Our favourite accountant (yes, one Murphy, R) is fond of saying that we should never do any tax planning other than simply coughing up whatever it is that the authorities demand of us. Certainly we should never stoop to tax avoidance, that terrible idea of doing exactly what the law says rather than simply accepting the spirit of it. That is, don\’t pay attention to what is in the legislation, but attention to what those drafting it really meant: then sign the cheque and hand it over.
One little story that rather undermines that:
In a landmark case, HSBC has won a ruling that the UK stamp duty reserve tax it was charged when it bought CCF, the French bank, contravened EU law. The bank is now in line for a £27m tax refund.
Tax experts believe the ruling will set off a wave of similar claims from firms that have been involved in cross-border takeover activity in the past 23 years.
Stamp duty reserve tax was introduced to simplify the collection of stamp duty due on the transfer of shares in cross-border M&A activity. Rather than trying to collect 0.5pc of standard stamp duty on shares issued through a foreign clearing company or US depository receipts, the HM Revenue & Customs introduced a one-off payment of 1.5pc of the value of the transaction, called \”stamp duty reserve tax\”.
Craig Lesile, head of stamp taxes at PricewaterhouseCoopers said: \”The tax was designed as a season ticket – a one-off payment on the shares issued that would then make them exempt from stamp duty.\”
However, HSBC used an even older directive – the Capital Duty Directive of 1969 which banned capital duty on the issuance of shares – to argue that the UK\’s stamp duty reserve tax is incompatible. Following the ruling, HMRC said it would stop levying the 1.5pc tax immediately on share transactions using a clearing service elsewhere in the EU pending a review.
You see, sometimes the laws that are being enforced are in fact illegal themselves. The second of these laws is entirely clear: cough up the 1.5%. The intent of the law is also entirely clear: companies should cough up on capital transactions. Yet the first law makes both the details and the intent of the second illegal.
So where does this leave the argument that we should not obey the law as it is written and simply cough up under the intent? Rather tattered I would say, in that at least in this case the intent is directly illegal.
So, umm, no, we shouldn\’t just trust in nice Mr. Revenue to tell us how much the cheque should be, should we? In this instance they were wrong (that is, wrong in law) to the various estimates of £5 billion to £20 billion.
No, tax must be paid according to what the law says, not according to what those who wrote the law were thinking of. And we must have clarity about what that law is, not simply an assumption that it is whatever HMRC says it is.
It\’s a system known as \”the rule of law\” and it\’s one of the things that keeps this the relatively free country it is. Here\’s the rules, written down in this book. The social contract is that you obey them: and the other side of the social contract is that those rules, as written down in the book, are all the rules that you must, by law, obey.
“Our favourite accountant (yes, one Murphy, R) is fond of saying that we should never do any tax planning other than simply coughing up whatever it is that the authorities demand of us.”
Would you expect anything more from an HMRC shill, Tim?
Murphy’s concept should be extended to criminal law. We could get rid of all those time-wasting and costly courts engaged in “prison-avoidance”.
Perhaps Mr Murphy could enlighten us: how much money has he paid to the revenue over and above the sums he owes by law?
He can simply write a cheque. He could write on it ‘additional voluntary contribution’.
Apparently in 2004 five people did so. Were you one of them, Mr Murphy? Have you done so since?
So I have some moral obligation to pay more than I owe, but Mr Murphy does not.
Tim adds: Ah, Brian, if you’re going to quote my own research back at me please get it right. 2006 I think it was and of the five, four were dead.
I had a little spat with him some time ago about this – I suggested that if he used the personal tax free income allowance he was guilty of exactly the same ‘crime’ he accuses all those others who manage their tax affairs so they legally pay the least amount of tax.
After all the income tax rate is 20% and 40% – surely the intent is that you pay those rates on your entire income?