@RichardJMurphy tries tax law: not a pretty sight

Following on here I am advised that the House of Lords agrees with Ritchie so there.

Richard Murphy ?@RichardJMurphy

@worstall Shame you ignore the fact that the House of Lords agree with me. But why let facts get in the way of diatribe?

This is what Ritchie says the House of Lords said:

Tax avoidance …. is a course of action designed to conflict with or defeat the evident intention of Parliament.

This is what the House of Lords actually said:

In order to understand the line thus drawn, submitted Mr. Henderson, it was essential to understand what was meant by \”tax avoidance\” for the purposes of section 741. Tax avoidance was to be distinguished from tax mitigation. The hall mark of tax avoidance is that the taxpayer reduces his liability to tax without incurring the economic consequences that Parliament intended to be suffered by any taxpayer qualifying for such reduction in his tax liability. The hall mark of tax mitigation, on the other hand, is that the taxpayer takes advantage of a fiscally attractive option afforded to him by the tax legislation, and genuinely suffers the economic consequences that Parliament intended to be suffered by those taking advantage of the option. Where the tax payer\’s chosen course is seen upon examination to involve tax avoidance (as opposed to tax mitigation), it follows that tax avoidance must be at least one of the taxpayer\’s purposes in adopting that course, whether or not the taxpayer has formed the subjective motive of avoiding tax.
My Lords, I am content for my part to adopt these propositions as a generally helpful approach to the elusive concept of \”tax avoidance\”, the more so since they owe much to the speeches of Lord Templeman and Lord Goff of Chieveley in Ensign Tankers Leasing Ltd. v. Stokes [1992] 1 A.C. 655 at 675C-676F and 681B-E. One of the traditional functions of the tax system is to promote socially desirable objectives by providing a favourable tax regime for those who pursue them. Individuals who make provision for their retirement or for greater financial security are a familiar example of those who have received such fiscal encouragement in various forms over the years. This, no doubt, is why the holders of qualifying policies, even those issued by non-resident companies, were granted exemption from tax on the benefits received. In a broad colloquial sense tax avoidance might be said to have been one of the main purposes of those who took out such policies, because plainly freedom from tax was one of the main attractions. But it would be absurd in the context of section 741 to describe as tax avoidance the acceptance of an offer of freedom from tax which Parliament has deliberately made. Tax avoidance within the meaning of section 741 is a course of action designed to conflict with or defeat the evident intention of Parliament. In saying this I am attempting to summarise, I hope accurately, the essence of Mr. Henderson\’s submissions, which I accept.

It\’s worth noting that this was in the course of telling the IR (as then was) ever so politely to piss off and stop accusing a retired professor of tax avoidance.

This I think is the important part:

The hall mark of tax avoidance is that the taxpayer reduces his liability to tax without incurring the economic consequences that Parliament intended to be suffered by any taxpayer qualifying for such reduction in his tax liability. The hall mark of tax mitigation, on the other hand, is that the taxpayer takes advantage of a fiscally attractive option afforded to him by the tax legislation, and genuinely suffers the economic consequences that Parliament intended to be suffered by those taking advantage of the option.

To take an example, the Greens. Parliament has expressly stated that the transfer of assets between spouses is not a taxable event, Parliament has also expressly stated that dividends from UK companies payable to foreigners non-resident nor domiciled in the UK are not subject to UK income tax.

Given that Lady Green really does own Taveta, which owns Arcadia, and that Lady Green is not resident or domiciled in the UK, her dividends are not taxable in the UK.

Allow us, just for a moment, to accept the Ritchie/UKUncut claim, that Sir Philip transferred these shares in order to avoid such dividend taxation.
But he has absolutely taken the economic consequence: he no longer owns those shares. They are not his property. He cannot vote them. If his wife decides to throw him out of the house she can and keep the property (until a very interesting divorce case at least). She can fire him from his job.

This isn\’t tax avoidance, this is tax mitigation, for he meets that test that Ritchie has pointed us to.

We can then trot through almost all of the cases that Ritchie regards as tax avoidance and show them to be the entirely legal tax mitigation. Using a personal services company? This isn\’t tax avoidance because one does indeed take the economic consequence of running a company. The costs of doing so.

 

Boots going to Switzerland? This isn\’t tax avoidance it is tax mitigation: they really have gone to Switzerland. Loading up on debt? Economic consequence is that you\’ve got to service that debt in an uncertain environment. Mitigation, not avoidance.

By pointing us to the law and going \”There! See!\” Murphy is actually revealing that his entire construct is nonsense.

Perhaps he\’d better stick to making things up rather than trying to deal with reality, eh?

 

5 thoughts on “@RichardJMurphy tries tax law: not a pretty sight”

  1. I may be wrong on this but I don’t think I have ever seen RM comment on the Greens’ tax affairs. So, although I am sure he disapproves of their actions, I’m not sure whether what they have done counts as tax avoidance according to his definition.

    What is interesting about UKUncut is that very few serious figures who support their general aims have any confidence in their detailed arguments.

    RM, and the Labour Treasury front bench, really don’t keep going on about Vodafone, Boots, Greens & Goldman Sachs being “let off billions in tax”.

    Tim adds: Murphy on the Greens.

    “In 2006 I helped make a Money Programme in which I discussed the exceptional dividend his UK retail group paid through offshore trusts for the benefit if his wife, who was then resident in Monaco. I suggested at the time that this saved the Green family £285 million if that payment was compared to the alterative of having had the dividend paid to the UK resident (then) Mr Green. I stand by that calculation. I also note that Sir Philip Green said then, and presumably still does, that “no tax was avoided because none was due”. That this was because of the arrangements he and his family had put in place is a matter we can leave aside for now: although I’d describe those arrangements as the tax avoidance process he clearly does not, and I’m happy to let the matter and difference of opinion rest.”

  2. Indeed. There has been a bunch of recent cases where tax avoidance schemes have been (in all but one case) ruled ineffective. But these are all quite artificial arrangements with no purpose other than the avoidance of tax. Quite different from the kind of thing Richie normally warbles on about – commercial transactions/arrangements which get a better tax result than he would like. So Richie has no support from recent jurisprudence – and if he was consistent he would admit this, as he usually says he wants to change the law, not merely enforce existing law.

  3. On professional service companies, you may “suffer” the economic cost intended. Tim suggests the cost is rhe expense of running the co, but that’s not much. I’d add the diminished privacy as you have to publish some accounts.

    But there are other reasons for setting one up than tax, namely the whole original point of limited companies, namely limited liability – it’s in the name. That’s why all big professional firms stopped being partnerships as soon as they could. And Ken L’s service co employs people (I think not just his wife). If he employs them himself, he’s personally liable for their wages. But if his co runs out of cash, that’s tough on them. I’m not saying avoidance/mitigation aren’t a factor for some, but limited liability has its attractions too.

  4. A number of charities over the years have shifted to the limited company model on top of the charity model. Limited liability, though some seem to have odd ideas about how limited the liability is.

    From a personal viewpoint as a director of a limited company, there’s also the seperating of finances as an advantage. Company and I are seperate for all but the banks. I can work a 90 hour week for no wages and my creditors cannot do a thing. Company benefits from time and effort such that its finances are improving.

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