I noted here yesterday that the Fair Tax Mark is looking to issue community shares to help fund what many have welcomed as a project that could transform corporate tax transparency. Almost inevitably, and as has been the case with most things I have done over the last few years, the critics descended in the hope of finding fault and in desperation they thought they'd found one.
In the document The Fair Tax Mark have issued we said:
We are currently investigating the practicality of arranging tax relief for investments in our shares under new rules announced by the government but we cannot at present confirm that these rules will apply to the shares that we intend to issue.
And the accusation that I was a hypocrite for facilitating tax avoidance flooded in from those who should undoubtedly know better. I could, of course, duck the issue, but those who know me are aware that's something I'm not inclined to do.
So first, let's note the precise wording used. We said we are ‘investigating the practicality' of arranging tax relief. That means first of all, it was low on our list of priorities; second it means we have not designed the issue around tax relief, which we consider a secondary issue at best, and last we'll answer the question if anyone wants us to, and if no one asks we probably won't bother.
Why do that? Because I thought that we should make clear we were aware of this relief, that if it was appropriate we'd investigate it, but that we were not designing anything for tax relief purposes, but despite that if, nonetheless, it was clear we happened to comply and people wanted to claim relief on an investment that was in that case very clearly due within the letter and spirit of the law then we'd have to consider it. I'm not sure what could be more honest than that.
However the allegation that I and / or the Fair Tax Mark were facilitating tax avoidance has been made. Nick James, an accountant and regular commentator on this blog dealt with this suggestion very appropriately, saying to one of those who made this allegation:
Nor does it seem to occur to you that taking advantage of a specific law offering a specific tax relief is no more tax avoidance than deducting your legally mandated annual personal allowance from your income in order to arrive at your taxable income.
I agree. And, for the record, I have never defined tax avoidance in any other way. As I say in my briefing on this issue:
Tax avoidance is seeking to minimise a tax bill without deliberate deception (which would be tax evasion) but contrary to the spirit of the law. It therefore involves the exploitation of loopholes and gaps in tax and other legislation in ways not anticipated by the law. Those loopholes may be in domestic tax law alone, but they may also be between domestic tax law and company law or between domestic tax law and accounting regulations, for example. The process can also seek to exploit gaps that exist between domestic tax law and the law of other countries when undertaking international transactions.
The tax avoider faces uncertainty when pursuing their activities. That uncertainty focuses mainly on their not really knowing the true meaning of the laws they seek to exploit and taking the chance that either a) they may not be discovered to be tax avoiding or b) that if they are the interpretation placed on the law that they seek to exploit is favourable to them. Their risk of penalties arising as a result of their actions depends upon what the outcome of these risky situations might be.
There is no way on earth that claiming tax relief under a scheme promoted by the law, with that tax relief, if due, being wholly consistent with the spirit of that law, can be tax avoidance and there is no way anyone can accuse me of inconsistency on this issue. To do so would be as absurd as saying I am tax avoiding by claiming tax relief on my properly incurred business expenses, when the law says I may.
However, that does not mean I approve of EIS. I have called for it to be abolished, and will continue to do so. That's my right, but those who think it's then wrong for the Fair Tax Mark to investigate this issue of EIS relief miss two fundamental points.
The first is that much as I would like to write the law, I don't, and am well aware of it. I lobby for change. I cannot deliver it, and whilst the law is as it is I have to accept that fact.
Second, I am also not the Fair Tax Mark. I am one of quite a number of directors. This issue was comprehensively dealt with by David Quentin, an adviser to the Fair Tax Mark at the discussion at Mazars, Chartered Accountants, in April, where he, quite rightly, made it clear that what I say does not go at the Fair Tax Mark. I have a voice, but I am a long way from being the only one.
But let me go back to Nick James's point: whilst the law is as it is you sometimes have to do things that definitely comply with it whether you like it or not, because that's what necessary. Let me give an example, hypothetical but none the less appropriate. Suppose I campaigned for the UK to switch to driving in the right. There are economic reasons to do so, after all. If I were to do that (and I can't ever imagine doing so, but that's not the point) would I be hypocritical to still drive on the left because the law required it? I hardly think so. Nor would it be hypocritical to drive at all. That would be an absurd thing to do and actually undermine the campaign.
It's just so here: what we may look at is whether or not tax relief is due if asked do so. If it then transpires that tax relief may be made available because the company happens to comply in full with the legal requirements for investors wanting to claim that relief, so be it. Obstructing relief for something if it is very clearly legal would, I think, be inappropriate but that does not in any way prevent me (and, I stress, me, not the Fair Tax Mark) campaigning for the law to be changed.
That's neither pragmatic, nor a compromise. It is respecting democracy and the choice of others whilst personally seeking to change how our tax system works. All of those things are compatible one with another. Only those who have never had to make such decisions because, presumably, ethics do not play a significant role in their decision making processes will understand that this is the inevitable dilemma those seeking to effect change face. We live in one entirely legal and chosen system whilst seeking to create another and whatever we might wish (I would not apply for EIS relief) we have to respect the right of others to behave differently if it is consistent with our principles that they do so. As there is no tax avoidance here I can hardly object to a course of action even if I would not do it myself.
I have to live with that. It's the sort of issue life throws up. But the last thing it can be described as is either tax avoidance or hypocritical unless you're seeking to misrepresent both ethics and the nature of tax avoidance, and that, I am afraid is what my critics are seeking to do.
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This “driving on the right” thing sounds interesting. Perhaps we should trial it with HGVs for a bit, and if it’s a success roll it out for everyone?
A senior partner of PWC, my employers for a while in the late 70s/early 80s, was more than a little dismissive of what he perceived to be worthless comments in the context of the matter under discussion. To use his concise but elegant reaction in such circumstances, your comment is “most helpful”.
Perhaps if you think for a moment or two, you may see a parallel between the clearly ludicrous suggestion that we let HGVs operate under a different set of rules to everyone else, and the situation where many people perceive the juggernaut of big business to be trying out its own unilateral approach to tax rules, with equally unfortunate results for others trying to use the system.
Whatever the rules are, they need to be applied consistently to start with, then we can look at changing them – for everyone. Perception of worth may require more than the ability to raise an eyebrow and smile condescendingly.
I have to admit I have entirely lost your thread here
Have you Nick?
Guest, that you choose to hide behind a veil of anonimity gets your comments off to a bad start for me.
Having, as you asked, thought for a moment or two, the first paragraph of your second post does nothing to help me untangle what contribution your first post made to a discussion centred on tax and hypocrisy. If that’s a failure of comprehension or imagination on my part, please accept my apologies; if it’s not, I believe that “most helpful” was an appropriate response.
I agree with the sentiment you have now added, that “Whatever the rules are, they need to be applied consistently to start with, then we can look at changing them — for everyone”, but isn’t that exactly what Richard proposed in the first place – “Obstructing relief for something if it is very clearly legal would…..be inappropriate but that does not in any way prevent me…..campaigning for the law to be changed”?
EIS is optional, so whilst it’s valid to claim it (for the reasons you give) it would be equally valid to take a principled stand and not claim it. If it’s your stated position that EIS is a bad relief, and you would campaign to have it abolished, then choosing to take advantage of it sounds like hypocrisy to me.
It would be like an organisation who campaigns for a higher minimum wage paying below the level they advocate for.. that they are following ‘the spirit of the law’ should be secondary to their principled stand that the law is wrong.
I actually have called for EIS to be abolished as a means of taxing wealth, not as a way of tackling tax avoidance, which it is not
And you ignore the fact that I am not the FTM
At least read what Richard has written; he says very specifically that he personally will not claim the bloody relief. Where’s the hypocrisy in NOT claiming a relief that you campaign to have removed? In what conceivable way can that be hypocritical?
“It would be like an organisation who campaigns for a higher minimum wage paying below the level they advocate for”
That wouldn’t necessarily be hypocritical: a business could consistently both want for the lowest-paid jobs to be better paid, while not being able to afford to increase what they pay their own workers (which would also force up their prices, making them higher than their competitors’) unless all their competitors also increased their wages.
Similarly, I believe JD Wetherspoon campaigned for a smoking ban in pubs in England while still allowing smoking in most of their pubs – because to be the only smoke-free pub in an area lost them customers to other nearby pubs where smoking was still allowed. That doesn’t make them hypocrites.
Somebody campaigning for a tax cut wouldn’t be able to pay less tax just because that’s what they believed the rate ought to be; somebody campaigning for a tax rise shouldn’t be expected to pay more right now – when others in similar positions aren’t doing so.
All points well made
I especially recognise the last
If fair Tax Mark was a charity donations could be gift aided which is only a form of tax avoidance/self-determined tax hypothecation. A charity benefits from the added standard rate tax but enabling tax relief on shares may encourage more investment to make up the deficiency.
Anyway, there is an ironic justice in tax avoidance being used to discourage its worst excesses. Not quite turkeys voting for Christmas but getting there, so keep going!
I think the problem here is that you personally argue that EIS is a relief exploited by wealthy individuals to avoid tax, yet you are also inviting individuals (some of whom might be wealthy) to consider investing in an organisation that itself may (and of course it is only a may) seek EIS status that could enable wealthy individuals to avoid tax…
Don’t get me wrong, I think it’s perfectly possible for you to suggest people should consider investing in an organisation based on its own merits and that in an ideal world certain tax reliefs should not be available for that investment, but you have to admit it could be perceived as inconsistent.
I do not argue that EIS is used to avoid tax
It isn’t
It does reduce a tax bill in a compliant way, which I would abolish
That is something completely different
Forgive my apparent ignorance, but can you explain how I am misinterpreting:
“…ending large numbers of tax reliefs that are solely designed to create loopholes for the wealthy would be of great value. So let’s get rid of venture capital trusts, EIS,..”
http://www.taxresearch.org.uk/Blog/2012/08/29/lets-tax-wealth/comment-page-1/
I was arguing about closing schemes to increase taxes on wealth
I did not say it was avoidance
Well, without wishing to descend into an argument on semantics, using words like “loopholes” in the same sentence as “tax reliefs” could be interpreted as avoidance.
Then again, one man’s tax avoidance is another man’s tax planning.
As I said, I think it’s largely a perception issue…
And I beg to differ
Largely because the error in perception is all of your making
You may well be right, I’ll leave it for others to decide their own perception…
The problem is that you argue elsewhere that multinationals avoid tax by using CFCs which reduce their rate to 5.75% (or whatever it is), or by using the patent box which allows them to be taxed at 10%. It is just as legitimate for multinationals to use these reliefs as it is for an individual investor to use EIS relief. Yet the vast majority of the tax “lost” that the FTM seeks to highlight must simply due to companies using reliefs and exemptions like the ones I have just outlined.
You may think you can explain these inconsistencies away by posting a defence like this, but let’s face it, the average person is going to look at it and thinks “this is hypocrisy”.
You clearly have not studied the FTM
We only seek an explanation of low rates – someone paying no tax can get the award if there are legitimate reasons e.g. allowances due
No inconsistency at all
I still oppose those schemes but I am not the FTM
You are the self-proclaimed “founder” and director of the FTM.
If anyone “is” the FTM it is you.
I was the founder
I am now one of quite a number of directors and many more advisors
But why bother with detail?
Let’s look at Nick James’ statement:
“Nor does it seem to occur to you that taking advantage of a specific law offering a specific tax relief is no more tax avoidance than deducting your legally mandated annual personal allowance from your income in order to arrive at your taxable income.”
What he says is indisputably true. As such, what the FTM is doing to minimise it’s tax bill is perfectly legal and I have no problem with it.
However one could easily substitute a number of companies into the above sentence instead of FTM and the same would be true, but those companies have been attacked ad nauseum by Richard Murphy and the FTM amongst others.
It’s either legal or it is not, so by the logic of Nick’s statement what these companies have done is fine. Yet they are still regularly under attack by these people, which if nothing else is hypocritical.
You endlessly ignore the point that this tax relief is wholly tax compliant
The behaviour of the companies I criticised was not or those complaints would not have reached the international agenda
Your further comments on this issue are being deleted under part 5 of the comments policy: you are becoming boringly repetitive and are continually wrong
“The behaviour of the companies I criticised was not or those complaints would not have reached the international agenda”
Unless I am greatly mistaken, all those companies were completely tax compliant. No laws were broken and none of them appeared in a court of law or were punished for any transgressions.
This is very different from what you allege. You and others might not like the result of these companies tax arrangements, and indeed there has been a lot of bad press about it, but none of it was illegal.
Not one of those companies was tax compliant, as was glaringly obvious
They did not break the law
That is a long way from the same thing
Your further comments will all be deleted
Rather than silence those who are disagreeing with you, perhaps it would be more beneficial if you would support your claim:
In what way were those companies NOT tax compliant (given that they were operating exactly in accordance with the relevant tax laws)….??
You may have noticed the entire international community agreed with me at the G8 and G20 on this issue and the OECD is now supposedly addressing it (even if badly)
I really do not think I need to present any more evidence
It is acknowledged fact
‘It is an acknowledged fact’
What is? That they are not compliant, or that the law should be changed?
If their non-compliance with the law is a fact, then presumably there is some record, or court case or something.
This comment is posted subject to point 5 of the comments policy
It is too absurd to respond to
Claiming a tax relief (such as a personal allowance) dosent actually require you to do anything (other than be alive ). I got the impression that you were going to have to change the construct of the organisation to get into EIS. Much like someone might alter their structure to claim the Cfc exemption presumably. The issue people are worried about is the engineering of the organisation into the EIS relief, which seems to be the type of behaviour you seek to critiscise
I personally don’t have an issue with EIS
As I have made clear, we haven’t planned for EIS and won’t change for it
You clearly have not been following
Question 1
On the Fair Tax Mark website it states “We are a non-profit social enterprise”.
One requirement under EIS is that a trade carried on by a company must be “conducted on a commercial basis and with a view to the realisation of a profit” (s189 ITA 2007).
It seems rather contrary to the purported spirit of the Fair Tax Mark to be now considering ‘going commercial’.
Why the change of mind?
Question 2
As regards the charge of hypocrisy on EIS, why not simply decide NOT to apply for EIS status? That way no-one could accuse you of on the one hand saying that EIS should be got rid of and on the other hand supporting EIS. All you need do is state that you are looking for principled investors who are not motivated (at least in part) by the prospect of tax relief and so you (the company) will not be submitting form EIS1 to HMRC and so no EIS relief will be available.
That would be a courageous step to take by the company and send out a consistent message.
a) The rules on EUS are changing
b) We said we would look at those new rules
That’s it
If we happen to comply with those new rules we may apply
If we don’t, that’s the end of the debate
We’re not tax planing
We’re simply looking at a wholly tax compliant scheme to encourage investment in social enterprises