Tax avoidance is the grey area between tax compliance and tax evasion. When tax avoiding a taxpayer to ensure that one of these happens:
a. less tax is paid than might be required by a reasonable interpretation of the law of a country, or
b. income is declared in a country which does not appear to be that in which it was really earned, or
c. tax is paid somewhat later than the income to which it relates was earned.
The difference between tax avoidance and tax compliance is that tax compliance is seeking to pay the right amount of tax (but no more) in the right place at the right time where right means that the economic substance of the transactions undertaken coincides with the place and form in which they are reported for taxation purposes whilst tax avoidance seeks to reduce tax paid by working between the letters of the law.
Both tax avoidance and tax compliance can claim to be legal, but only tax compliance can justify that claim with certainty. Tax avoidance relies on the existence of doubt for its validity.
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“Tax avoidance relies on the existence of doubt for its validity. ”
Not so. Tax avoidance usually relies on the clarity of the law and the fact that legislation is usually drafted for circumstances not anticipated by the legislators. There are manty examples of tax avoidance created by sloppy drafting or poorly considered legislation, particularly under the current government.
It seems that the definition above and the US definition differ:
“The United States Supreme Court has stated that “The legal right of an individual to decrease the amount of what would otherwise be his taxes or altogether avoid them, by means which the law permits, cannot be doubted.” See Gregory v. Helvering.”
I am right in thinking that in case law it is the right of the individual to arrange their taxation affairs in a tax efficient manner? This isn’t to be confused with breaking the law or wilful tax evasion.
They just don’t get it, do they, Richard?
@JohnBuckles
Let me take your comment as typical and your argument representatively absurd
Just because some rulings by judges from before the second world war say tax avoidance is acceptable is no justification for its continuation
On that basis we’d also still support:
– capital punishment
– race discrimination
– sex discrimination
– the criminalisation of homosexuality
and more.
How absurd that the best you can do is rely on outmoded social thinking to justify continuing abuse of society
Now if the time for change
My statement is true
The time for a General Anti-avoidance Provision is now
Surely you mean “around?”
All of these comments fundamentally miss the point. The fact is the current system whereby tax is a game in which wealthy individuals and corporations pit themselves against the state, is broken. It doesn’t work because the burden of tax increasingly falls on those who can’t afford to pay top level tax barristers and accountants.
Whether it is legal or not is irrelevant. It’s time to change the law. Alex, Fred, John – your comments are based on the current state of the law. We need to change it. What you need to do is show why you think the current arrangements are working (I mean for most people, not just for the wealthy!). Saying that certain practices are currently legal proves absolutely zilch.
@JohnBuckles
John, the answer to your question is yes, but Richard doesn’t like to ad mit is. The fact is that there is often more than one way to achieve the same commercial effect with different tax consequences (a common example is selling a company that owns a property rather than selling the property and absent a sham transaction, English tax law largely respects the legal form.
Richard,
Just because some rulings by judges from before the second world war say tax avoidance is acceptable is no justification for its continuation
I guess that means the US can get rid of their odious social security programmes as well. Brought in and ruled uon before the second world war as well.
Afterall, just because some rulings by judges from before the second world war say ‘social security’ is acceptable is no justification for its continuation.
Likewise, the US income tax was brought in and ruled upon before the second world war as well. Just because some rulings by judges from before the second world war say that taxation (ie. destruction) of income is acceptable is no justification for its continuation.
Georges
Carol Wilcox
Not only do they ‘not get it’, they feel smug in their ignorance.
It’s a mental illness, surely?
@James from Durham
Thanks for “getting it”
Join Arnald and Carol
I couldn’t help letting Alex through as an example of abuse being approved
And Georges for his callousness
The good news is some of us do get it
Thanks to those who do
Richard
I’m afraid I too don’t fully get it – a agree with the sentiment and used to be disgusted by the practices undertaken by a large firm I used to work for who really stretched the law to its absolute limit (I note now that there is a massive increase in its provisions at its last accounts presumably relating to some hefty ngligence claims indicating that these tax avoidance schemes were really just a sack of spanners as I thought all along (I didn’t actually work in tax…))
Back to the point though – lets take the most basic tax avoidance I can think of – ISAs.
These too count as tax avoidance, do they not? What about another simple one such as rent-a-room relief, or option for schedule A. Another very simple, but non-the-less tax avoidance rule.
Getting more complex, on to gift relief and rollover relief? Still tax avoidance.
I think, and correct me if I’m wrong, you are really meaning to draw a distinction between good, or fair, tax avoidance and bad or unfair tax avoidance.
What would be the definition of good – maybe avoidance done in the spirit of the law, or available to all tax payers without the need for significant representation or advice etc etc etc
I think GB’s diclosure laws have helped, but I don’t know enough about it to say whether the it has had significant impact
@Online Accountant
I clearly need to do more on this issue – and will
The definition of tax compliance defines the difference. Tax compliance is defined as seeking to pay the right amount of tax (but no more) in the right place at the right time where right means that the economic substance of the transactions undertaken coincides with the place and form in which they are reported for taxation purposes.
So ISAs are OK (although I’d make them for green investment alone)
So are pensions – – the law intends both
That’s the key point
But it does not alter the fact we need to change the law on many allowances
Richard
To James from Durham,
Please note that while I would like to respond to your comment, my response has failed to pass the comment approval process.
Why are pensions okay, exactly? Why is it okay for someone in company A to have more of his compensation package in the form of pension than people working in Company B and thereby pay less tax?
I don’t think there is any way to achieve the perfectly moral aim you have set yourself. It is a dream. It is like communism.
@Steven Jones
It is what the law intends.
This is a legitimate choice.
A fair choice.
A legal choice.
That’s not a dream.
That’s practical tax compliance.
Tax compliance is seeking to pay the right amount of tax (but no more) in the right place at the right time where right means that the economic substance of the transactions undertaken coincides with the place and form in which they are reported for taxation purposes.
And what’s wrong with dreaming anyway? Did a man ever change anything without dreaming?