So The Greens Didn\’t Do Any Tax Avoidance Says Richard Murphy

That’s not bad, but I prefer to compare tax avoidance, which is hard to define, with tax compliance which I find easier to define. Tax compliance is seeking to pay the right amount of tax (but no more) in the right place at the right time where right means that the economic substance of the transactions undertaken coincides with the place and form in which they are reported for taxation purposes.

In that case tax avoidance happens whenever someone chooses a course of action which results in the wrong amount of tax being paid, in the wrong place and at the wrong time.

Arcadia, the company, paid full corporation tax on its profits. Sir Philip Green paid full income tax on his salary. Lady Green is a foreign citizen living in foreign. We do not tax the incomes of foreigns living in foreign. For the economic substance of the transaction is the personal income of a foreign in foreign.

The Greens did not indulge in any tax avoidance therefore says Murphy.

26 thoughts on “So The Greens Didn\’t Do Any Tax Avoidance Says Richard Murphy”

  1. So Much For Subtlety

    I thought “The Greens” referred to a political party. I was disappointed as I wouldn’t mind seeing a few of them in prison for tax avoidance. Still, I doubt they produce anything of value and hence have nothing to pay tax on.

  2. Hmm. While I agree with Frances C’s point about the vast importance of the legal independence of married women from their husbands and hence wouldn’t change the law here, there is a decent argument that the economic substance here is that Sir Phil built the business, and Lady G (who has no retail background and had no management involvement with the company) did not.

    Tim adds: Lady G does have a retail background: ran her own business before they met and married. Further, shareholders receiving dividends aren’t really supposed to be in management, are they? Rather the point of the arrangement actually.

  3. Isn’t the point of the arrangement that we can reasonably assume SPG gets cash gifts from LTG – taxed at Monegasque rates – that absent their marriage or other arrangement of trust would be instead paid to him as salary or dividend and subject to UK tax?

  4. JamesV (#3), he seems to get a large salary of his own, from Arcadia UK, which will be taxed in the UK under PAYE. Certainly enough to keep him in pocket money.

    As for the rest, is it an arrangement or just a marriage?

  5. But this example shows the failure of Murphy’s definitions.

    Where is the “the economic substance of the transactions undertaken”? Is it in the UK where Arcadia is based or Monaco where the investment was made? Or Jersey, where the investment is held?

    And given that, how much tax is due? In the UK, the law says that no tax is due on those dividends, but that doesn’t stop UKuncut moaning about it.

    So all his definition ends up saying is that “you follow the tax law of each relevant country”. Which is what tax avoidance does.

  6. Hmm. “Once ran a shop that went bust” would not normally be considered a good criterion for being in charge of a major retail business.

  7. isn’t the relevant “economic substance” argument in this case here whether Lady G really was the initial equity investor and thus rightly receives the returns on equity (dividends)?

    It doesn’t matter what she did for a living in the past, if she really did stump up the money, then she really deserves the returns, just as if a bunch of pension funds any other investor had come up with the money, they’d be entitled to the returns.

    However, if Phil G really stumped up the money himself, which he gave to Lady G and told her to invest it on his behalf, and she is really receiving the returns on his behalf, then the whole thing is an obvious tax reduction strategy with no economic substance.

  8. there is a decent argument that the economic substance here is that Sir Phil built the business, and Lady G (who has no retail background and had no management involvement with the company) did not.

    No, that’s a poor argument based on a whole load of assumptions that have been shown to be false on this site and others. The timeline of who bought what and when does not fit the narrative of Mrs Green becoming owner solely so her husband can avoid paying tax.

  9. @JamesV: “Isn’t the point of the arrangement that we can reasonably assume SPG gets cash gifts from LTG – taxed at Monegasque rates – that absent their marriage or other arrangement of trust would be instead paid to him as salary or dividend and subject to UK tax?”

    Why can’t Lady G give her husband as much of her money as she likes? They are married after all.

    Or are you suggesting that all gifts between spouses should be taxable? That a non working spouse should have to pay tax on the benefit in kind they receive from living for free in a house paid for by someone else?

  10. Tim: err, no. Philip Green was a highly successful retailer before he married Tina. That is not in dispute. Philip Green was already wealthy at the time of his marriage, while Tina was not. That is not in dispute. The timing of subsequent financial shenanigans is irrelevant.

    Jim: the case is clearly tax avoidance. However, any plausible changes to the law that would prevent the tax avoidance would have horrible negative consequences – either restricting married women’s right to independent property ownership, or restricting spouses’ rights to make untaxed gifts to each other. So from my point of view, “what we do about it” is to not change the law, but to continue calling the Greens out as tax avoiders whenever the opportunity arises.

  11. JohnB

    I think you’re right, although maybe there’s scope for a law that specifically prohibits transfers between spouses that are used to make overseas investments when the spouse in question is resident in a tax haven. Or something like that. But probably not.

  12. Philip Green was a highly successful retailer before he married Tina. That is not in dispute. Philip Green was already wealthy at the time of his marriage, while Tina was not. That is not in dispute. The timing of subsequent financial shenanigans is irrelevant.

    Alternatively:

    Philip Green was a highly successful retailer before he married Tina. That is irrelevant. Philip Green was already wealthy at the time of his marriage, while Tina was not. That is irrelevant. The timing of subsequent financial shenanigans is important to get correct when asserting that Tina was transferred ownership and moved to Monaco in order to reduce Green’s tax liabilities.

  13. Jim: the case is clearly tax avoidance.

    Only if you make a stack of assumptions which you cannot prove. Anybody who has a passing understanding of how one splits assets across borders and partners in a multi-national marriage would see that tax would have been one factor in the setup but almost certainly not the only factor: and the relative weight of each factor is not something that can be readily assumed by those who have no personal knowledge of the pair.

  14. Although Murph seems ‘sympathetic’ to UK Uncut, he doesn’t tend to bang on much about their chosen causes. I think he’s well aware that they are pretty weak, and badly argued. He won’t call them out on their idiocy, but he doesn’t appear to be all that enthused with their pet outrages.

  15. Luis Enrique (#11) – there is such a rule.

    The usual inheritance tax exemption for transfers between spouses doesn’t apply where one is UK-domiciled and the other isn’t.

    However since inheritance tax only applies if the donor dies within seven years of the gift, depending on the age and health of the person concerned it might not be an issue.

  16. Tim N: I’m struggling to imagine a non-tax-avoiding reason for 100% of Taveta to be owned by Lady G. It’s not a business that was established using her independent wealth, because we know she wasn’t independently wealthy. It’s not an investment that requires her experience and skill to manage, because we know that Sir P is more experienced and skilled in the relevant area (and, indeed, she pays him to run the company for her).

    Perhaps you can outline a plausible alternative scenario, where this structure might have been used with a primary purpose that wasn’t to avoid tax?

  17. ‘Tax avoidance’ is a lot of guff anyway. The people who decry it support the right of criminals, who actually hurt people, not to incriminate themselves, so why should decent people not be allowed to structure their rightful business so as to avoid paying tax for the moochers? Both tax avoidance and actual tax evasion are moral goods. Not so much tax resistance- highly disappointing when those types go out and shoot police officers rather than the politicians who enslave them.

  18. So Much For Subtlety

    john b – “I’m struggling to imagine a non-tax-avoiding reason for 100% of Taveta to be owned by Lady G. …. Perhaps you can outline a plausible alternative scenario, where this structure might have been used with a primary purpose that wasn’t to avoid tax?”

    Come on. How hard is this? Suppose Mr Green desires a specific and unusual sexual act. Mrs Green, being the old fashioned sort, agrees to provide on condition the family business is handed over to her. No taxation implications at all.

    Must be one hell of a sexual act I admit as my relatives tend to run to cars, not to companies, but then we so rarely have companies. And maybe we are a touch boring in bed.

    But by all means, if you’re not convinced, abolished the Married Women’s Property Act.

  19. I’m struggling to imagine a non-tax-avoiding reason for 100% of Taveta to be owned by Lady G.

    As I said to another commenter on here who made the same statement, this says more about the capacity of your imagination than the Greens’ tax decisions.

    Perhaps you can outline a plausible alternative scenario, where this structure might have been used with a primary purpose that wasn’t to avoid tax?

    Firstly, splitting the management and ownership of a business is a good idea for many reasons. Tim W. has already hinted at this. Secondly, putting the ownership in a different jurisdiction than the operatorship is also a good idea in some instances, and this is hardly unusual. Thirdly, having your wife own your company can reduce risk of successful prosecution for any alleged illegal activities because she cannot be made to testify against you.

    So there: 3 reasons as to why their structure might make good business sense apart from tax reasons.

  20. Only an idiot would require a shareholder to work at the company. Is she treated the same as any other foreign shareholder of a company? Not by certain people….

  21. @Johnb: there is a cast iron reason for Lady G owning at least 50% of the assets outright – according to divorce rules she is considered to have helped create them by mere fact of being married to SPG for all the years he created them. If SPG had retained all the assets in his name alone, in the event of a divorce Lady G would have been entitled to 50% as of right, being considered the co-creator.

    Which is it to be then – women who marry men who build business empires are responsible for their success (by providing marital support) and deserve 50% of the assets created on divorce, or women who marry businessmen but have no active input into their businesses deserve nothing on divorce because they didn’t create the wealth?
    You can’t have it both ways.

  22. john b (#17), why the hell does it matter whether there were non-tax reasons?

    There are two (indeed more than two) entirely legitimate ways of structuring it; why should they deliberately and voluntarily choose one that involves paying more tax?

    Although Tim Newman has raised several good ones (#20), and I would love to hear SMFS’s (#19) raised on Radio 4.

  23. SMFS’s reason is an absolute win; he has unequivocally won this thread and possibly the internet.

    Tim’s first two reasons are flim-flam, and his third is no longer true.

  24. Tim’s first two reasons are flim-flam…

    A little while ago you couldn’t even imagine them, now you’re dismissing them.

    And if you think the separation of ownership and management of business is “flim-flam”, you really are clueless.

  25. They aren’t actual *reasons*, is the point. They are things that I’d considered and rejected because they don’t work.

    “Splitting ownership and management” doesn’t work, because the Greens are a couple and hence there’s no real separation; the situation is absolutely not equivalent to a family company that hires a professional manager (which, I agree, can be a good idea).

    Dying to know what possible non-tax advantages you think there are of splitting the ownership and operation juridictions in this case.

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