Avoidance and the intention of Parliament

Posted by Christie Malry on December 10, 2012 at 10:14 pm

Ritchie on tax avoidance:

Tax avoidance is about getting around the law: finding loopholes and abuses never intended by parliament e.g. by routing income through a tax haven.

Parliament has always intended people should have the right to use specific allowances and reliefs in pursuit of social policy. They’re part of tax planning. They’re legitimate, intended for use and have nothing to do with tax avoidance, which is about getting round the law. So of course we can keep those reliefs and tackle tax avoidance because they’re not the same thing.

Parliament intends a few other things:

  • That the UK should comply with European law. That's why Vodafone was settled rather than pursued until the end.
  • That we don't tax a wife as if she were her husband's property, nor do we tax foreign residents on UK-sourced dividend income. That's why neither Sir Philip Green nor Topshop are tax avoiders.
  • That businesses should be able to deduct legitimate costs of doing business in determining their taxable profits. To protect the UK exchequer from companies that inappropriately load up with too much debt (which is deductible for tax purposes) instead of equity (which isn't), Parliament introduced thin capitalisation laws. That's why Boots should be allowed to deduct its interest costs for tax purposes.
  • That multinational businesses should be able to trade here. To protect the UK exchequer from companies that inappropriately fix their intercompany prices at uncommercial levels that might reduce the UK's tax take, Parliament introduced transfer pricing legislation that allows HMRC to restate uncommercial transactions as if they had transacted on an arm's length basis. That's why Starbucks is allowed to buy coffee from other group companies and is allowed to pay its parent for use of the group branding.
  • That the UK should only tax businesses which are resident here. That's why Amazon and Google are allowed to trade in the UK without paying corporation tax on the market value of the transactions they facilitate here, because those companies don't have a permanent establishment in the UK.

The fact is: the main cases which UKuncut and Ritchie have championed all fail miserably under the "what did Parliament intend?" test.  They are all issues that were foreseen by Parliament, as a result of which powers were granted to HMRC to prevent them. To the extent that HMRC didn't prevent them, this still demonstrates Parliament's will being respected rather than flouted. So it's tax compliance, not avoidance.

It Simply Will Not Do for protestors who have no knowledge of tax to pretend that they have insight into the will of Parliament. Because in every case, Parliament understood the risks and legislated to address them.

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