You can tell when governments are in great difficulty – they start attacking their hard-working citizens – but of course, only those who are an easy target. One way governments attack  is by calling people “unfair” or “unethical”. Have you noticed some politicians (particularly Margaret Hodge, Chair of the Parliamentary Public Accounts Committee,  frothing at the mouth because some companies have avoided tax.  The claim seems to be that if you avoid tax you are unethical.

Hold on a minute! The government allows us to avoid some taxes. If I give all my money away seven years before I die, I avoid inheritance tax.When I retire, if my pension pot is over £1.25 million I have to pay 50% tax on the excess. So I even though I am 62 I crystalise my pension pot at £1.25 million and avoid paying the tax. If my business is likely to make a profit this year, I can scrap the old computers and get 100 staff a new computer… that way I make no profit and avoid the tax!

“AGGRESSIVE TAX AVOIDANCE”

Oh, I see, so what we are talking about is tax avoidance that some politicians don’t like. In other words, it their view some tax avoidance is unfair, or mare attackingly put, aggressive. However, when you think about it, those politicians are being attacking in order to cover up p their own (or other politicians’) incompetence. The politicians in government make the laws and it is the laws that create circumstances that enable companies to avoid tax.

Here’s an example: a motorcar salesperson tells you that if you buy the car you want on Friday, he can drop the price from $12,000 to £11,000. In addition, as a marketing campaign, he says if you come dressed as Donald Duck he will take off another £1000. So you arrive on Friday dressed as Donald Duck and save £2000. If you abide by the law (the rule) why is it unethical to avoid the tax the government says you can avoid?

TAX AVOIDANCE IS ETHICAL

A company’s first duty (among many)  is to its shareholders and the return on their investment. If the return to shareholders can be increased by avoiding tax, it would be UNETHICAL not to. How do you explain to shareholders that the law ebavled you to save them £100 million, but you decided not to do it because it wouldn’t be fair? Instead of  accusing some of its citizens of being unethical all governments have to do is:

First,  let Her Majesty’s Revenue and Customs challenge any interpretation of the tax rules that it thinks is incorrect and let the courts decide.

Second, if the courts have not interpreted Parliament’s intention correctly – change the law – change the rules – to get companies to pay the tax the government want them to pay.

As an aside, surely, accusing people of being unethical when  it is a matter of interpretation of the rules, is itself unethical.

 

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