Tax and hypocrisy

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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.