I have been asked this morning:
As a major proponent of a GANTIP, how do you regard the Duke of Westminster principle in the modern environment?
For those in doubt the Duke of Westminster principle says:
Every man is entitled if he can to order his affairs so as that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure this result, then, however unappreciative the Commissioners of Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax.
Or so said Thomas Tomlin, Baron Tomlin, in the UK House of Lords case, IRC v. Duke of Westminster (1936) 19 TC 490, [1936] AC 1.
I reject this notion. It is bad law. It is poor jurisprudence. It has no statutory basis. It is as outmoded as much else that was accepted in the 1930s as being socially acceptable.
The modern alternative is:
Every person has a duty to be tax compliant. 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.
That’s what I believe.
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I can’t but help recall the ultimate sacrifice of the millions of men and women, young and old, who laid down their lives to protect that enshrined in the Duke of Westminster principle.
@alastair
Oh don’t be ridiculous
To argue people fought for the right to tax avoid abuses the memory of those who died – my grandfather inlcuded
Richard, I assumed @alistair was being sickly ironic because no sane-minded person could believe such tosh (it’s tantamount to saying that our troops currently fighting in Afghanistan are laying down their lives to protect – and bail out yet again – greedy bankers)or the rip-off of millions of pounds of public money that’s enshrined in PFI, or – well, I could go on, and on… Still, your reading of the post may well be correct.
Of course it has no statutory basis – it is case law. In your opinion it is bad law and poor jurisprudence because you disagree with it.
And I see nothing that makes the obiter imcompatible with your “modern alternative”. A person can order his affairs (for example, buying different types of investment) in a certain way but at the same time the legal form coincides with the economic substance.
@Adrian Labaton
If you think the two are compatible you have a lot of thinking still to do
@Richard Murphy
the fight was to protect our essential freedoms against tyranical dictators – to protect that written in Magna Carta. Your construct is for the executive over the individual.
@Ivan Horrocks
Ivan, you have a lot to learn
Obviously Alastair is joking. It would be impossible for anyone to make such a remark seriously.
@James from Durham
It seems you were wrong…
Amazingly
@alastair
Interesting interpretation of tyranny
What’s your preferred form of government Alastair – since it is clearly not democracy which imposes – through the votes of people – votes hard fought for I would add and defended in WW2 – that this tax is imposed?
If I read you right, you are saying:
1. Tax compliance = the payment of the “right” amount of tax, in the “right” jurisdiction (country) and at the “right” time (ie. incidence of tax event).
2. “Right” = the economic substance of a transactions coincides with (a) the jurisdiction where the transaction is reported for tax purposes and, (b) form in which it is reported for tax purposes.
Can you eleborate on your meaning of “right” as it seems to suggest a source basis of taxation and also that a taxpayer can only be taxed where the form and substance of a transaction are identical. What happens if the form of a transaction is different to the economic substance, does that mean that this will not be a taxable event?
@alistair
I know enough about the political, legal and constitutional aspects of the UK to comment on this Alistair, so don’t worry. The long and short of our different positions has far more to do with our beliefs and values – which are quite clearly at opposites – than any interpretation or understanding of the above.
@Justin
How absurd!
It does not mean source or residence or even territorial
“Right” can mean source first and territorial second – after all tax can (and maybe should ) arise on both
It has to be reported in both, after all, in most cases
Substance can always be taxed
It’s form that is the problem
Richard,
I am sure Alistair can speak for himself, but it seems to me the key issue is whether you believe that democracy should have primacy over the rule of law. Personally, I think its a no-brainer – democracy means one tick in the box every five years and then you might end up (as you did) voting for a coalition you hate. Whereas the rule of law is there to protect you every day from the excesses of the state.
There is such a thing as the tyranny of the majority as well.
Richard,
I should start by admitting I haven’t read by any means every word of your output on this subject (GANTIP). But I am bothered by how a GANTIP would be applied in practice.
“Every man is entitled if he can to order his affairs so as that the tax attaching under the appropriate Acts is less than it otherwise would be.”
Note the bit about “… under the appropriate acts …” – we’re talking about actions which in themselves are perfectly legal. How on earth do you distinguish cases where a taxpayer has taken avoidance action (by for example using an ISA or moving abroad)from cases where those actions did not have a tax avoidance motive?
The Westminster principle has of course been softened since 1981 (the Ramsay case) by the ability / necessity to take into account also the purpose of the transactions in question, but I question how much that helps the average taxpayer.
Where is the certainty for the taxpayer in what you propose? We have a system under which a taxpayer’s tax bill depends in part on actions which he takes or does not take. If HMRC could say subsequently that I did (or failed to do) certain things – all perfectly legal in themselves – and that as a result I owe more tax, that is grossly unsatisfactory, not because it’s more tax but because the situation is uncertain. None of us would be in a position to know whether we had complied with the law. How unsatisfactory is that?
And which amount, in this situation, is the “right amount of tax”? They’re both calculated in accordance with tax law, so legality doesn’t help answer the question.
You have written at length about the principle, but have you ever got down and dirty with the practical details and said how individual cases should be decided, in your view?
Measures like taxing worldwide income would help here, but I’m sure they’re not the whole story.
Just so as you don’t misunderstand me, I’m with you on a lot of things. But I’m having a hard time in this case.
@Brian
In many cases – in 99% of cases – the law is as now
But this turns Ramsey into law
That may be the easiest explanation you need
And certainty will be by clearance
But I know that i never needed clearances – I always knew how to comply
It’s easy
Anyone can do it if they try
Those who complain aren’t trying
@Ivan Horrocks
my values (of which you know nothing) are irrelevant. Your comments about bankers and afghanistan in the context of this blog post demonstrate the point I was making to you.
I don’t believe that your view of Lord Tomlin’s opinion as a ‘principle’ is any such thing.
The reason for this is that in subsequent cases, the courts have withdrawn somewhat from what could be considered to be the extreme interpretation of the section of Lord Tomplin’s opinion that you quote – see for example, Ramsay, Furniss v Dawson, IRC v Burmah Oil or McGukian. Indeed, have a look at Lord Hoffman’s discussion in his opinion in MacNiven’s case of what had been submitted to their lordships as a conflict between Lord Tomplin’s comments and the Ramsay doctrine.
The reality is that we have probably arrived at a position where if there are real legal effects of a series of transactions, the effect of those transactions will not be ignored when calculating tax that is due. If, in the alternative, the transactions are circular and have little effect in law, the courts will ignore the transactions when calculating the tax that is due. The result is that the courts continue to consider that the law should be applied in a manner that favour’s the taxpayer but only if the taxpayer is not only trying to reduce his liability to tax by entering into the transactions in the first place.
In addition, since the majority of the Judiciary in this area are appointed from the ranks of former Treasury Counsel, I have found them to be less accepting of argument, especially difficult argument, favouring the taxpayer.
I also disagree with your assertion that Lord Tomlin’s statement is ‘bad law’ and lacks ‘jurisprudence’. That you disagree with it is clear – but if you read the opinion itself, you will see that it is quite closely argued – and indeed, Lord Hoffman in MacNiven’s case sets out some of that argument and the consequences of Lord Tomlin’s statement. The reality is that the Judges decide what is necessary for the case before them – the body of their decisions taken together then form what we call precedent – and to ignore that body of decisions is to ignore the law as it is applied today – but then this is an argument for another day.
@Richard Murphy
what has democracy got to do with it? This is not about democracy. It is about the rule of law, which your construction would subvert.
@Richard Murphy
PS democracy is great. It would allow you to stand on a platform to pursue this stuff – although you don’t. I believe that many made the ultimate sacrifice to protect a system where this is possible. A mandate buit on a democractic vote is much more persuasive than trying for the moral high ground.
@Richard Murphy
If you have always been able to comply then you are extremely fortunate.
The law reports are littered with cases where taxpayers felt they were complying with the law and the Inland Revenue believed they were not. In some cases the taxpayer won and in others the IR won. Which goes to illustrate that compliance with the tax laws of a country isn’t as easy as you would like us to believe.
As you yourself have stated, the obligation to pay tax means not a penny less and equally not a penny more. And as history shows, this isn’t easily achieved as the two critical parties involved in this process often disagree.
You seem to be under a miscomprehension as to the status of case law. Firstly you said that the finding in the DoW case had no “statutory basis” – which as someone pointed out above is irrelevant because case law as precedent IS part of UK law and can only be overridden by subsequent statute.
This also means your assertion that “this turns Ramsey into law” is incorrect for the same reason: Ramsey IS law as we speak, and any artifical, preordained transaction which serves no purpose but the avoidance of tax can be challenged by HMRC.
@John Purdy
I feel the the GANTIP proposed in the TUC document is nothing more than the Ramsey principle in legislative form.
Alastair’s initial comment has been twisted to create a straw man argument that he didn’t appear to make.
Nobody died to protect tax abuses.
The Duke of Westminster’s principle is an expression of 2 important ideas:
1) Rule of law. The law is made, and both taxpayer and tax collector are bound by it. The whim of the politician or bureaucrat is irrelevant.
2) A person is free to do what is not forbidden, whether in relation ot his business affairs, personal life, religion etc. If he/she is not forbidden from paying himself dividends rather than salary, he/she may do so. And if there are different tax consequences from this decision, that is Parliament’s problem, not the taxpayer’s, not HMRC’s.
In WW2 and the Cold War (including ‘satellite’ wars such as Korea), we were fighting against countries who abandoned both principles, at the cost of misery to hundreds of millions. Whilst each soldier’s reasons for fighting were his own, there were plenty who did fight to protect these principles. I would take up arms to protect them if the situation arose, knowing the horrors in store if we lost them.
The first sentence of the alternative isn’t inconsistent with the Duke’s principle. The rest misses the point. Tax compliance is compliance with the law as it stands. That’s it.
@alastair
Candidly I do think you are saying you don’t like democracy
You can wriggle now – but the executive in this country is elected and your language is profoundly anti-democratic and offensive and is yet more evidence of the desire of the financial services sector to overthrow democratic government in the Uk and beyond
@Justin
And what’s wrong with that – the fact is more recent cases have undermined it – not just in my opinion but in the opinion of many others
@John Purdy
Ramsey is not law – it has been refined and debased
And legislation should now enshrine it – and overturn the doubt that Westminster leaves in the system
That’s what I am saying
For most it will make no difference
But if jurisprudence were changed too – so that law had to be interpreted equitably and not legally in tax then the effect will be profound
@Adrian
I have commented on Alastair’s profoundly unacceptable view
As for your opinion, tax avoiders seek to undermine the rule of law. I seek to uphold it with my suggestion. That is unambiguously true
Re being allowed to do what is not banned – that is also case law from 1869 needing change. This could be done by saying tax law is interpreted equitably not legally and the spirit must be followed
Problem solved
See page 12 or thereabouts hee for discussion on this issue of jurisprudence http://www.taxresearch.org.uk/Documents/TaxCodeofConductFinal.pdf
“As for your opinion, tax avoiders seek to undermine the rule of law. I seek to uphold it with my suggestion. That is unambiguously true”
Don’t you mean tax ‘evaders’? Tax avoiders (by definition) do not break or undermine the rule of law. Their only offence is doing things you don’t like.
“Re being allowed to do what is not banned – that is also case law from 1869 needing change. This could be done by saying tax law is interpreted equitably not legally and the spirit must be followed”
I am confused.
If we bring in a law (whether by case law or statute — any other way is not valid) saying ‘the law will be interpreted by XXX’, aren’t we then by definition inerpreting the law ‘by law’?
Also, what do you mean ‘interpreted equitably’? That wording doesn’t make sense, let alone solve anything.
If the spirit of the law is so clear, aren’t we better off trying to draft that spirit into legislation so we are indeed governed ‘by law’ and not by the whim of a civil servant?
Also, if the spirit of the law is so clear as you suggest, why are there so many tax cases, and why does HMRC sometimes (often?) lose them?
And how do you deal with different laws that have different ‘spirits’. It may not be in the spirit of the tax law to allow a wife to own shares in a company in which her husband works (but she does not), but it is certainly in the spirit of anti-discrimination law to allow her to do so without requiring a man’s permission.
Also, I don’t see any public clamouring for the principle that ‘we are allowed to do whatever isn’t banned’ be overturned, whether in relation to tax or anything aspect of life. It doesn’t need changing. It is a principle worth protecting, and a bulwark against authoritarianism.
I am not advocating people weasling out of their taxes. I am advocating clear drafting of laws from a broad base, and rule of law.
“But if jurisprudence were changed too – so that law had to be interpreted equitably and not legally in tax then the effect will be profound”
Mmm … the law and equity used, until the Judicature Acts, separate courts and it was a result of the Earl of Oxford’s case, not an uncontroversial case in its own right (given the context in which it was decided, against the backdrop of the Civil War), that established that where law and equity conflict, equity prevails – a rule that is applied today.
What you appear to want is that each case be considered only against the legislation and not against the interpretation of that legislation over time. This is what happened in some civil jurisdictions – see for example, the Code Civile in France. If that is the case, then what you propose is radical, which is the abandon the common law in tax cases … but where do you want to go?
In the last century or so, the principles that we call precedent, have started to be applied in civil jurisdictions in Europe – and the current editions of the Code Civile, for example, has annotations referring to new statutes, to other codes, to judicial decisions and other matters from which interpretation can be found. The reason for this is to enhance the consistency of the law applied – which I would suggest is even more important in tax cases, where the law is effectively providing a system for the confiscation of money and other assets to meet the needs of the Government of the day.
The difficulty for your argument is that what you appear to want is to create the very uncertainty that others have resiled from in the light of experience. My view is that it would create greater uncertainty and transfer considerable additional power into the hands of unlected and unaccountable judges … not very democratic.
@Evan Price
It’s easy to have certainty in UK law
try to work within it – it’s not that hard to do
Oh, no it isn’t.
But your proposals appear to do the opposite …
Tomlin’s principle still holds because it remains a fundamental principle not only of UK tax law, but of common law. The law is as it is set out in legislation and is not available for interpretation by HMRC, the courts or Richard Murphy except as parliament intended it to be read, even if that means that it operates in a manner that HMRC, the courts or Richard Murphy do not like.
Odd isn’t it that you tax avoiders say I’m wrong
And yet many in HMRC say they’d like such a provision because it would beat the abuse they see day in and day out
Abuse that is so obvious
Which i suspect some of you sell
Which may colour your judgement
And have no doubt – the law could be changed as I suggest….
@Richard Murphy
Are you seriously saying that the courts are allowing tax abuse and that the introduction of a GAAR/GANTIP or even TAAR will result in a tax collectors nirvana?
Seems to me the courts are sometimes all that stands bertween the citizen and overbearing executive bureaucracies.
@Justin
Your idea of “citizens” being protected from abuse is interesting
Most of the abuse is by corporations
they’re not citizens
And most citizens would be delighted if they stopped abusing
Which is exactly why the courts need to be instructed by a change in jurisprudence and a GANTIP to do just that