I have learned that many campaigning NGOs are planning to describe tax avoidance as theft in the future. I am quite worried by this.
First, let me be clear what tax avoidance is. I recently defined it as follows:
Tax avoidance is taxpayer determined behaviour where the taxpayer decides to submit a tax return and declare their tax liabilities based on an interpretation of the applicable law of the jurisdiction that the taxpayer knows may be unacceptable to the tax authority of that country. They do so knowing that the risk of their potential misinterpretation of the law being discovered is limited and so the chance of appearing to reduce their liability in ways they claim to be legal, whether that is true or not, is sufficiently high for them to justify the risk of doing so. The scale of this issue is related to the complexity of the tax system and the degree of uncertainty that might exist as to the proper interpretation of the tax rules that it creates.
And I also made clear what tax avoidance is not:
I stress that tax avoidance does not ever include making use of tax reliefs and allowances provided by the law of a country: the cost of these is included in the tax policy gap.
I defined the tax policy gap as:
The tax policy gap is the tax not paid in a country as a result of the decision made by a government not to tax a potential tax base, such as wealth. Additionally it is the value of the tax reliefs, allowances and exemptions given by a government for offset against a source of income that might otherwise be taxable.
So tax is not paid, but no one avoided it: the government had no intention that it should be paid.
Sorry to be so laboured on this, but it's important. And that's for a good reason. Tax avoidance may be playing fast and loose with tax law. It is certainly about using interpretations of the law that a taxpayer knows might not be agreed by a tax authority. But let's be clear that every morning two lawyers walk into courts all over the world and argue what the law means and fifty per cent of them usually turn out to be wrong. In that case not agreeing with a tax authority's interpretation of tax law is not wrong. Disagreement can be honest. It can be reckless. It can even be unethical (and often is, in my opinion, when it comes to tax). But theft is something else.
Theft can be defined as follows by section 1 of The Theft Act 1968:
Basic definition of theft.
(1)A person is guilty of theft if he dishonestly appropriates property belonging to another with the intention of permanently depriving the other of it; and “thief” and “steal” shall be construed accordingly.
(2)It is immaterial whether the appropriation is made with a view to gain, or is made for the thief's own benefit.
Does tax avoidance dishonestly appropriate property belonging to another? I would suggest not. I would say it knowingly exploits uncertainty in the law to secure a pecuniary advantage, but that most of those doing it will have secured an opinion from a professional adviser before doing so that the action in question was legal, even if it had an uncertain consequence. And those opinions (which will not be publicly available, but which will be in the possession of the tax avoiding taxpayer) will be more than enough to show that the tax avoider had no intention of being dishonest, precisely because they had gone out of the way to make sure that they had an opinion to say they were acting legally, even if with dubious ethical intention.
In that case accusing someone of theft has serious ramifications. Like libel. And I would hate to see tax campaigners being charged with that.
So I strongly suggest that those tempted to use this language think again. It is most unwise.
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The word permanent in the Theft Axt 1968 led to need of another offence for joy riding (TWOC) as thieves could say they intended to leave the vehicle for recovery. We could legislate simply on tax evasion-avoidance in a similar manner, defining the offences without permanently deprive another. I’m not in favour either in the legal sense, though there is a need to treat white-collar crime more seriously and straight-forward in detection and prosecution. Deep in the swindlers’ intent, seen in common sense is worse than most common thieving. Gulliver’s Travels usually gets quoted along with Gresham’s theory. A re-written offence of obtaining a pecuniary advantage by deception would do the job, though where would that end us up!
The Tax Justice Network doesn’t like the term “avoidance” as you probably know. It prefers terms like “cheating”, but seems to agree broadly with your definition. If it’s “cheating”, but not “theft” it is nonetheless putting additional burdens on other, probably poorer taxpayers, who might feel that Big Corp or Olly Garch, using schemes that might only have a 25% chance of surviving a court challenge (TJN), might just as well have stuck their hands in his or her pocket and relieved him or her of his wallet or her purse. The realisation (though perhaps not as common as it should be) that you’ve had to pay more tax because of someone cheating could well feel like theft.
What it feels like does not matter in a libel court
I m trying to make sure campaigners do not go there
I agree it would be a mistake. But what motivates them to use this description?
I hope they will change it
Cheating I can live with
Theft is dangerous
You are wise to point this out.
I’m not sure I agree on the dishonesty point. I’m reminded of this blog
https://waitingfortax.com/2014/08/07/weak-transmission-mechanisms-and-boys-who-wont-say-no/
“I have on my desk an Opinion — a piece of formal tax advice — from a prominent QC at the Tax Bar. In it, he expresses a view on the law that is so far removed from legal reality that I do not believe he can genuinely hold the view he says he has. At best he is incompetent. But at worst, he is criminally fraudulent: he is obtaining his fee by deception. And this is not the first such Opinion I have seen. Such pass my desk All The Time.”
There are people who make it their business to write such opinions. Whether or not things have tightened up in the UK since 2014 is immaterial: this is a generic question with worldwide application, and in other countries it’s worse still.
But it’s still not theft
And I would not recommend defending it in court
There are so many better ways to describe it than theft
‘Tax avoidance is taxpayer determined behaviour where the taxpayer decides to submit a tax return and declare their tax liabilities based on an interpretation of the applicable law of the jurisdiction that the taxpayer knows may be unacceptable to the tax authority of that country.’
On that definition Starbucks (paying interest/royalties/management fees outside the UK), Boots (paying interest following its acquisition), Amazon (warehouses not treated as permanent establishments), Sir Philip and Lady Green (independent taxation of spouses/non residence rules) and numerous others you have criticised in the past have not been involved in tax avoidance. Will you be revising your tax gap numbers to reflect this?
With respect, all have been subject to review or have motivated the BEPS project
I think you’ll find all have been appropriately described
They may well have been reviewed by HMRC but ultimately were found to be acceptable.
Let’s look at Boots. They were acquired by a non-UK company and the financing to which you object was put in place in 2008. In 2017 the UK tax rules were changed (following the BEPS project) to limit the tax deduction for interest. It is likely that their tax returns claiming a deduction for interest were reviewed by HMRC, and presumably agreed as the deduction was in line with the tax law at the time. So from 2008 (long before the BEPS project started) to 2017 were Boots involved in tax avoidance?
Yes, because the law needed changing
That was HMRC’s response
Sam, I don’t like the of world of Starbucks, Green, Boots et al, well described by Nicholas Shaxson in the Finance Curse and here https://www.theguardian.com/news/2016/apr/13/how-boots-went-rogue where “clever” financial wizardry rips of everyone to the probable detriment of the companies, its employees, the host country, the customers and ordinary taxpayers. It’s time to euthanise the financialisation of the UK and be rid of the leeches.
Could I just check the Tax Policy Gap please:
– when assessing the gap with regard to (say) wealth, what assumptions are made regarding the rate of tax on wealth that governments are not charging because of their policy of not taxing wealth
– presumably, in theory, this could anything up to 100% as the government could set a tax rate at that level. Unlikely, however we have seen rates as high a 98% on income over certain levels and from ‘unearned’ sources.
Thanks
I accept that is an excellent question
In the absence of a rate I would use an average of the rate charged by o9rther states charging that vase to tax
It’s not perfect, but it indicates opportunity
Treat this as a shadow costing / revenue exercise
Although I am not in favour of tax avoidance it cannot be said to be cheating unless it goes over the line of dishonesty. Cheating the public revenue is a criminal offence and avoidance on your definition Richard, is not. The lines are already blurry and using cheating in this way blurs them further. Tax avoiders are playing fast and loose and potentially playing with fire if they implement their “arrangements” incorrectly. When they do it’s evasion and stiff penalties can be incurred for negligence as well as dishonesty.
That is not in line with your definition above: ‘based on an interpretation of the applicable law of the jurisdiction that the taxpayer knows may be unacceptable to the tax authority of that country’
When Boots submitted their tax return for say 2009 they claimed a deduction for interest in line with the current tax law. There had been no announcements by HMT or HMRC that the rules on interest deductibility would be changed. The BEPS project had not started. Boots would have had no reason to expect their tax return to be challenged with HMRC. So what is the basis for you saying that Boots were guilty of tax avoidance? Are you saying that Boots should not have claimed a tax deduction on the basis that the law might be changed at some point in the future?
And it was realised that the law was deficient
I’d like to know a little more about this ‘Tax Policy Gap’.
Consider the personal allowance of £11,850 a year on which no income tax is paid.
Or consider Council Tax Benefit which means that pensioners on low incomes pay no local taxation
Or consider the Stamp Duty threshold of £125k for residential property which means no transaction tax is paid if a residential property changes hands for below that price.
Are these part of the ‘Tax Policy Gap’?
Yes, they are
Thank you for the answer. This introduces something that is rather confusing which is this:
What is the point of a trying to put a number on the Tax Policy Gap?
Government doesn’t need the revenue to spend on its programmes, and at least some elements of it can’t be realistically collected from the lowest income groups without sending in the bailiffs.
The point is to indicate what decisions can be made
All decisions are better when informed
That’s what the purpose is
Do you have a problem with that?
So if the tax gap is everything the Government could tax (including wealth) then the number will be off the chart?? The Government could tax all income at 100% and all wealth at 100%. Extreme but it sounds like your starting point.
In theory the tax policy gap could show that
This is why I split it into two parts
One is, as you suggest, potential
The other is what has actually been decided upon
The point is to indicate what decisions can be made
All decisions are better when informed
That’s what the purpose is
Do you have a problem with that?
A tax gap assertion that is relevant is the tax that goes unpaid from the tax rates set by the Government. So the scale of tax evasion or avoidance etc ( of which the cash economy is the largest component – builders etc being paid cash in hand)..
To claim the the starting number when calculating the tax gap is based upon taxing income at 100% and the state annexing all personal and perhaps corporate wealth is Stalinist nonsense.. so yes with that I do have a problem as would the vast majority of people if it was clearly explained to them.
Politely this is absurd
First, to say tax bases exist does not mean they have to be taxed
It makes clear that decisions have been taken – as is the case
And I have already made clear that valuation would be at current standard rates or averages used elsewhere
The only person talking nonsense is you
Data to help us to decide what to tax ios vital
You said that
The point is to indicate what decisions can be made
But this overlooks the decisions that have already been made. So far , on this segment of the ‘Tax Policy Gap’ all you’ve done is to suggest a totalling of what’s published by HMRC in their listed allowances etc.
The decisions that can be made would need a number putting on them, and what I’m asking is what would we be the point of that, given that it’s not to illustrate what revenue the government has foregone.
But that is not what I said
And HMRC do not, in any event, publish full details
I’m sorry but tax avoidance involves pretence, deceit and falsehood, companies and rich individuals often manufacture an offshore trust fund or paper company in an tax haven solely for purpose of proclaiming it is entitled to tax reliefs, allowances, exemptions or payments of royalties for copyrights, this an conspiracy of fraud by lawyers, accountants and companies and rich individuals, Its designed with the intentions of permanently depriving the government of tax revenue which is legally due and is criminal fraud and theft !
I am not saying it does not involve deceit
But that does not make it theft
My warning had a very precise purpose
And your last claim is wrong
Re-reading your Beirut talk, in my interpretation, I see a conflation between “Tax Gap” and “Tax Policy Gap” with items 8 & 9 both called The Tax Gap. Are they the same or are there defining principles which differentiate the two such that they are related but fundamentally different categories?
The tax gap comes in two mains parts. The first is the tax policy gap. The second is the tax compliance gap.
The tax policy gap is the tax not paid in a country as a result of the decision made by a government not to tax a potential tax base, such as wealth. Additionally it is the value of the tax reliefs, allowances and exemptions given by a government for offset against a source of income that might otherwise be taxable.
It is an unfortunate fact that too little emphasis has been placed upon the tax policy gap. This has meant that the opportunity for reform in this area has been too often ignored when the undertaking of tax policy reform could represent a critical part of the desirable overall fiscal policy of many EU member states at a time when austerity is now creating significant political backlash in many member states. The tax policy gap deserves greater attention as a result.
The tax compliance gap is the more commonly recognised part of the tax gap. The tax compliance gap is usually defined as the difference between the amount of tax that would be collected by a jurisdiction if current legislation was enforced in the way that its tax authority considers appropriate, and the sum actually collected in tax.
There are three reasons why tax of the anticipated sum is not collected. The first, and most commonplace, is tax evasion.
The second reason for expected tax not being paid is tax avoidance.
Finally, the tax compliance gap includes tax liabilities that a taxpayer has declared but which are not actually paid, usually because of taxpayer insolvency before the money can be collected. Only a tax authority can, of course, be aware of what these sums might be. Few report them.
Thank you. Clear & concise.
Tax evasion is wholesale and those doing it see it as s passage of right and couldn’t give a toss.. over the last 6 months I have paid cash to builders, decorator, gardeners, golf instructor, Pilates instructor, cleaner, removal men..the list definitely goes on. Maybe some declare the cash or part of it. Any attempt to settle via bank transfer is met with bemusement..,all the high brow talk about tax gaps, avoidance, evasion is largely pointless when a large percentage of the self employed are party to it..do you have an answer?
Find other traders
I will not pay cash
You have the choice
The point I am making about the self employed being paid in cash is that the easy talk is off the rich evading paying tax, which clearly happens and needs to be stamped out… but thousands of people earning decent money evade tax ( builders etc).. how should HMRC stamp that out? It is massivly unfair to the rest of use getting paid through PAYE. Those been paid in cash choosing see it as the norm not to declare and they clearly do not see it as a crime. What should politicians and HMRC do?
I am well aware of this issue and am one of the few who has written about it, extensively
So you agree this is evasion on a grand scale committed by normal people on a daily basis. Have you estimated how much undeclared self employed income costs the country in forgone cash?.. and same question how should politicians and HMRC deal with it?
Try this
https://www.taxresearch.org.uk/Documents/PCSTaxGap2014.pdf
Theft, cheating etc. If we’re looking for a pejorative that doesn’t get us sued when using it about specific individuals or corporations, how about “dodging”. I like the word. It’s in common usage and resonates with ordinary people. It’s appropriately unsavoury. It enables one to call people “tax-dodgers” and to describe them as “dodgy”. Unless someone can come up with a legal reason why it is litigable, it seems to serve the purpose will.
That’s fine