Tax avoidance is not theft

Posted on

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.