud
Hmmmmm……..but that is why we have the law…….to protect individuals from other peoples morality or to be precise their interpretation of morality!
Just because you feel so strongly that your morality on tax justice or fairness is correct gives you no right to impose that on others or consider your view superior.
You seem to feel that the thinnest veneer of democratic approval should allow you to tear through individuals lives and their companies in order to satisfy your personal morality……….
I work to influence democratic choice
That is my right
It is not your right to say I should not
Nor is it the right of the tax profession to subvert that democracy
I did not say we should dismiss it. I said we should not be trying to shift the judgement from politicians to citizens and organisations. That is what is happening. Politicians who do not like the results of the laws they have made are trying to introduce new, and unknowable, standards so that the blame can be placed elsewhere.
The law cannot be exact. So we have a system of courts to deal with cases in the greay areas. The high profile tax avoidance cases are not in the grey areas. The law is clear and those companies have structures which are compliant (assuming they’re not lying about what is happening in practice). What’s happening is largely a function of EU law (in conjunction with the tax policies of various member states), and how it is not suitable for multi-nationals running in the internet age. The suggestion that it’s for anyone other than the lawmakers to correct this situation is absurd.
Perhaps you should try running a business that is struggling with the level of uncertainty and inconsistency that we already have in the tax code. Then see what it’s like when even entirely compliant practices are front-page news because some people have decreed that they’re not ‘fair’. You cannot run a tax system like that.
Nonsense
The General Anti-Abuse Rule is law
So would a General Anti-Tax Avoidance Principle be law
What is your problem?
Most especially, what is the problem for business in having the certainty that tax avoidance is unacceptable?
How I agree with you, Richard. This request for simplicity in the law of taxation is often extended to the law in general. “Why can’t the law be made simpler?” they cry, especially when some hardened wrong-doer gets off on a technicality. “If the law were simple, this wouldn’t – couldn’t happen.”
Now, as a lawyer, I’ll get accused of special pleading, but I am utterly convinced that simple law makes for injustice, as justice is usually to be found in the particularity of each individual.
To illustrate my point – let’s have a SIMPLE – execute all perpetrators of ANY and ALL crimes, however minor. Simple solution = massive injustice.
You might call that a ludicrous scenario, as indeed it is, so adjust the parameters of the example. By doing that, you are introducing complexity and particularity into the equation, which you have to do to deliver justice.
Simple tax law proponents have just one aim – it’s the creation of massive tax loopholes
What is the difference between “influencing democratic choice” and “subverting democracy”?
The problem for businesses with the principle that tax avoidance is unacceptable is that there is no clear definition of tax avoidance other than “what Parliament intended”, and no clear statement of what Parliament intended other than what is in the law.
So the whole argument that something can be legal but unacceptable (as is made by HMRC in the Partnerships consultation document, for example) founders on defining “unacceptable”.
If the legislation permits something then there is no evidence that the Parliament that passed the legislation found it unacceptable. Until new legislation is passed there is no solid test of whether the current Parliament finds it unacceptable or not. The courts can only clarify the law as expressed by Parliament. HMRC can claim it’s unacceptable, but they are not the arbiters and that is only their view.
So what is small business to do, if anything they do might be objected to, other than sit tight and do nothing? That’s no way to run a railway.
What is the difference between “influencing democratic choice” and “subverting democracy”?
Answer: operating in every major tax haven to undermine the UK tax system
“The General Anti-Abuse Rule is law.. So would a General Anti-Tax Avoidance Principle be law.. What is your problem?”
The GAAR makes no reference to morality. It does not hold me to a subjective standard that I cannot know with any certainty until the person holding me to it (who may be someone with no democratic mandate) tells me what it is.
“Most especially, what is the problem for business in having the certainty that tax avoidance is unacceptable?”
1) There are differing interpretations of ‘tax avoidance’
2) there are differing implications of something being ‘unacceptable’
“Simple tax law proponents have just one aim — it’s the creation of massive tax loopholes”
Or, alternatively, “Complex tax law proponents have just one aim – it’s the creation of a massive beaurocracy of unionised workers with the power to use the force of law to persue ideological goals”
.. but that’s childish. If I can take you at your word that you think your ideal tax system will be better than the one we have now, why can’t you afford me the same courtesy?
We have an incredibly complex tax system as it is.. how do you think that’s working out with respect to massive loopholes? In fact, you don’t need to answer because you’ve already stated a clear desire for general principles to sit over the detail. Isn’t that an admission that a prescriptive approach isn’t the right one?
I am struggling to find a coherent argument in your comments
Your failure to recognise that tax systems are inherently uncertain in meaning and therefore always require judgement upon interpretation by the taxpayer, HMRC and the courts prevents any coherent presentation of an idea by you, in my opinion
I recognise that there will always be uncertainty, though my view is that a less convoluted system will mean less of it. Do note that by ‘less uncertainty’ I don’t mean TPA-style flat taxes. I mean less attempts by government to manipulate behaviour via the tax system.
Where that uncertainty exists, however, I consider it is the duty of the courts to decide what is and is not legal. Words like ‘acceptable’, ‘fair’ and ‘moral’ have no place except for where they mean the same as ‘legal’. Parliament can legislate for what is moral if it so chooses (it has a mandate to do so), but when it’s done so the morality and the legality are aligned.
It is the differing standards that I object to. It bothers me that the rich and powerful can bend systems to their advantage, and that they can subvert the will of society. However, I believe that the law must be the same for everyone, and that can only be the case if it’s written by parliament and interpreted by the courts. As a campaigner, you are free to police the grey area between what is legal and what you perceive to be moral. The state, on the other hand, needs to back it’s conscience with law.
And as Margaret Hodge said, HMRC is not backing parliament’s conscience with the law and that is the problem and it is my right to ask why and suggest it is because of what I consider to be immoral corporate capture
“what is the problem for business in having the certainty that tax avoidance is unacceptable?”
What about Trade Unions? Is tax avoidance OK for them?
I seem to recall you claiming that what Unite does, in properly claiming all the reliefs it can under the law, is not ‘tax avoidance’ but ‘tax compliance’.
How does the position differ for any one else? Why do you support Unite’s right to use the law to reduce its tax bill but condemn others who do the same?
I have never challenged the right of a business to deduct legitimate costs
Nor have I challenged a union’s right to do so
Interesting that you do regard current tax rates as fleecing people…..
I quoted someone else
I think the problem Richard is that defining unacceptable ‘tax avoidance’ as opposed to legitimate/acceptable ‘tax planning’ is the difficulty – having a rule that simply says unacceptable tax avoidance (or words to that effect) will be non effective or accepted in a tax return, is open to interpretation as to what is and is not acceptable, and we are back in the realms of relying on courts to interpret what that means. And hence uncertainty for taxpayers and HMRC alike — potentially.
Whilst at the extreme ends of the scale it may be easily to identify acceptable and unacceptable, somewhere in the middle it is blurred and fuzzy and what one person thinks is acceptable may not be in line with what someone else thinks. I am 100% sure you and I would have differences of opinion on some for example because where we draw the line will be different simply because we are each individuals with our own take on things — But I am also sure at the extremes/edges we would be 100% in agreement — and probably quite a way in from the edges too in fact. So it would back to the courts for a judge or judges to decide — and clearly they are people so that fuzziness could be interpreted differently from judge to judge. And that of course means uncertainty.
This has clearly always been the ‘excuse’ of the legislators (and HMRC?) against having a GAAR and I can accept that that is a difficulty. But it is also clear that the courts have moved away from interpreting the mere form of the words in law and are looking behind them to the purpose of legislation when interpreting stances taken by HMRC and tax payers.
Which does make one think that some form of GAAR based on purpose is possible if nothing else to prevent exploitation of loopholes — perhaps a general one even that says something like any planning/transaction/series of transactions/scheme that goes against the purpose of a rule in the legislation should be dismissed (I clearly should not be allowed to write legislation). Of course it would then be incumbent on parliament to explain the purpose of all tax legislation so that judges would be able to consider whether the purpose was being overridden or not. But that I think would not be a bad thing either since MP’s would be forced to actually consider the purpose of any legislation they enact. Even then I think there would still be some uncertainty.
As a corollary if we went down the purposive route legislation could be simplified — At least in principle. But I take the point above also that too simple = injustice.
And of course this may well work in the UK and for UK legislation, but I am not sure how that gets expanded to cover tax treaties, and cross border issues where you are not just looking at the UK but other jurisdictions too — and we have to potentially contend with a different interpretation in another country. And if the two tax authorities have to go to arbitration (e.g. in a MAP procedure) that purposive type approach may or may not be taken and so be at odds with the desired UK interpretation.
I think we are substantially in agreement
And remember the OE d and EU are now talking about GAARs
We will get there – it is just a matter of time
No, you didn’t merely quote somebody else; you used it as the headline for and basis of your post, without qualification.
So are you now distancing yourself from your own post or do you believe there are tax compliant people getting fleeced? If it is the latter, which taxpayers? By which taxes are they being fleeced? Or is it the rates that are too high?
NB. ‘Compliant’ means activelu complying; oit doesn’t refer to receiving benefits or having IT withheld from pay packets.
To which I have already replied
To be fair, you state that you rather like the comment.
I do
And I’ve always said one of the possible outcomes of beating the tax gap is lower taxes for honest people
Fascinating.
So, let’s work through this. You identify the tax gap as being £80 odd billion (please, leave aside the £25 billion uncollected at any one time, a different matter).
You also agree that not all of that £80 billion can be collected in anything approaching a free society. Only part of it could be. Let’s be generous and say that 50% can be.
Excellent, which taxes would you lower by £40 billion if your collection ideas were put into practice? And why would you lower those specific tax rates?
With only that level of recovery we’d be a long way from meeting social need – so there would be no cuts
But with more investment in recovery and the growth that would result from free,fair and competitive markets that beating tax abuse would allow maybe we would see some cuts
But not until then
It is simply a matter of the perception of fairness or unfairness. compliant taxpayers may be paying a level of tax which they would be happy paying if everyone else was paying what they felt was their fair share, which I admit is a subjective notion. They resent paying this level of tax if they feel that others are not paying their fair share.
Agreed
Malcolm James
No I’m sorry. I did think there might be a claim that the comment was a comparative; it isn’t though. There are two distinct absolute statements in the headline. People getting fleeced is not offered here as relative to others who are getting away with it. The headline approvingly referred to by Richard Murphy, stated that some compliant taxpayers were being fleeced.
So I am very sorry but you haven’t responded to the question; which taxpayers are being fleeced and by which taxes?
P.S. I’m happy with an explanation to the effect that ‘fleeced’ was a theatrical flourish. The point, howevern remains the same.
The point was that the people who pay appropriately are being fleeced not by the tax rate or tax base but by politicians who will not stop some abusing the system
I am quite confident that this is what was meant
So we agree it’s the politicians fault not the companies or individuals. Will you tell Margaret that?
There is absolutely no such agreement
Of course the government are partly to blame
But your argument is that of the burglar who claims an unlocked house invites their crime
The house owner may be unwise but that does not in any way exonerate the crime
Of course companies, individuals and their advisers are culpable for their actions. Saying the government should improve the locks does not change that
It’s not the same at all. What a burglar does is clearly illegal. So the analogy works for tax evasion but nothing else.
Both commit crimes against society
There is no difference
Let’s take Starbucks. I am convinced that there was no UK tax avoidance having researched the position. You take the opposite view. We both agree they didn’t do anything illegal. Are you more moral than me? If so, what gives you moral superiority?
I would suggest seeking to comply with the spirit of the law gives anyone moral superiority over a person who simply tries to comply with the letter
In what way did Starbucks contravene the spirit of the law?
So far as I am aware they paid little UK tax because their costs exceeded their income. They can control the costs paid to related parties, and so they get the deductions at rates agreed with HMRC under the transfer pricing principles legally in force.
The spirit of the law is not that you should pay tax no matter what, it is that you should pay tax on profits calculated according to accepted principles.
This is such old ground and my position so well known please do not waste my time asking
I know your position is that Starbucks have been avoiding tax, but what I don’t know is the detail: in what way do you think they did so?
It was about a year ago this first came up, but from memory you only asserted that their avoidance was objectionable. Even after googling for a bit I can’t find you setting out any specific objections.
The case against Starbucks is well known
No: the accusation against Starbucks – that they were avoiding tax – is well known.
The case against them – how they were avoiding tax – seems to be entirely obscure.
I did some prodding last year to see what I could find out, and I could find nothing objectionable other than that their royalty rate had been a bit high at first and was adjusted down by HMRC after negotiations. Otherwise, no-one seemed to be able to find any evidence that they were not completely compliant.
I would be VERY interested to know of any evidence of avoidance, whether solid or circumstantial. My clients keep referring to Starbucks, and so the more knowledge I have of the situation the better I feel in discussing it with them.
The case was absolutely clear
There are none so blind as those who will not see
If it is so clear, could you summarise it for me briefly? One line would be a help.
You are wasting my time and you know it
I have no time for time wasters, otherwise known as trolls
“I am quite confident that is what is meant”
So your headline, to a post on your blog, noted approvingly by you, but you’re not actually certain what it means and so you have now given your interpretaion, which is, being an interpretation, debateable.
Well, OK, we must leave the last word to you on that.
I am fascinated by your insistance that a) honest peoples’ taxes (btw, in case you want to hurl “neoliberal” at me, that is my view of people who pay there taxes) are necessarily higher to compensate for those who don’t pay their fair shout and b) even if we collect everything that is due, we can’t yet reduce honest peoples’ rates because, because what? Because we need to keep the deficit down? Since when have you been a proponent of austerity? Isn’t this debt fetishism?
We could not cut taxes because we need healthcare, social care, pensions, education, infrastructure and so much more
I do not propose austerity
I propose proper services for all who need them
And that need is very, very real
You are arguing here in your last comment for more government spending; not taxation. They are not the same thing at all. Taking your view (without comment) it is government spending that provides for those things and which stimulates economic activity. Taxation doesn’t do that.
There are a number of ways of paying for this spending. You have argued for Green QE (well, you’ve promised us your paper). You have poured scorn on the economics paper arguing that there is a ‘cliff’ at public debt of 90% of GDP. You have labelled its sponsors ‘debt fetishists’. You have argued that debt held by the BoE after successive rounds of QE has disappeared and isn’t really debt at all. You have produced reports referring the fiscal multiplier to argue against austerity.
So I ask you: if you are such a proponent of deficit financing and such an opponent of austerity, why must one person’s evaded taxes be compensated for by another’s increased taxes? Increased taxes has been a key plank of the suicidal austerity packages around Europe.
That’s not even worth replying to in any detail
Any more of that and it will be deleted
To threaten to delete entirely non-abusive comments because they may contain arguments or questions you don’t like is not what bloggers do. There appears to me an inconsistency in your policy positions. I am sure you can provide a response to put me well and truly in my place if that is what you want to do. You’re a blogger, so go and blog me to pieces.
There is no inconsistency in my loathing for neoliberalism and my determination to provide a space where other ideas may be discussed – a concept broadly beyond the comprehension of most neoliberals
Wonderful!
I engage in no name calling ask questions about government spending/investments and methods of paying for them and, so far, the only response is to get personal and scream “neoliberal”, exactly as I predicted you would.
These are serious questions that go to the heart of macroeconomic thinking and debate. Why won’t you discuss them?
I have written 10,300 blogs outlining my argument
No one can say I ma not engaged in debate
But I am not obliged to argue with anyone one to one – especially when I consider they are seeking to waste my time which is better used elsewhere
Indeed you do! You’ve contributed much more than I ever have. However, you are very reluctant to debate THESE points, THESE questions.
My case is very simple: if you argue, often and consistently, that present intentions to reduce the deficit and the debt are misguided, that we need MORE investment from government, indeed that our very measure of that debt is wrong and that, through Green QE, we have scope to increase that debt considerably, then you cannot turn around the next day and argue that taxes for compliant taxpayers couldn’t be reduced even in theory because government needs the money to pay for the things it needs to provide. The two positions are incompatible.
It is possible to hold more than idea at one time and have them compatible
OK, let’s leave it there.