Have we reached the tipping point on tax avoidance?


3:53 pm - April 10th 2012

by Richard Murphy    


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It’s been an extraordinary few days.

Amazon’s tax was exposed. They’ve done nothing illegal, of course, but their conduct has clearly been judged unacceptable.

The tax affairs of politicians have become issues of public debate – Ken and Boris have guaranteed that in perpetuity. The move to tax transparency in the public domain has, I suspect, become unstoppable. Polly Toynbee argues for it universally this morning. I have sympathy, but until now have always thought it a step too far.

The use of companies without obvious commercial reason, but with a resulting benefit in terms of tax paid has also entered public debate – again thanks to Ken Livingstone. Will that issue now go away?

And now another backlash to Osborne’s hapless budget, which has resulted in his admission that tax avoidance is vastly bigger than HMRC have ever previously advised is set to propel legal but ethically unacceptable tax abuse centre stage for time to come.

Now I don’t want to count chicknes; that’s always unwise, and yet this has the feeling of being a tipping point – a time after which attitudes change, irreversibly.

I have argued since 2008 that tackling tax avoidance, tax evasion and tax paid late – a combined total of £120 billion – provides a radical alternative to the chosen cuts agenda. Now that is becoming increasingly obviously possible.

I’m nit saying we could solve all issues by collecting tax – quite clearly the weakness in investment and the lack of demand are both key economic issues to be addressed. But the cuts agenda has always been wrong when simply collecting tax due has always been the alternative.

Will we now see the investment needed to achieve that result?

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About the author
Richard is an occasional contributor. He is a chartered accountant and founder of the Tax Justice Network. He blogs at Tax Research UK
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Reader comments


Oh dear……

I repeat my comment from the previous thread.

“If someone earns below the higher rate tax threshold do we expect them to pay at 40% because that would be a “good thing” to do?

If we receive a tax rebate, are we expected not to cash the cheque on the basis that somebody else might need the money more?

Let’s be clear what taxation is. It is a levy imposed by the state, not a contract that is freely entered into. The state creates rules to determine how much is due and, provided these rules are followed, it is not illegal, nor is it even a venal motivation for the taxpayer to minimise how much he pays.

The voluntary donation of money to someone else who needs it (providing it is still possible to find a charity the state is not running) is virtuous, both for donor and recipient. The consequence of redistribution by taxation is, by comparison, pernicious to both. For the donor, the deduction feels like theft whilst for the recipient the payment becomes an inalienable right.

Why should anyone, even Ken Livingstone, volunteer to be mugged for more than they have in their wallet?”

They’ve done nothing illegal, of course, but their conduct has clearly been judged unacceptable.

By whom?

And what kind of arrogance makes you so sure your “ethical” position is universally shared?

They’ve done nothing illegal, of course, but their conduct has clearly been judged unacceptable.

They’re based in Luxembourg aren’t they? You’ll have to go it some to make that illegal.

The consequence of redistribution by taxation is, by comparison, pernicious to both. For the donor, the deduction feels like theft whilst for the recipient the payment becomes an inalienable right.

Sharing nicely with the others is something we learn in primary school, isn’t it?

Or maybe our sub-Thatcherite friends are principled enough not to have attended primary school, knowing that all right-thinking taxpayers would regard that as “theft”, and recognising the danger of regarding primary education as some sort of “inalienable right”.

“Amazon’s tax was exposed. They’ve done nothing illegal, of course, but their conduct has clearly been judged unacceptable.”

Eh? Luxembourg company gets taxed in Luxembourg. Other than Murphy R. Who has judged this to be unacceptable?

Especially as it is rather the point of much Single Market legislation. That any company may establish itself anywhere in the EU and then sell to anyone in the EU. Without having to have 27 establishments to cover 27 tax jurisdictions.

“The use of companies without obvious commercial reason, but with a resulting benefit in terms of tax paid has also entered public debate – again thanks to Ken Livingstone. Will that issue now go away?”

Now that you’re here, can we get your straight opinion on this? Ken was doing as you outlined people could in that Observer article. As you yourself were doing with a couple of companies.

And yet in The Missing Billions you refer to such income splitting, conversion of employment income into dividends etc, as tax avoidance.

So, what is it? Tax avoidance that both you and Ken are guilty of or is it not tax avoidance and The Missing Billions is wrong?

@ 3

maybe our sub-Thatcherite friends are principled enough not to have attended primary school, knowing that all right-thinking taxpayers would regard that as “theft”

I referred to the use of taxation to effect income redistribution.

Your primary school analogy is, therefore, made of straw.

Pagar@1:

“Let’s be clear what taxation is. It is a levy imposed by the state, not a contract that is freely entered into.”

Which you consent to when you vote and agree to abide by the laws passed by the succeeding Parliament. If you don’t like the idea of being taxed, then vote for (or create) a ‘no-tax’ party and see how much support you get.

“The voluntary donation of money to someone else who needs it […] is virtuous, both for donor and recipient.”

Yes, it enables the donor to feel righteous and the recipient to feel patronised like there was no tomorrow. One of the reasons why we have a taxation system to pay for publicly-beneficial things such as proper health-care, transport infrastructure, etc. is because it is the one way of making certain that the resources to provide those things will be there on something approaching a consistent basis, rather than being dependent on how generous the Owning Classes feel like being from one year to the next.

“The consequence of redistribution by taxation is, by comparison, pernicious to both. For the donor, the deduction feels like theft…”

Only for Hayekians, Friedmanites and Randroids with an inflated sense of entitlement…

“…whilst for the recipient the payment becomes an inalienable right.”

…a sense of entitlement which they condemn in those they think to be beneath them.

Tim Worstall @4:

“Luxembourg company gets taxed in Luxembourg.”

They suddenly became a ‘Luxembourg’ company by changing one word in the description of their UK activities. The profits they made in the UK are still made in the UK. Now, however, they’re not taxed here but in one of those cosy little boltholes provided for such skimming.

Other than Murphy R. Who has judged this to be unacceptable?”

I think that anyone with a conscience and a sense of human decency would. After all, it’s a pretty sh!tty way to behave. Just because it’s ‘legal’ doesn’t mean that it is ethically sustainable. After all, bear-baiting, slavery and what Jonathan Miller called “The Hounding Of The Pooves” were ‘legal’ at one time. There is such a thing as progress…

@ 1 Pagar..

You raise some points of interest.

If someone earns below the higher rate tax threshold do we expect them to pay at 40% because that would be a “good thing” to do?

If we receive a tax rebate, are we expected not to cash the cheque on the basis that somebody else might need the money more?

To my mind, this is a bit of a strawman. The issue is not whether a person should be expected to pay 40% if their earnings are below the threshold – that is why we have thresholds. The issue is whether someone should pay 40% if they earn above the threshold, rather than avoiding it by setting up shell companies that exist simply to reduce tax paid. Likewise, the issue is not whether a person should refuse to accept their rebate, but rather whether they where paying the appropriate rate of tax to start with. I would argue that tax affairs should be simple and transparent. Nobody should be able to play games whereby they can shift money around and avoid paying their fair share.Let’s remember that, every tax avoider like Ken Livingstone ensures that a cleaner, a teacher, or an elecrician somewhere ends up having to pay a higher rate – the money for the services that most of us want has to come from somewhere.

My personal view is that there should be a whole host of redundancies in this country – of tax accountants who give advice to the wealthy on how to avoid their social responsabilities. I would like to see a simpler tax system with fewer loopholes and get out clauses that’s fairer for all, not just those with sufficient capital to employ the services of Mssrs Swindle, Twist & Loophole. I really don’t believe that it is a fair system when the wealthy – and I include Ken Livingstone here – can get away with paying less tax that ordinary employees or self employed people. I also disagree with the idea that the services of Mssrs Swindle, Twist & Loophole benefit the economy – unless we’re talking about the economy of Switzerland that is.

Let’s be clear what taxation is. It is a levy imposed by the state, not a contract that is freely entered into. The state creates rules to determine how much is due and, provided these rules are followed, it is not illegal, nor is it even a venal motivation for the taxpayer to minimise how much he pays.

That is an ultra-libertarian view – needless to say, not being an ultra-libertarian, I don’t accept it. I regard tax as a social responsability – which is why I never exploited tax loopholes when I was self-employed. As the old saying goes, no man is an island. We live in a society composed of other people, we share certain values, and we make decisions about what we value – I think that most people value the NHS for example. This is not tyranny, this is democracy. Those who feel that taxation is simply a state levy are welcome to go and live somewhere else where the tax burden is lower – I believe that Saudi Arabia has 0% income tax. I however would rather live here. I seem to remember reading about an American anti-statist – sorry, can’t remember the name, you may well know that better than me given your political leanings – saying he believed in paying his road repair levy because he believed in being a good neighbour. I, and I suspect many others too, would extend this to the NHS, schools, those unable to work, and a host of others.

Yes, I agree with you that the volountary giving of money to a charity is virtuous, however, there are problems with trying to run a complex society on these lines. Guidedogs for the blind are awash with dosh I believe, while other charities who perform much needed work receive next to nothing and struggle on a daily basis. Why? Simply because they’re not sexy. Back in the early 19th century, there were whole villages where nobody worked because a wealthy donor had left a legacy to the parish, while in the next village, people had to work all hours on low wages to make ends meet. This was, so I am told, partly why the charity laws were reformed.

And what kind of arrogance makes you so sure your “ethical” position is universally shared?

Well, it clearly isn’t universal – you for one don’t share it. However, the other night I was at a party with some neighbours, and it was quite clear that they considered the term “scroungers” to encompass tax avoiders as much as benefit cheats. They generally consider the word “banker” to be swearing btw. I would be surprised if their view was not widespread among the population at large.

“The profits they made in the UK are still made in the UK. Now, however, they’re not taxed here but in one of those cosy little boltholes provided for such skimming.”

As I pointed out, this is the deliberate intention of much EU corporate law.

One establishment selling right across the Single Martket. Amazon is actually doing what the EU would like them to be doing.

9. Shatterface

Polly Toynbee argues for it universally this morning. I have sympathy, but until now have always thought it a step too far.

‘A step too far’, like putting a video camera in everyone’s toilet is ‘a step too far’, or the chemical castration of everyone who works with a vulnerable group is ‘a step too far’.

10. Evan Price

To answer the question – ‘No.’

The problem that is ignored by Richard Murphy is that EU law allows the esatablishment of a company in one jurisdiction and then allows that company to trade throughout the EU as a single market. The result is that companies that do not need specific things from a particular jurisdiction within the EU (and, to be frank that applies to anything involving the internet) then look for the place where the lowest tax rates apply – and so we have the Dutch, the Irish solution to corporate taxation and the establishment of companies in Luxembourg.

Has Amazon done anything unacceptable? They exploit the single market – which most of us think is a ‘good thing’ as the alternatives are worse. Do we want the EU to establish our corporate tax rates – the problem with that is that we would end up with a single tax jurisdiction throughout the EU? I doubt that you would get that past any of the electorates that make up the EU at the moment.

The problem for those that argue that there is a difference between ‘good’ and ‘acceptable’ tax avoidance – ISA’s, claiming a personal allowance, claiming legitimate expenses against costs, Enterprise Investment Schemes, charitable giving etc – and ‘bad’ and ‘unacceptable’ tax avoidance is that it is very difficult to establish where the line lies – and that is what the lawyers and accountants exploit for the very rich.

So, if you look at the use made of charitable giving by the very rich, you discover that the cost of a million pound donation to a charity (which has been given increasing definition by the hapless and rather ill informed and ill educated Charity Commission and its current board) is about half of that sum – the charity is able to reclaim a about a fifth of that million, but the very rich individual is then able to reduce their tax bill by the difference – which may reduce the tax bill considerably. That is before we get to the more imaginative schemes that eliminate some forms of tax completely – with charities being intermediaries in transactions and the like.

My view is that it is the very complexity of the tax system that is at fault – simplification would have its rewards – but there would be problems and costs too. We have to accept that there will be unfairness at the margins – as we cannot establish a tax system that is entirely fair – if we assume that there is merit in progressive taxation – and most people do.

As with all these things, the problem is that the issues are far more difficult that the proponents of simple solutions will have you believe – and I have very real doubts about the accuracy of the statements to the effect that ‘all of our problems would be solved if we actually collected the tax that we should be collecting”. It’s a wonderful soundbite – it’s very difficult to explain simply why it doesn’t work in practice – and by the time it has been explained, the viewers have simply zoned out.

11. Paul Newman

Interesting to be reminded of why it was Conservatives once liked the EU and why left wingers always end up closing the border , sadly not to keep people out , to keep them in.

Tim Worstall @8:

“As I pointed out, this is the deliberate intention of much EU corporate law.”

And as I pointed out, just because something is lawful doesn’t mean that it isn’t ethically suspect.

13. Mark Redwood

The reality is to live in the society we do we have to pay tax. We may not like paying tax, but the alternatives are worse. Me I don’t mind paying tax.

People on top rates of pay seem to resent paying tax. They seem to believe that they receive no or little return on their “investment.” However the reality is that their earning potential would not be possible without a system of taxation that pays for the things that capitalist enterprises would not consider profitable. Take Amazon they simply would not have a worthwhile business without a properly funded transport system. Boots relocated their main offices to reduce their tax bill, and yet they still rely on publicly funded facilities to function – how many of their staff are in receipt of tax credits for example?

Channel 4 had an interesting fictitious example that it is possible to earn £10 million and yet pay zero tax. Now in my book if you aren’t paying any tax then your income must be less than £8000 per year. Any 6 figure salaried people out there scraping by on £8000? No thought not.

This government have gone on about fairness. It is possible to earn a 6 figure sum and yet pay less tax as a proportion of your income than someone on a median wage. Is that fair?

@ Murphy,

just cut to the chase and say what you actually want, that every penny we earn should be taken by the government and then they can hand out pocket money, provided we spend it on things that they approve of.

@ the Judge,

“Which you consent to when you vote and agree to abide by the laws passed by the succeeding Parliament. ”

What consent? I didn’t give my consent. I didn’t consent to taxes any more than bombing the shit out of Iraq, and the state doesn’t require consent.

“The reality is to live in the society we do we have to pay tax. ”

Society doesn’t tax us. The state taxes us.

By the way Murphy, my friend brought me back some tobacco from Germany. It was half the cost than here.

Sorry.

16. Paul Newman

I wonder if the process of engaging in this sort of thing is counter productive . The truth is that it will never be possible to collect all the tax that”in someone`s opinion is ethically due ( but not actually due ), and have any sort of free and international capitalism. Marginal and incremental changes may be made but they will have an effect on the system and the actual amount that arrives at the exchequer will not alter much from the curve it was on before. There is no answer here and everyone who is actually charged with running the country knows it.

Thought experiment – We elect Richard Murphy to run the country as a benign dictator just until we are sorted ( see Italy / Greece etc.). Would he really base his projections for revenue on the fairy tales he is selling here ( the ones about about billions lost down the back of the sofa )? Hardly, he may sell this crap for a living but he is not that stupid .

Murphy talks about a tipping point as if there has ever been any political problem with soaking anyone or anything with a lot of money , everyone is in favour of “Not me ” paying. Course not , poll after poll shows how popular beggar my corporate neighbour policies are not to say “the rich”
Furthermore the people who supposedly have ethical concerns are mostly in the Public sector with a clear vested interest in getting the rest of us to empt our wallets into theirs .

The is no new ethical dawn

In short this is not a real discussion it is a rhetorical gambit of the sort they have been throwing around in Greece and it is designed to deflect attention away form the fact that New Labour built up a vast structural deficit catastrophically misjudging the Economic cycle and governing ion the basis of relentless inflation free debt funded growth in perpetuity .

Simple as that.

It is entirely possible that the popular response to this will be to lose confidence in capitalism with all its inequities and spikes, and it is almost inevitable that the left will start dusting of Benn`s white heat of technology and their five year regional tractor plans as well . I see it all the time

Those of us who want the future to be prosperous and free have to recognise this rhetoric for the cheap conjurors trick it is.

There is no secret treasure trove of evaded tax , the only future is a new fiscal reality and trying to make the painful restructuring as painless as it can be.

“The consequence of redistribution by taxation is, by comparison, pernicious to both. For the donor, the deduction feels like theft…”

Only for Hayekians, Friedmanites and Randroids with an inflated sense of entitlement…

“…whilst for the recipient the payment becomes an inalienable right.”

…a sense of entitlement which they condemn in those they think to be beneath them.

So if your neighbour broke down your door and took half of the money in your wallet would that feel like theft? Why would it be any different if it were done by a hired thug on behalf of all the neighbours in your street?

Most minarchists accept the need for taxation to make a small state operate but believe that tax should be levied on consumption, where there is, at least, a voluntary element, not on income, which is entirely coercive.

And if you don’t think benefits are now viewed, by some, as an inalienable right, I refer you to some of Sue Marsh’s contributions on here.

@ Splat

The issue is whether someone should pay 40% if they earn above the threshold, rather than avoiding it by setting up shell companies that exist simply to reduce tax paid.

I would point you to Evan Price’s excellent contribution @10.

Why is a shell company unacceptable but an ISA is OK? They are the same rules set by the same entity.

Why would we voluntarily offer our neighbours’ enforcer more than he demands?

I regard tax as a social responsibility – which is why I never exploited tax loopholes when I was self-employed.

So you were effectively making a voluntary donation for the common good over and above what was demanded. Admirable indeed and I’m sure everyone reading respects your altruism.

But, given that the state already takes about half of GDP, wouldn’t have been better avoiding the tax and donating the resultant income somewhere you, yourself, believed it would do the most good rather than relying on the state to spend it where it decided.

On handouts to India, biscuits for civil servants, or whatever.

Given that it’s the state that issues money in the first place, and by collecting taxes and maintaining the integrity of said money actually gives said money it’s value and worth, I fail to see why all anti-staters cry out when it farms some of it back with taxes.

19. flyingrodent

Should the wealthy and the super-wealthy get to decide how much tax they feel like paying, by taking advantage of mechanisms and expensive expertise that aren’t available to the rest of us?

I’d say No and change the tax code to include some bloodcurdling sanctions for anyone caught taking advantage of scams while everybody else has to cough up, like it or not.

It seems to me that you can do one of two things here – either make this kind of financial jiggery-pokery available for everyone, so that we can all cheat like crooks, or you lock down taxation so that everyone pays their fair share. There’s an added benefit in that this whole “fairness for everybody” thing goes down a storm with the public, too.

Of course, to get everyone paying their fair share, you’d need a series of Chancellors who aren’t committed to vastly increasing the wealth of one small section of society in the deranged belief that this will somehow greatly benefit everyone, and non-idiotic Chancellors have been thin on the ground for decades.

“Given that it’s the state that issues money in the first place”

The state maintains tight control on the issuance of currency for its own convenience, not ours. Among other things it makes tax collection easier, and allows it to inflate away its debt and our savings. (Or ‘maintain its integrity’ if you prefer.)

Me, I’d be quite happy if the Free Banking crowd got their way and the state was relieved of this onerous burden of being the source of all, er, wealth.

21. Planeshift

“a contract that is freely entered into”

A chinese kid freely entered into a contract to sell his kidney so he could buy an Iphone and Ipad.

@RichardT – The capitalist state, as well as having all the big guns, currently serves the interests of the capitalist class – ie large bank and business owners. It’s the main structural reason why wealth (which is mainly in the hands of capitalists) allows you to greatly avoid taxation. Quite why you expect private banks to take on the extra responsibility and risk of maintaining currencies when they’ve already had the state socialise their losses and got the working poor to pay for their mistakes is beyond me.

@12: “And as I pointed out, just because something is lawful doesn’t mean that it isn’t ethically suspect.”

Yes, but then what is ethically suspect is not Amazon, it is your country’s membership in the EU. Because the very point and purpose of the EU is this single market. If you don’t want to be there, if you don’t want to have the single market, then you should withdraw as soon as you can. Then you could also go after those tax avoiders who go and buy wine in France or have a holiday in Spain, and tax whatever else.

@19: “I’d say No and change the tax code to include some bloodcurdling sanctions for anyone caught taking advantage of scams while everybody else has to cough up, like it or not.”

Isn’t tax evasion already a crime in Britain, as well as in other countries? The bloodcurdling sanctions including heavy fines and jail sentences.

Or is that you want to throw to jail people who do things you don’t *like*, not just things that are illegal? That is a very awful idea and would be against every human rights principle one can think of. Naturally, I know there are people who think that only *they* have human rights, and others don’t. Myself, I think that the a principle of law is better.

25. flyingrodent

Or is that you want to throw to jail people who do things you don’t *like* etc. and so on.

Oh, you should consider yourself lucky. On another day, I’d be calling for them to be forced to work in a rice paddy for a bowl of rice a day. At riflepoint.

@ Planeshift

A chinese kid freely entered into a contract to sell his kidney so he could buy an Iphone and Ipad.

Of course, children cannot legitimately enter into contracts.

That was the point you were making, wasn’t it?

The richer and larger the company, the more complex and inventive the avoidance strategy. Companies should pay tax where they have offices, and where they sell. None of this being ‘based abroad’ stuff.

28. Planeshift

“That was the point you were making, wasn’t it?”

No, but it’s an interesting diversion. At what age do you think a child should be able to freely enter a contract? 12? 15? 18? Or does it depend on what the contract is? What about adults with learning disabilities? Or just thick people? Should we allow a market to develop for people to sell their organs, but only allow people with an IQ above a certain level to participate|?

What do we do for those we deem incapable of entering a contract?

29. flyingrodent

Isn’t it fascinating how, the very second that someone suggests that the wealthy should pay their taxes in the same way that we do (i.e. without buying themselves exemptions from paying all of their taxes, also known as “the way almost everyone else has to”) the conversation turns to human rights and state tyranny and so on.

Every time, isn’t it? We say “Hey rich people, why don’t you just pay the full sum you’re owe without exploiting your privilege to gain advantages that are unavailable to everyone else?”, then suddenly, you’d think we lived in the Soviet fucking Union or something.

Isn’t that strange. You’d almost think that the entire discourse was so popular specifically because it helps the wealthy to dodge paying like everyone else has to, rather than being some bedrock democratic principle.

flyingrodent: “the conversation turns to human rights and state tyranny and so on. ”

Yep. Because we still remember it was dangerous to wear eye glasses under Pol Pot. We remember how it was only the rich Jews that were leeching off ordinary citizens, and therefore the new laws were justified – or not laws because they were not necessary, it was enough to do the right thing and kill the vermin. We remember how your rhetoric was always the way to start it. We know that state tyranny is a bad thing, even if you think you start it for good reasons.

18. Cylux

” Given that it’s the state that issues money in the first place, and by collecting taxes and maintaining the integrity of said money actually gives said money it’s value and worth, I fail to see why all anti-staters cry out when it farms some of it back with taxes. ”

Money having value because we can discharge tax liabilities with it is Chartalism and is nonsense.

The Somali shilling still circulates and has value even though there is no functioning central government and the institution that issued the money no longer exists.
http://www.economist.com/node/21551492

There are no taxes in the United Arab Emirates and the dirham has value.

The Gulf rupee was a liability of the Reserve Bank of India. However, it only circulated outside India and had no tax liability discharging function. The Gulf rupee still had value and worth.
http://en.wikipedia.org/wiki/Gulf_rupee

Money with the pictures of the Queen have value completely divorced from taxation. Pieces of paper with the Queen’s head have worth through their network effects as useful in medium of exchange transactions. Legal tender laws are not even a requirement to give money value and worth. There are no legal tender laws in Scotland covering banknotes and notes still have value and worth. Quite simply, we accept that money has worth for the straightforward reason that we know that everyone else accepts that it has value and worth. It is that simple.

@ 19. flyingrodent

Im sorry but you state that tax avoidance is only open to the rich because they are the only ones who can afford the advice. Rubbish.

Pick up a tax guide. Tolley’s for instance. Read using the small round things in your head and apply.

Company registration costs about £99, trusts are a little more but rather irrelevant after 2006. So whats stopping you? ignorance of the structures is no defence to “not being able to afford them” because you can. 99% of people in the UK can afford them.

@27: “Companies should pay tax where they have offices, and where they sell.”

Right. Now, Amazon sells stuff to the UK and because it surely has more than £70 000 worth of UK sales annually, it also pays VAT for that in the UK. Are you saying you did not know this?
http://ec.europa.eu/taxation_customs/resources/documents/taxation/vat/traders/vat_community/vat_in_ec_annexi.pdf

Then the company has offices in Luxembourg and pays corporate taxes there. That by the way has implications for better consumer protection:
http://www.guardian.co.uk/money/2010/may/01/amazon-luxembourg-improved-consumer-rights

@ 28 Planeshift

Unless you have any better ideas let’s stick to the current laws.

Adult at 18.

Can enter contract if compos mentis (of sound mind, memory, and understanding; in law, competent to go to trial).

For those judged not of sound mind we appoint someone with power of attorney.

Then let’s go beyond the current laws.

Because if, for whatever reason, I want to donate or sell flying rodent one of my kidneys, what business is it of yours or of the state?

35. Evan Price

Rentergirl writes – “The richer and larger the company, the more complex and inventive the avoidance strategy. Companies should pay tax where they have offices, and where they sell. None of this being ‘based abroad’ stuff.”

The problem with this contribution is that it ignores, for the purposes of the EU, the single market.

The reality is that we are living in a globalised world – and people and companies will see where they can establish themselves in order to reduce the amount they pay themselves in tax. Regardless of our views on the topic, without some terrible conflagration or calamity, the chances of that genie being put back into the bottle is pretty close to zero. The politicians don’t want it, the people want to be able to buy their electronic goods at reducing prices … that may change – indeed after WW1 (which is probably when we were closest to having a globalised economy), things did change – but I, for one, do not want there to be anything approximating to that calamity ever again!

Contrary to Richard Murphy’s thesis, my view is that tax is not about morality – it is about what lawyers would call ‘black-letter’ law. If the tax is due, it is payable and should be and usually is paid; and if you can use the complexity in the system to avoid paying some tax, then the richer you are, the more likely it will be worthwhile finding the means to do so. It is the complexity that enables most avoidance.

I am a barrister and have represented clients who attempt to find the line between what is essentially avoidance – what my clients and their accountants would prefer to call ‘tax compliance’ – and what is not lawful. That they do so is a matter for them and where they succeed, the Revenue have paid costs; where they have failed, they have paid the Revenue’s costs, penalties and interest. If they think that the risks are worth taking, they will take them. I would not take the risks that some of them are prepared to take – but that is me – I am a conservative person (as well as a Conservative one!). Would it be right to prosecute someone who is, honestly, trying to find the line? Murphy would probably say yes – but I fear that he would be wating in vain for a prosecution let alone a conviction – especially where the taxpayer (often with insurance from the lawyer/accountant who sold them the tax saving scheme in the first place) has accepted the judgment (even after all the appeals have ended) and paid the tax, the penalties, the interest and the costs.

In a globalised world, the method by which you penalise systems that are unfairly generous is by setting tarrifs and negotiating or establishing rules (law) in relation to the tax that a company can legitimately claim against income in your jursidcition. There is little doubt that we are (in the UK) sometimes too generous in its dealings with others and with companies … but even that is a judgment call that is essentially irrelevant to the issue of whether a tax is payable or not.

36. flyingrodent

We remember how your rhetoric was always the way to start it.

Ayup, one too many suggestions on these here internet pages that maybe, just maybe, everyone should pay what they owe and not just low-to-moderate earners, and it’ll be heads on sticks, then ethnic minorities and communists to the death camps. Oh, wait.

Pick up a tax guide.

Will it tell me how to recover all the tax that’s removed from my pay before I ever see it? Probably not, I imagine. So what will it do? Will it lower my council tax or lower the rate of VAT that I pay for goods and services?

Really, seriously, are you trying to suggest that there’s any resemblance at all between the options available for the super-wealthy and those for the man in the street? If so, you really have to ask why whizzkid accountants charge so very much for their services.

37. Planeshift

” I want to donate or sell flying rodent one of my kidneys, what business is it of yours or of the state”

Well some might say that if you want to sell one of your kidneys simply so you can afford an Ipad then you probably aren’t compos mentis.

But it’s an extreme example. Perhaps the better one is cigarettes. Clearly adults should be able to buy them if they choose, but it appears you agree that children should not. What then do we do about advertising? How do we judge when it is targeted at kids?

There’s also a general point about the fact people frequently misjudge risk (one reason why insurence markets for some things don’t operate efficiently). People smoke at 18 because they largely assume they can quit before they get the consequences of doing so. Most terminally ill smokers subsequently regret ever starting. To what extent do you have freely entered contracts for substances that are addictive, and where the risks are misjudged. We don’t let kids smoke, or sell their kidneys, because we don’t judge them to be capable of freely entering a contract. But we then accept adult smokers are.

You make the point about tax not being a free contract, but contracts rarely are based on equal exchange. There is always information asymmetry, misjudgement of risk, free riders, externalities, or simply the fact most people don’t read the small print. Its why we have regulations and provision of public goods funded through taxation – including services for children. And this model has a proven track record over the libertarian alternative of no taxation and no services, which simply creates power vaccums filled by far worse. As any sane person would freely choose to live in a european country of significant levels of taxation over places with failed and non-existent stats with no taxation (except to the local militia/warlord), I think we can safely describe taxation as a fairly free contract.

Planeshift,

No, but it’s an interesting diversion. At what age do you think a child should be able to freely enter a contract? 12? 15? 18? Or does it depend on what the contract is? What about adults with learning disabilities? Or just thick people? Should we allow a market to develop for people to sell their organs, but only allow people with an IQ above a certain level to participate|?

What do we do for those we deem incapable of entering a contract?

What do we do for people who enter into contracts with people who lack capacity? We hope they learn a lesson about entering into such contracts; in the general case the contract will be voidable by the minor but he will probably be forced to return the iPad, and Dr. Evil won’t get the child’s kidney.

Why does this seem to have devolved into a binary debate between ‘punish legal behaviour’ and ‘let unethical behaviour remain legal’? Laws can be changed. Currently legal tricks can be banned.

@ 17 Pagar.

Why is a shell company unacceptable but an ISA is OK? They are the same rules set by the same entity.

Well personally, I would scrap ISA’s. Frankly, I believe that it’s a ridiculous situation where daft tax avoidance devices are created. Like Evan @10, I also reckon that we’d be much better off if we had a simpler tax system for all, with fewer get outs. It’s called fairness. I also believe that, if daft tax avoidance systems were scrapped, then most people would end up being able to pay a lower amount of tax overall while keeping the services they value. There is a huge industry created by tax avoidance that supposedly benefits our economy. Close it down, it’s as pointless as many civil service and local government jobs – not the ones filled by working class men and women who frequently do socially usefull things, I’m talking about the jobs, frequently well paid, sometimes to ltd companies, filled by the ciabatta and organic blueberry munching middle class type -it would definately create a system where accountants would be made to use their considerable brainpower to do something useful.

On handouts to India, biscuits for civil servants, or whatever.

Ahhh, you assume. Personally I wouldn’t give any money in aid to India, or any other country for that matter with the exception of immediate disaster relief in the wake of tsunami or earthquake etc. It is my sincere belief that most foreign aid acts to impoverish countries in the global south, fostering corruption and allowing politicians in those countries to avoid their responsabilities, hence the reason why in so many aid recipient countries, elections a fought over ridiculous nationalistic, communitarian or sectarian issues, rather than over real issues such as food, healthcare, clean water and general living standards. I would rather remove trade barriers and tariffs, allowing other countries to trade with EU states in an open and honest manner.

As for biscuits for civil servants, in my world they’d bloody well buy their own – that’s what wages are for.

Maybe in some ways were not so different. The biggest differences are probably in our belief about what the public here would like to see – and that can be easily remedied by a little thing called elections.

Hold on a minute am I missing something here? If I am a higher rate taxpayer then I pay 40% on my higher earnings, which coupled with the lower rate and the personal allowance means I end up paying approx 30% tax on income. If I take it through my company then the company will pay 21-24% tax on its profits and deduct between 10-32% on any dividend it pays to me. So I end up paying approx 30% tax? Errr wheres the avoidance?

Well if its only in terms of me shifting money abroad to the Cayman Islands well I can understand peoples moral aggravation. So really what this boils down to is that a number of contributors would like to introduce country by country reporting? Contrary to some I think Amazon would struggle with this because although it is based in the lowest tax region of the EU in order to do business we would probably find it ended up paying alot more tax in each jurisdiction if it had to be honest about where it earnt those profits, not simply shifting them via transfer pricing arrangements?

@38: “Why does this seem to have devolved into a binary debate between ‘punish legal behaviour’ and ‘let unethical behaviour remain legal’?”

Because when you make up more and more rules about what type of behaviour is ethical and what is not, you typically create very complex laws. That means probably more loopholes, not fewer, but they are more tricky to utilize and a good paid tax consultant becomes even more valuable.

If I told you “you want to make British law similar to the USA”, you’d be upset, right? However, this is the very problem with U.S. tax code: complexity and loopholes, all created with the very purpose of punishing unethical behaviour while allowing ethical.

43. flyingrodent

I suppose we could just get HMRC to send out a form with “You owe us forty percent, get it sent in immediately or Else” written on the top.

They could put a little text box underneath marked “Why I Deserve Special Treatment”, and our present tax avoiders could fill it with wibble about all the Good Works they do for charity, sub-Randroid drivel about the awesome responsibility of being a producer and the tyranny of civil governance and so forth.

They could then post the form back to HMRC, where civil servants would make them into paper aeroplanes or set them on fire, before sending the baillifs round to extract the full amount that everybody else in the nation pays, or Else.

Or, we could make payment of taxes largely optional for everyone, but that might present fresh difficulties like degraded roads, illiterate workforces and businesses being robbed and torched for lack of public order. Take your pick.

it was enough to do the right thing and kill the vermin

Wow – it’s almost like online libertarians are the coporate world’s useful idiots… scampering around the internet after anyone who expects their masters to pay tax, and launching accustations of, erm, genocide.

scampering around the internet after anyone who expects their masters to pay tax, and launching accustations of, erm, genocide.

Are you not able to believe that anyone could hold opinions differing from yours unless they have some sort of “masters”?

It wasn’t any libertarian who called for “bloodcurling sanctions” above.

Hey, tax evasion is already a crime. A lot of people seem to be proposing arbitrary sanctions on behaviour which they don’t like but is legal. That is, actually, a bit scary. Of course we could say that the threats of bloodcurling sanctions for legal-but-somehow-still-unethical behaviour are just uselessly feeble so that it’s the wind that is moving the lips, but why shouldn’t those of us who prefer the rule of law be defending it even on a useless comment section of a raving blog?

@Richard W, the somalia article you link clearly states that not only is it an exception to the rule, but that the value assigned to the old currency is at best small change, with forgaries largely being acceptable and with most large transactions done using American dollars. So it might have ‘value’, but it’s not something I’d keep under the bed. Perhaps you feel different.
As for the Indian currency, it’s value is still linked to the state of India, which most certainly does collect taxes and can thus provide a guarantee that the currency is worth more than Bison Dollars.

@ Planeshift

You make the point about tax not being a free contract, but contracts rarely are based on equal exchange. There is always information asymmetry, misjudgement of risk, free riders, externalities, or simply the fact most people don’t read the small print.

At the point at which any voluntary contract is agreed, both sides believe that they are going to benefit from the agreement. It would not happen otherwise.

You might argue that the man, finding me about to die from dehydration in the Gobi desert, who offers me a glass of water in exchange for my life savings is taking advantage of a situation of unequal exchange but, at the point at which I buy the water, I believe it is to my benefit.

And, when I die the following day, at least I will have the consolation of knowing that I have avoided a contract I did not enter into- the payment of inheritance tax. :)

Incidentally, the Chinese kid who sold his kidney for the price of an i pad is a victim of the black market created by the prohibition of living kidney donation for profit- he couldn’t sell it at the market rate, which would have been much higher.

@ Splat

Personally I wouldn’t give any money in aid to India……As for biscuits for civil servants, in my world they’d bloody well buy their own

Good. So you can now see the sense of avoiding whatever tax you can and spending the money you don’t pay on something you believe to be useful.

@ 47 Pagar.

Good. So you can now see the sense of avoiding whatever tax you can and spending the money you don’t pay on something you believe to be useful.

Uh no Pagar. That leap of logic is a recipe for continuing the current setup of waste, inefficiency and stupidity. That kind of logic will simply ensure that a small number of [frequently less than honest] people who are able to play smartarsed games with overpaid accountants get to maintain a privileged position while the rest are bled dry. The rational option here is to work for changes in the system that ensure it becomes fairer for all, rather than just for people like Ken Livingstone at is the case at the present.

Now I’m a rather boring person and I consider drains in streets to be useful. Most people don’t really notice them – unless they happen to get their shoe caught in a pooly maintained one.Drains are something that most people don’t find sexy and would rather not think about. Question – if I were to give any tax monies I could save through avoidance strategies to repair drains in the town where I live, how far would my money go? The cost of maintaining drains is way beyond the pocket of most people. That is what councils are for, which brings us back to elections, and why I believe that it is so important to ensure that we start to demand that candidates for political office have a set of ethics. I should clarify at this point. I do not regard who adults choose to sleep with as being issues of ethics, nor do I regard the nature of substances that adults choose to ingest as ethical issues – unless of course they have previously campaigned on moral majority or anti-drugs platforms. Then however, the charge is of hypocrisy, and hypocrisy alone – and I always take a stand against hypocrisy whether on the left or the right.

49. flyingrodent

@ PJT That is, actually, a bit scary.

Although not, perhaps, even remotely equivalent to the industrial murder of millions of ethnic minorities, prisoners of war, political prisoners, enemy civilians and homosexuals, amongst others, which was the comparison that you were making.

why shouldn’t those of us who prefer the rule of law be defending it

He’ll correct me if I’m wrong, but I imagine that the Rodent was arguing for a strengthening of the law, rather than the wholesale abandonment of it, as you’re imagining.

And while he is given to a certain amount of hyperbole, I’d guess that the “bloodcurdling sanctions” he had in mind fall some way short of the holocaust. But again, I’m happy to be corrected.

Are you not able to believe that anyone could hold opinions differing from yours unless they have some sort of “masters”?

Point taken – I’m happy to accept that you’re idioting for fun rather than profit.

Although not, perhaps, even remotely equivalent to the industrial murder of millions

Summary “justice” not based on law, kangaroo courts, is in that family.

@ Larry,

just to understand the point you’re making; you’re saying it’s idiotic to oppose the idea that people who comply with the law as it stands should be punished anyway, because Richard Murphy thinks its unethical?

One of the reasons to object to increasing the largest tax code in the world, is that ordinary people are already paying very high taxes, and the government still can’t live within its means, it’s spending more than £2 billion per week more than it raises. That is the central issue. Suggesting that, if only we could grab more loot from the few rich people, everything would be fine, is nonsense. The government is spending too much money.

53. flyingrodent

Summary “justice” not based on law, kangaroo courts, is in that family.

Here’s an iron rule of argumentation, bud – if you find yoursellf drawing a direct comparison between “high earners paying their taxes in full like everyone else and facing sanctions if they don’t” and the Holocaust, you have made a fundamental error in your reasoning.

Is it necessary to explain why this comparison is both hilariously moronic and wildly offensive? Please tell me that it isn’t.

flyingrodent:
Here’s an iron rule of argumentation, bud – if you find yoursellf drawing a direct comparison…

Hey, it wasn’t me that brought silly hyperboles into this discussion. Look who wrote in comment 25:

Oh, you should consider yourself lucky. On another day, I’d be calling for them to be forced to work in a rice paddy for a bowl of rice a day. At riflepoint.

Of course, this is a diversion you wanted, sorry for falling in that. I might ask you: what do you say to the actual argument regarding Amazon? Do you want Britain to withdraw from the EU and common market, or do you accept that Amazon is operating in the common market precisely in the way it was intended? This is not tax evasion, this is not tax avoidance, it is the very design of EU.

You may argue for changes in tax law, but then you should remember that despite good intentions, the unintended consequences may often be very, very counterproductive.

55. flyingrodent

it wasn’t me that brought silly hyperboles into this discussion.

Well, either a) I was joking because of the OMG Soviets tone of a debate on high earners paying all their taxes, the same as everyone else or b) I really am just choking with enthusiasm for herding the wealthy into rice paddies at riflepoint.

Now, had I explicitly and earnestly compared high earners not paying their full taxes to, say, the Rwandan genocide, you might have a point. Which you don’t.

So, you are allowed to jokingly throw in hyperboles, and anyone who disagrees with you should not. Let’s just agree that this is how you see it.

I still would like to have an actual answer without hyperboles, though, so please excuse a couple of copy-pasted questions:

What do you say to the actual argument regarding Amazon? Do you want Britain to withdraw from the EU and common market, or do you accept that Amazon is operating in the common market precisely in the way it was intended?

It is the very design of EU. For me, that part I’m happy with.

57. man on Clapham Omnibus

@33 No actually the consumer pays the VAT where the VAT is chargable. This is totally a red herring. These companies use a FM model to claim all the worth in the business is in the management and not in the product.The way round this is to charge the juridictional rate on where the product or service is made or applied. So in the case of say Cadbury the corporation tax will be on the volume of chocs Produced in Britain. They can argue the toss as to how much they pay for management with the Swiss.

I suppose we could just get HMRC to send out a form with “You owe us forty percent, get it sent in immediately or Else” written on the top.

The only people who think tax law is or can be simple and straightforward are people who haven’t got the first idea about it.

As in “40% of what?”

“And now another backlash to Osborne’s hapless budget, which has resulted in his admission that tax avoidance is vastly bigger than HMRC have ever previously advised”
Murphy is living in his own separate universe: Osborne said that a few, very few, individuals were avoiding tax because they had trading losses or tax-deductible expenses or made donations to charities [and that he was worried that some foreign charities didn’t put the money to good use]. This does not do anything to support Murphy’s wild claims about the so-called “Tax Gap”.
Yes, there are loopholes in tax legislation most of them introduced by incompetent drafting while Gordon Brown doubled the size of tax legislation in ten years and Osborne has made only a little progress in sorting them out, but for Richard Murphy who made a living of tax avoidance to say that it is unacceptable for Amazon to obey EU law is beyond a joke.

@ 43 flyingrodent and 58 Tim J
“I suppose we could just get HMRC to send out a form …”
I got my form from HMRC this week – the envelope did not include the form that I actually needed to fill in, just the one that detailed all the bits that I received with the appropriate tax already deducted.
So, sorry – No we couldn’t. They just can’t cope with the current tax system. We need to scrap it and have a simple system that levies tax on all income (including capital gains) in excess of that needed to support the household.

@57: consumers don’t pay VAT (except for imports from outside EU), Amazon pays it to the taxman. The tax *incidence* is on consumers, of course, because VAT pushes the prices up. But again, this is precisely the way VAT as a sales tax is designed to work. So it is a bit of a mystery what rentergirl @27 actually wants regarding taxing sales.


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