I've been asked what tax avoidance is.
HM Revenue and Customs has suggested that tax avoidance is identified by “transactions or arrangements which have little or no ‘economic' substance or which have tax consequences not commensurate with the change in a taxpayer's (or a group of related taxpayers') economic position.”
That's not bad, but I prefer to compare tax avoidance, which is hard to define, with tax compliance which I find easier to define. 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.
In that case tax avoidance happens whenever someone chooses a course of action which results in the wrong amount of tax being paid, in the wrong place and at the wrong time.
But remember - you can't be avoiding tax if you claim a relief parliament intended - such as paying into an ISA. That's still paying the right amount of tax. So, in that case avoidance always requires that you seek to go round the law - which is literally of course what to avoid something means. And going round the law is what Jimmy Carr's advisers did. It remained legal but not in a million years was it ethical.
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Hi Richard,
While I agree entirely with the thrust of your arguments, I wonder if you would accept that Governments in general, and the UK parliament in particular, have always sought to facilitate major tax avoidance (of the unethical variety). Almost every major country has either created or sustained an “offshore” entity that appears designed to facilitate tax aviodance by the very rich, e.g. Channel Islands, Isle of man, Monaco, Andorra, San Marino, Liechtenstein. All of these could and should have been fully absorbed by the states of which they are a de facto part (much like the avoidance principle you espouse) and the main reason they have been perpetuated appears to be to provide tax havens. In this context, how can David Cameron’s comments about Jimmy Carr be seen as anything other than total hypocrisy. I suspect that the main issue is that Government “approved” tax avoidance was always intended for use by the truly wealthy, the job creators, the overseas asset strippers, etc., not by mere entertainers!
I agree
Read my book Tax Havens: The true story of globalisation for more detail
So what about the situation where a taxpayer has a specific economic objective with a number of different ways of structuring this objective. All of these options evidence commercial and economic reality.
If he choses the one that gives him a greater saving of tax than the other options, is this tax avoidance, tax compliance or tax planning/mitigation?
If the facts match trhe structure that’s fine – quite OK
It’s when they doin;t that it matters
And only a pedant couldn’t understand that
I feel sorry for your clients
In which case you are agreeing that the fiction that Vodafone (Mannesman & Hutchison) and Boots are have avoided tax is without foundation.
No, I havent’t – not for a minute