If tax avoidance is legal, why is it such a hot topic?

The traditional British view of tax evasion and tax avoidance is black and white: tax evasion is illegal, while tax avoidance is legal. In this time-honoured view, there was even a sense that, while tax evasion was clearly wrong, there was something laudable about tax avoidance: because, after all, “no one wants to pay more tax than he needs to”.

However, this traditional view has been taking quite a battering in recent years. Increasingly it seems, tax avoidance is coming to be regarded – by some, but by no means all – as morally reprehensible or even repugnant. This has helped popularise a third term, tax compliance. A tax avoider seeks to pay less than the tax due as required by the spirit of the law: a tax compliant tax payer seeks to pay the tax due but no more.

There are still plenty of defenders of the old view. Toby Young, writing in the Daily Telegraph in February 2011, said that “Tax avoidance isn’t morally wrong. It’s perfectly sensible behaviour.” He and those who share his views often talk about tax allowances such as are available through ISAs and pension plans, and even duty-free items on offer at airports. Who in his right mind would not take advantage of these perfectly legal opportunities? And if so, are they not avoiding tax?

It seems, though, that what has awoken the public ire is the sense of scale. Particularly when people are facing public spending cuts, tax increases and austerity, it sticks in the craw to find that the rich can apparently flout tax liabilities.

Two cases came to the fore in 2010, amongst other highly publicised examples: Vodafone and Sir Philip Green. Protesters said that Vodafone was let off a £6 billion tax bill by HMRC. Although both organisations denied this, Vodafone stores were shut by demonstrations by protesters.

If true, these allegations suggest that a large corporation is able to avail itself of treatment simply not available to most individuals – or most companies, for that matter. This question of scale goes far beyond the mention of ISAs and duty-free cigarettes, and seems to fly in the face of the spirit of the law.

Sir Philip Green is the owner of the Arcadia Group which comprises Topshop, BHS, Dorothy Perkins, Miss Selfridge and other stores. Green, the ninth-richest man in Britain, has also been the subject of protests against his alleged activities.

A representative of UK Uncut, an anti-tax avoidance organisation, wrote in the Guardian: “While Green lives and works in the UK, the Arcadia Group is registered in the name of his wife, Tina, who is resident in Monaco and so enjoys a 0% income-tax rate. In 2005 this arrangement allowed the Greens to bank £1.2 billion, the biggest paycheck in British corporate history, without paying a penny in tax. This completely legal dodge cost the British taxpayer £285m, enough to pay the salaries of 9,000 NHS nurses or the £9,000 fees of close to 32,000 students. In an age of austerity, the link between tax avoidance and public sector cuts becomes crystal clear.”

These allegations, whether true or not, became more inflammatory when Green was appointed to advise the government on how best to slash public services.

It seems obvious that this sense of indignation is not going to disappear: indeed, it is likely to grow. That being the case, high-profile figures may want to consider moving more towards tax compliance than tax avoidance when arranging tax planning.

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