The Adam Smith Institute website contains a blog by Wordsmith http://www.adamsmith.org/blog/tax-spending/on-the-morality-of-tax-avoidance headed with the following quotation:
Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands.
— Judge Learned Hand, U. S. Court of Appeals, 1935.
It is followed by a few comments debating the morality of Jimmy Carr’s actions in tax avoidance. The morality argument has been challenged further and some of the responses from the profession are breathtakingly reminiscent of the naive protestations of MPs caught with their hands in the expenses trough:
“Many people arrange their individual or business tax affairs in as efficient a manner as possible within the confines of the law. This is different from tax evasion, which is a deliberate and criminal attempt to avoid paying what is owed. “ ContractorUK
“The tax code in the UK is extremely complicated with Tolley’s Tax handbooks now reputedly running to some 11,500 (!) pages of explanation. Given this degree of complexity it is not that surprising some advisers seek to leverage this to reduce their clients tax bills.” Geoff Cook
“The debate surrounding tax avoidance and morality may be a red herring. The real question every tax adviser should be asking is: are these schemes good advice in the round?” Tax Journal
I particularly like the ContractorUK definition and explanation which seems to me to be a circular argument. The whole point of any tax arrangement/management/planning is to turn taxable income into something non-taxable. ContractorUK seems to be suggesting that while being paid in cash and storing it in a great big sack rather than declaring it is out of the question- everything else is fair game. In most people’s eyes reasonable tax planning would include things such as tax-deductible expenses and no-one would realistically have any objections to this.
The reality of the schemes we are talking about is that so-called “professionals” approach wealthy people with a scheme with contrived arrangements for a fee. Inherent in this is that the fee is such that it only makes sense where large amounts of money are involved – it’s not feasible for the average person or the average business in the UK. There is also often a caveat emptor approach from these so-called professionals – “we think this should work but the risk is with you if HMRC suddenly clamp down on it”. Schemes include creating companies solely for the purpose of moving money through them to be closed again once the transaction is complete. Assets are sold and leased back, or transferred between companies to gain the difference in the percentage tax applicable to each transaction.
Judge Learned Hand may have been right in 1935 when discussing taxation but he is wrong on two counts in 2012. The poor certainly aren’t arranging their affairs – they can’t afford the fees of the “professionals”. Secondly, it isn’t the individual arranging their affairs in this way – it is calculating professionals whose sole job is to come up with new ways of avoiding tax. Geoff Cook’s comments are also laughable. The sole reason we have 11,500 pages of explanation of taxation is to try and close as many loopholes as possible. There are hordes of bright young things poring over the syntax to find a possible project for them to pitch to businesses like some dodgy fly-pitchers on a street corner. At the current rate of abuse we will shortly have 25,000 pages. We are not all in this together. Here is a “profession” lobbying and fighting for the survival of their immoral industry. Doctors must wonder how they are bracketed in the same Professional group as lawyers and these people – how times have changed.
Footnote: Since writing this article Michael Izza, the Chief Executive of the ICAEW (the Governing body for Chartered Accountants) published this article in Economia http://economia.icaew.com/Opinion/August12/Michael-Izza-Tax and set himself apart from the views of many in the profession he represents. There is a great quote that pretty much sums up the way the general public feel
“There is a difference between maximising legitimate tax reliefs and entering into contrived and artificial arrangements that have no commercial purpose but that are claimed to achieve a substantial tax saving.
There should be no place in our profession for people who are involved in designing or maintaining these sorts of aggressive tax avoidance schemes. They must be well aware that what they are doing is beyond the bounds of what is reasonable and responsible tax planning, and that they risk bringing discredit not just on themselves but all members of the profession.”
He has made a courageous stand.