Tackling Avoidance and Evasion: a Primer

Two sleights of hand.

#1 – the Google Defence: “You should pay the taxes that are legally required.” Unpacked, this means merely: “because it’s lawful, we can do it.” Tax avoidance – even in its most egregious forms – is lawful. If it isn’t lawful, it doesn’t work. And the answer is a defence to a different criticism: if I am non-domiciled, even if I have lived in the UK for all my life, I only have to pay tax on that income I choose to spend in the UK. The question isn’t whether that state of affairs is legal. It is. The question is whether it’s right.

And #2 – the Lawmaker Fallacy: if Parliament doesn’t like our avoidance actions it should “change the law.” But this is to ignore the limited scope that our domestic Parliament, bound by a web of international tax treaties and EU law, has unilaterally to improve the law. Particularly in the field of business tax. If Amazon sites its servers outside the UK, the present OECD rules enable it to avoid UK corporation tax. But effecting broad based change to these laws involves the OECD shepherding the G20 countries to agreement in the face of powerful domestic vested interests.Think Global Climate Change Summits with whistles.

These are the fallacies you’ll be fed by those seeking to deflect criticism. You’ll see them deployed over the next few days by players in the #SwissLeaks #SwissStorm. And they are the truth, but they are not the whole truth.

We know this: tax specialists like me, Inspectors working for HMRC, Parliamentarians, Charities pushing the Tax Dodging Bill and the promoters of the FairTaxMark. We see that the law on tax avoidance has fallen behind what the public demands. And we fear the corrosive effects of a loss of public confidence on the functioning of our tax system.

We work with the world we have. The work of the Public Accounts Committee under Margaret Hodge – appreciated as an exercise in consciousness raising rather than forensic scrutiny – has raised to Gas Mark 9 the temperature on tax avoidance. Consumer pressure has pulled tax to the top of what we politely style ‘Corporate Social Responsibility Agenda’. And the Government has played its part, using the Code of Practice on Taxation for Banks and new rules on Public Procurement, to try and ensure there’s a pre-tax cost attached to behaviours that focus only on improving post-tax returns.

I wouldn’t want to understate the power of self-interest to bring about changes in behaviour: it may well be the defining logical proposition of human history. But, in a field so laden with opportunities to obfuscate and dissemble, in a field where minimal compliance carries such obvious rewards, it has its limitations.

So what, ultimately, we’re left with is a naked ethical proposition: pay less than your share and you bear responsibility for society being not as it should. This proposition has been advanced by, for example Christian Aid, in its ‘Tax for the common good’ report. But there’s much work to be done in fleshing it out. In a world where the tax laws distantly trail ethical injunctions, what does a fair share really look like?