Tax avoidance and evasion
Jim asked me to start a thread on the subject of tax avoidance to permit a debate and I am happy to oblige.
A judge once ruled that nobody should be under an obligation to so arrange his financial affairs (the defendant in the case was a man) so as to allow the Inland Revenue to take the maximum possible amount of money from him. I entirely agree with this.
Equally, when a person or company is trying to minimise their tax liability using ever more intricate devices, there comes a point where their accounts bears so little relationship to reality as to amount to a fraud on other taxpayers.
If a company is employing thousands of people in country A, earning billions of pounds in revenue in country A, shipping goods from warehouses in country A to customers in country A, and yet manages to declare the vast majority of the profits for this activity in country B for tax purposes, then something has gone badly wrong.
Of course, situations like this are almost always at least partly the responsibility of the tax authorities for allowing it - either because the tax code is ridiculously complicated or because they have been asleep at the wheel in not checking whether the returns they have been given are remotely plausible.
Evading tax by lying to the authorities is illegal: minimising your tax liability through legal means which making a full disclosure of the facts is always going to happen. It is the responsibility of HMRC to ensure we have a tax code in which the scope for legal avoidance of tax stops well short of the point where your accounts bear as much resemblance to the real world as Alice in Wonderland.
A judge once ruled that nobody should be under an obligation to so arrange his financial affairs (the defendant in the case was a man) so as to allow the Inland Revenue to take the maximum possible amount of money from him. I entirely agree with this.
Equally, when a person or company is trying to minimise their tax liability using ever more intricate devices, there comes a point where their accounts bears so little relationship to reality as to amount to a fraud on other taxpayers.
If a company is employing thousands of people in country A, earning billions of pounds in revenue in country A, shipping goods from warehouses in country A to customers in country A, and yet manages to declare the vast majority of the profits for this activity in country B for tax purposes, then something has gone badly wrong.
Of course, situations like this are almost always at least partly the responsibility of the tax authorities for allowing it - either because the tax code is ridiculously complicated or because they have been asleep at the wheel in not checking whether the returns they have been given are remotely plausible.
Evading tax by lying to the authorities is illegal: minimising your tax liability through legal means which making a full disclosure of the facts is always going to happen. It is the responsibility of HMRC to ensure we have a tax code in which the scope for legal avoidance of tax stops well short of the point where your accounts bear as much resemblance to the real world as Alice in Wonderland.
Comments
So tax avoidance we all know its legal, but is it moral? - the answer here is Yes.
You may see press reports that "Aggressive tax avoidance is costing the treasury £X per year." For this statement to hold any merit at all then you must first assume that all money we as companies and individuals earn from our own work and production belongs to the government, and its only thanks to the generosity of the government we are allowed to keep some of it. Of course that is a ludicrous suggestion, unless you happen to be Marx or Hitler.
Firms and individuals who engage in tax avoidance are simply using legal methods to protect that which is rightfully their own property from government. To pay tax in another EU member state is well within the rights of any company. If anything this should send a clear message to government that the current rate of cooperation tax in the UK is far too high, if they want to take more, then reduce the rate, make it not worth my while to pay abroad.
By forcing company's to pay a higher amount, yet government can not say on what it will be spent is unjust, and runs the risk of the company no longer trading in the UK, Thus costing jobs and increasing the treasury benefit payout. This is especially true in the case of Starbucks, they provide much needed employment to unskilled workers.
(at this point i am reminded of the old joke however - what do you say to a working person with a degree in sociology? - "Big Mac and fries please" - sorry i digress)
But we all need to pay our fair share to clear the debt left by the current and previous governments right? - Wrong.
The only moral thing that the government could do on the outstanding National debt is all out default.
What!!!! - "But Jim, isn't that criminal and unjust?" - the answer is no.
Lets look at debt. Lets say a creditor (Mr Smith) lends a debtor (me) some money for something (£1,000 to buy an old car for work) Also for simplicity mr smith is legally allowed to make loans and is not a loan shark. Mr Smith looks at my history and employment status, weighs up the risk he is willing to take and offers me a 10% loan, so we agree that in 1 year I will repay Mr Smith £1,100. I have made this deal, intending to pay from my own earnings, on my own honour, and I understand if I fail to pay the loan then I have stolen from Mr Smith and should face the consequences.
I can not decide next year to bang on the door of 11 of the houses up the road and force them to pay £100 each, for their "fair share" of my loan. Those people did not ask for the loan, did not take the loan, did not spend the loan so have no moral obligation to pay the loan.
With government debt the politicians dont borrow with the intention to repay from their own funds, but with the funds of the taxpayer, and on the tax payers honour. Both the politicans and the creditors know this at the time the loan is made. The tax payer has no say in how much is borrowed or on what it is spent (if they did then they would have spent it on something more worthwhile than imported benefits claimants to buy votes).
We can see from the above that it is much "fairer" to default on the creditors who took the risk, than it is to over tax and inflate the wealth from the tax payer who had no option.
The government seems to have lost the plot and somehow moved itself to the position of Master, rather than servant of the tax payer. This is not moral at all and they are the least qualified people to tell us what our "fair share" is.
So I hope I have explained why tax avoidance is not only Legal but is Moral and justifiable too. Those people who are insisting that these company's (who provide us with goods, services and employment) should be forced to pay more of their own property (should be robbed) are in fact the ones who need to take a look at their own moral compass.
I know Keynes tried to make it difficult, and in the process demanded that things are managed by Keynesian economists or government, but as we all know, that is fantasy.
So we have ruled out Keynesian economics, we are left with classical, Marxist, and Austrian.
Now I would like to think that Marxist should be ruled out, but If I am wrong, i will explain why, Classical and Austrian though do tend to gel together, and w understand the world and we can predict. Once again economics is really not hard. Just forget this Keynesian rubbish.
I can go into great detail about this and show you exactly why its the case, but here for once I must be thankful to the leader of the opposition.
Red ED " they are cutting too much, too soon and its hurting the economy"
Any real person knows that the easiest way to make a correct financial decision is to listen to the leader of the labour party, hear them out. And then do the exact opposite. (I promise with this policy, you wont go far wrong)