We have all heard about some of the aggressive tax avoidance schemes being used by multi-national corporations such as Starbucks, Amazon, IKEA and Google. We’ve heard how extremely low tax rates in places like Luxembourg have helped global corporations same huge sums of money compared to paying corporation tax in their home country or even in the country where they carry out much of their business.
Even some of our favourite pop stars, sports personalities and other celebrities have also been caught up in tax avoidance schemes such as the Liberty scheme. But tax avoidance is not the exclusive preserve of multi-nationals and billionaire celebrities, even lawyers, doctors and business owners are known to have employed tax avoidance schemes and techniques.
What we need to remind ourselves is that they have not done anything illegal and yet some of these schemes sound like they should be illegal and certainly the tax authorities in many countries are trying to challenge some of the schemes but until they are actually illegal what really can the tax authorities do? They certainly can, and are, putting pressure on well-known corporations and individuals to pay the full amount of tax or to leave the most reprehensible schemes, describing them as legal but not in the spirit of the law.
So are some of these aggressive tax avoidance schemes morally wrong? Are we, or anyone else, bound to pay a “reasonable” amount of tax or are we, in fact only bound to pay what is legally required?
It is a difficult argument if someone suggests a scheme to minimise your tax bill wouldn’t we all think that sounded like a good idea? If we were assured it was tax avoidance and not tax evasion and, therefore, not illegal would we even question its moral principle?
So how do you know if a strategy to minimise the amount of tax you pay is morally wrong or not?
Helpfully, a north london accountant has given some advice for how to spot morally dubious strategies. For a start, if it seems too good to be true then it probably is. If a strategy seems overly complicated, especially where your tax affairs are relatively simple, then that too could be a warning sign. As could offshore companies and trusts that have no genuine commercial reason or the involvement of companies being set up in tax havens such as the Channel Islands or countries with banking secrecy laws such as Luxembourg.
And, think about this: in the UK alone tax avoidance (that’s the legal one) is thought to cost the economy 4billion each year that figure comes from HMRC the tax authority. Think what that amount of money could do to improve hospitals and schools each year. Of course, not all tax avoidance is in dispute. Some forms are perfectly acceptable from a moral standpoint such as Individual Savings Accounts (ISAs) and pension schemes. Rather it is the strategies that involve fake businesses set up with no purpose but to minimise a tax liability that feel unacceptable.