Hmm, I resemble this remark

Didn\’t click with me yesterday but this from Polly\’s column:

The area between tax dodging and reasonable offsetting – of pension contributions, research and development, preventing double taxation, new investment and legitimate reliefs – is the thick fog where lawyers and accountants make their millions. Between the spirit of tax law and its practice, fortunes are made.

In discussing Richard Murphy\’s calculations of the tax gap (which is the basis of the TUC\’s numbers on such) I said:

Now let us agree that people do indeed order their affairs so as to lower their tax due. Leave aside all those legal rights about their being allowed to do that. Even then there’s still a logical error here.

For Parliament deliberately and specifically enacts into law provisions which are there to reduce the tax paid by corporations below the headline rate.

First year allowances, Capital allowances, pension contribution allowances, intangible assets allowances, research and development credits and so on. I wouldn’t be at all surprised to find that there are others, perhaps training tax credits, child care even….

Now as far as I\’m aware I\’m the only person who has made that critique of Murphy\’s numbers (although that may be more a reflection of my not reading enough of other writers rather than anything else).

Might the message actually be getting through?

6 comments on “Hmm, I resemble this remark

  1. What the @#*¿ is the ‘spirit ofthe tax law’. I have heard the expression before and it makes no sense at all. Tax is paperwork, you pay as little as you can within the law. Is this ‘spirit’, then, Polly’s idea of what other people ‘should’ be paying? ‘Should’ here can only refer to what the law requires.

    I could go on for hours like this, but I shan’t bore our host. If I can be bothered I’ll do it at my place. (Wanders off shaking head in disbelief and mumbling to self).

  2. Cingram,

    Not that it is my intention to defend Polly, but the notion of spirit of a law is well known and often used. It could indeed be argued that it is a very important notion as the conditions that may have led to laws being put in place or written in a particular way change. This can e.g. lead to prosecutors trying to apply laws onto situations for which they were not intended, often to the detriment of citizens. Think of how European anti-terrorist warrants have been used to arrest CEO’s of pan-European gambling companies and you have a clear example of a breach of the spirit of a law.

    Thus, it is indeed important that courts (and prosecutors, etc) take into account the spirit of a particular law to make sure that it is not being misused. And that politicians modify laws when conditions change so these can be misused.

    Further I would agree completely with what Polly says in the quoted text above. I would however suggest a completely different approach to solving it: simplifying the system and introducing low flat taxes for all. That way accountants and lawyers would no longer be able to make their millions – for (slightly paraphrasing an old professor of mine) these instead of creating value to society only move it around.

  3. Surely Polly and Dick should be embracing such tax efficiencies; it’s making us more European. Specifically, Italian.

  4. Emil,

    I understand the concept of the spirit of a law, and of course I agree that in your example and probably in most areas of law, especially criminal law, it can be more important than the letter, in terms of justice and equity. What I don’t understand is how there can be a spirit of tax law, different in some way from the letter of said law. It’s something I have argued about many times, and I still don’t understand it.

  5. Laws of whatever type are to be interpreted in the way provided for by that law (per the legislature or the courts). In the UK at least, tax law has, like much other English law) historically been enacted on a strict basis , meaning that it is interpreted and applied literally. This is in contrast to purposive laws (what Murphy bizarrely refers to as equitable laws) which are to be interpreted and applied in accordance with their underlying purpose, i.e., their spirit.

    The distinction is not total and there are some UK tax laws which are enacted by parliament on a purposive basis or which the courts have held should be interpreted as such. These are, however, in the minority as the purposive construction of laws is not typically found in the UK nor, indeed, many common law jurisdictions.

    What Toynbee et al simply don’t get is that it is not the place of the citizen to apply their own basis of the interpretation of the law, whether to suit themselves or Toynbee. It is, rather, for the citizen to interpret the laws (e.g., by letter or by spirit) in the manner required of them by their government.

    If the result that people see from others’ correct intepretation of a law displeases them, then it is open to those people to seek a change in the law from the government. To do otherwise usurps the authority of parliament etc.

    Hence, the nonsense that is now so often seen when people are said to avoid (legally) tax. In which case, people may not like the result and may not like the law that brought it about, but that doesn’t mean the avoider has done anything wrong at law. And that includes CMG as much as Barlcays, Tesco or whomever.

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