First, significant reductions to your tax bill requires wealth; money to invest and fund expensive advisors. Many are excluded from their constitutional freedom by an unrecognised criterion for differentiation.
This leads to public anger, even though many would do the same if they could. Secondly, it counteracts the recognised differentiating criterion in tax compliance and creates a viscous circle; the wealthy pay less shifting the tax burden to the poor which they cannot avoid. The VAT avoidance example outlined above is the clear exception, which explains the lack of political capital in labelling everyone as tax avoiders.
Their poverty and the fiction of the accepted definition of tax avoidance, denies them a political voice in the debate. How to restore balance to our unfair tax system?
Constitutional reform says walnut, sledgehammer. Instead, we preserve our constitutional freedom and call on government to empower wider society to engage in complex tax avoidance markets. Pigs will then fly. That leaves only the more difficult solution; restrict the potential to enjoy our constitutional freedom. Politicians must end the fiction that tax avoidance subverts Parliamentary intention and stop emphasising better enforcement. If the line between evasion and avoidance was clear, lawyers and accountants would enforce it.
A line on morality speaks to some and marginalises others. Politicians should emphasise that it is unfair that only the super wealthy can aggressively avoid tax whilst the poor cannot.
The latter part of that statement helps avoids a moral judgement upon the wealthy. Finally, no politician should claim never to have avoided tax. The policy battle has two fronts: domestic and international. This is easier said than done. The government should set up a royal commission on tax reform during the next Parliament.
In the interim, two measures could be implemented that would help prevent further perpetuation of the problem. First, we need a widely defined General Anti Avoidance Principle GAAP that empowers courts to review transactions as an economic whole and preserves Parliamentary sovereignty. Second, policy based drafting should be included within tax legislation. This is itself a constitutional change, but would help lawyers and courts give wider interpretation to statute when unanticipated circumstances arise in a diversifying global market.
To tackle international tax avoidance there are over double tax treaties between nations. Sadly there are few signs of an international movement for true reform. We need a culture of co-operation, not competition, between tax systems. Three key areas need to change. First, the secrecy and corruption of tax havens must end. Britain has soft power over many but other countries must challenge the havens within their sphere of influence too. This should be the key foreign policy objective of the next government.
Secondly, the free flow of capital around the world needs to be addressed. Money is not a commodity to be freely traded. Unlike other goods and services, the relationship between the buyer and seller of finance is rarely equal. A less than perfect global system of financial controls was created at the Bretton Woods Conference in ; it can be done again.
Finally, the lack of transparency within corporations and each domestic tax system must be addressed. Rich countries must be more transparent about the flow of capital from developing countries to them. Currently, we look to the OECD for improving transparency. Tax avoidance is a fundamental freedom under the British constitution and so politicians must be careful in capitalising on public anger over tax avoidance for electoral returns.
It will take years to sort out the mess and international co-operation is essential. The debate must be framed correctly, in terms of fairness and without questioning the moral integrity of tax avoiders.
Parliamentarians must end the fiction that tax avoidance is about subverting the spirit of the law and take responsibility for the mess they and their predecessors created. Nationally we need a royal commission, a GAAP and policy based drafting of new tax laws. Internationally we need to end the secrecy and corruption of tax havens including London , capital controls and improved transparency between nations more generally.
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Let's reshape it today. Corning Gorilla Glass TougherTogether. Avoiding tax and bending the rules of the tax system is not illegal unlike tax evasion; it is operating within the letter, but perhaps not the spirit, of the law. At a time when government spending cuts are having a real impact on the everyday lives of people, how can multinational corporations be avoiding paying their fair share of taxes?
As Vince Cable said : "Systematic tax avoidance by rich individuals and UK-based companies strikes a particularly ugly note in these straitened times. Avoiding tax is avoiding a social obligation. Tax avoidance can make a company vulnerable to accusations of greed and selfishness, damaging its reputation and destroying the public's trust.
Starbucks and Amazon, for example, were vilified and boycotted as a result of their tax policies. Will Google face a similar backlash after their chairman's comments? Paying a fair amount of tax in the countries where they operate is seen as the socially responsible thing for companies to do: providing the funds for public services such as healthcare, education and infrastructure.
These are public services which companies benefit from either directly or indirectly. Tax avoidance has been branded by some as an immoral and unethical practice that undermines the very integrity of the tax system. Company directors argue, however, that their responsibility is to maximise the value that they deliver for their shareholders and that includes keeping tax costs to a minimum within the realms of what is legal. Aside from corporation tax, businesses should be acknowledged as contributing to the economy in other ways.
In the UK they pay PAYE, national insurance contributions and business rates, while in other countries they can contribute through agreements to pay infrastructure costs. Many multinational companies, apparently operating very successfully in the UK, are paying little or no local corporation tax. Corporation tax is a tax on profits, so if a company makes no profits, it should not have to pay corporation tax. The issue is whether the profits are calculated correctly and there is much confusion between the two.
It is plausible that a company that has high sales but pays no tax may be making no profit, although it would be wise to question how those profits were calculated.
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