And Ritchie proves that his personal services company was ethical!

I hope in that case that the distinction between tax avoidance and tax planning is now apparent. It comes down to motive. What is the person making the choice seeking to do? Are they trying to comply with the law, or are they trying to get around the law? My contention is a simple one. If you are trying to comply with the law then your actions are ethical. If you’re trying to get around the law then your actions are unethical.

Et voila, the Murphmeister is free!

Ritchie\’s motives are pure for he himself is pure. Thus, by definition, his actions are ethical.

42 thoughts on “And Ritchie proves that his personal services company was ethical!”

  1. OK, right.

    So if you are trying to comply with the law, thats ethical. Great. So if I’m trying to comply with the tax law that says I can start a company and own it 100%, and work for it, and take my income mainly as dividends, then by definition thats ethical? Because I’m complying with the law?

    And if I sell my company to my wife, who lives in Monaco, and she takes all the dividends as a foreign investor, thats totally ethical, because I am complying with all the relevant laws?

    Indeed anyone who is not breaking the tax law must therefore be acting ethically.

    All sounds fine by me, lets hear no more about it then.

  2. Jim: yes, absolutely. As long as you and your lawyer don’t have a two-year-long chain of emails testing the absolute limits of what you cna get away with. NB Philip Green and his lawyer certainly have no such thing, for several reasons.

    I actually don’t think Ritchie’s point here is necessarily insane – which anyone who’s ever read anything I’ve said about Ritchie will find unusual.

    It’s not at all unusual in securities law or fraud claims to determine from the stated motives of players in the transaction whether the transaction is honest or not. The difference between jail and not-jail can easily be whether you send an email “dude, sell this now and delete this email”, or whether nobody can ever prove you had that conversation.

    I don’t see any reason not to apply that to tax compliance/avoidance/evasion.

  3. Arnald,

    I make every effort to make sure I comply with all tax laws that apply to me and my company and employ a lawyer to ensure that is the case.

    So let me get this right. When my client is the public sector, as it is at the moment, my tax arrangements are ethical, but those very same tax arrangement are unethical when I’m working for my usual clients, that includes big telecom and big bad banks?

    Is that correct?

  4. @JohnB ‘As long as you and your lawyer don’t have a two-year-long chain of emails testing the absolute limits of what you cna get away with.’

    How is this different from ‘complying with the law’?

    Is there a point somewhere this side of ‘the absolute limits’ which you would accept, and if so can you tell us all what it is?

    Or maybe we could just, you know, go by what the absolute limit of the law says, even if we need a lawyer’s assistance to work out what that point is, because the statists have produced several thousand pages of tax rules for us to wade through?

  5. Interested: yes, there are reams of case law concerning listed companies and financial institutions which determine where this sits, and more specifically the difference between “how can we comply with the law” and “how can we fuck them all”.

  6. SimonF

    Reading the post I get the impression Ritchie was applying the principle to the whole economy. He then goes on to excoriate Multinational corporations for acting unethically, using a Straw Man analogy with local government.

    This reveals for me, two key false assumptions which render his contribution to the debate effectively worthless.

    1/ The presumption that all people will adhere to a common ethical code, in this instance one that assumes paying a tax rate that a Third Party deems fair – even a cursory look at the situations in Greece and Italy to say nothing of many Third World jurisdictions will see this assumption as at best naive and at worst idiotic. The only way to enforce it would be to compel legal compliance with a large bureaucracy to enforce it and no doubt equally large industries finding ways round the law, and concomitant criminal enterprises/ black marketeering ( this is exactly what happened in the former Eastern Bloc)

    2/ The need for a degree of international co- operation on this issue that would require a ‘World government’, effectively reducing the current nation states to provincial status. The travails of both the EU and USSR should act as a warning of the power of national and tribal sentiment. Attempts to override it would require a universal tyranny.

    In short, the man proceeds from a misguided basic premise which means he is only listened to by bureaucracies whose vested interest is in the expansion of the state.

  7. “As long as you and your lawyer don’t have a two-year-long chain of emails testing the absolute limits of what you cna get away with”

    I don’t get it. If I have a long a detailed discussion with my accountants and lawyers as to what exactly the law is, and what I can legally do, and what would constitute a criminal act, then the mere existence of that discussion makes my subsequent actions unethical (even if legal), whereas if I just winged it and did exactly the same action with no advice whatsoever then I would be acting ethically?

  8. ‘As long as you and your lawyer don’t have a two-year-long chain of emails testing the absolute limits of what you cna get away with.’

    If I walk to the absolute limit of the side of a boat – yay, even though I stand on one leg, waving my other foot above the briny, I am *still on board*.

    If anything, I’d say that morally a two year chain of emails saying “how the hell can I keep as much of my money as humanly possible but still be technically compliant with tax law” was evidence of intent to obey the law, not to break it.

    An email chain saying “fuck the law, I want the lot” on the other hand, *that* would be evidence of non-compliance.

  9. People should beware of confiding in their accountants, if they have a ripping wheeze to evade tax.

    Although you pay them and might think your conversation was privileged, it no longer is. Ours sent us a letter explaining this.

    If they have reason to believe you are evading tax, they are now duty bound to grass you up to HMRC and NOT to tell you that they intend to do so.

    Mind you, I would guess that the first accountancy firm to do this on a matter of any scale – and to be discovered at it – will lose a great many clients very quickly.

    I am not sure what the position is with tax lawyers.
    In any event, it is an appalling law.

    Having run a small business and paying all our dues, I was angry to be ripped off by HMRC. It was only a small matter of around £500, arising from a PAYE inspection. I was sure we did not owe it but our accountant said that his fees to fight it would come to more than the money and advised me to pay. So I did. We would not have recovered the cost of that fee, even if we had won. The inspector got his Brownie point. It was an eye opener.

  10. Van_Patten

    You’ve spotted the ‘flaw’. However, for Ritchie and his proto-rulers, assumption ‘2’ isn’t a flaw. It’s the solution.

    Remember, they’ll be in charge.

  11. @Jim ‘I don’t get it. ‘

    You don’t get it because JohnB is talking rubbish, Jim.

    @sam ‘If anything, I’d say that morally a two year chain of emails saying “how the hell can I keep as much of my money as humanly possible but still be technically compliant with tax law” was evidence of intent to obey the law, not to break it.’

    Precisely.

    @JohnB ‘Interested: yes, there are reams of case law concerning listed companies and financial institutions which determine where this sits, and more specifically the difference between “how can we comply with the law” and “how can we fuck them all”.’

    Shifting goalposts, much? You originally suggested it was problematic to have a two-year-long discussion with your lawyer to discuss ‘the absolute limits of what you can get away with.’

    The ‘limits of what you can get away with’ are The Law, because You Can Get Away With It.

    What you appear to be stating is that it is illegal to break the law, and if you do you’d better not have left the evidence on your email server.

    What an astonishing insight!

  12. The law distinguishes between tax evasion, tax avoidance, and tax mitigation.

    Tax evasion involves dishonestly concealing what you’re up to from the tax authorities.

    Tax mitigation means reducing your tax obligations in ways intended by parliament, for example by investing in an approved VCT.

    Tax avoidance means reducing your tax obligations in ways not intended by parliament. As a matter of case law, the courts may rule that a series of transactions should be taxed according to their overall effect, it they believe that they’ve been undertaken solely in order to get round the intention of tax legislation. It’s possibly that emails could be considered evidence of this (I can’t say whether they ever have been).

  13. The difference between what is acceptable to Richie and what is not is very simple: does it involve him getting thrown a bung? Drop him a few thousand (like the Guardian or the unions) and everything is good, otherwise anything you do will be immoral according to Murphy.

  14. @PaulB ‘As a matter of case law, the courts may rule that a series of transactions should be taxed according to their overall effect, it they believe that they’ve been undertaken solely in order to get round the intention of tax legislation. It’s possibly that emails could be considered evidence of this (I can’t say whether they ever have been).’

    What you seem to be saying, in your usual slightly pompous way, is that if you’ve broken the law, you’ve broken the law.

    No shit, my old soft leftie Sherlock.

    Talking to your lawyer to ‘test the absolute limits of what you can get away with’ does not constitute breaking the law, even if you do it by email.

    To be fair to the borderline simpleton JohnB, he then gives a (ludicrous) example, where you ‘send an email “dude, sell this now and delete this email”,’ then, yes, that may be illegal, as long as someone ‘can… prove you had that conversation.’

    Dramatic developments in the law! Insider trading now illegal, but needs to be proved! With evidence!

  15. Let’s be quite clear.

    Murphy’s previous stance has been that tax liabilities are whatever he says they are. The great god of taxation will review the 40 million cases in a couple of weeks of the year and let us mere mortals know his decision.

    To make his life easier, he has suggested that we all have our income paid to the State and we draw down whatever we are allowed.

    He has constantly maintained there has never been a distinction between avoidance (legal) and evasion (illegal). So something has changed his mind?

    But now there is.

    A quick trawl through recent tax cases seems to be in order. Panic seems to have set in…

  16. The tax man is not in the least interested in the “law”. IF he investigates you, his aim is to GOUGE you, he has to justify the time spent. Fairness or justice have nothing to do with it.

    I had that done to me. My accountant was so upset he waived about £ 3000 worth of fees.

    Alan Douglas

  17. @PaulB:”Tax avoidance means reducing your tax obligations in ways not intended by parliament.

    Tax mitigation means reducing your tax obligations in ways intended by parliament”

    But what does Parliament intend? Lets take the transfers of assets between man and wife, which are free from all taxes. Parliament has specifically passed a law saying this is legal. They agree with it. They think its fine. They have also passed a law specifically stating that foreigners who receive dividends only pay a small with holding tax. They seem to think this a ‘good thing’ too, and totally legal.

    So if I now avail myself of those two bits of specific tax law, to save myself millions in tax, am I practising tax mitigation or tax avoidance, according to you?

  18. Jim: it’s whatever the courts say it is.

    Interested: Yes, it was rather pedantic. I was trying to avoid being misunderstood. But it’s all gone over your head anyway.

  19. PaulB: what do the courts have to do with it? I’m not asking whether something is legal or not, I’m asking whether something is tax mitigation (and therefore presumably ethical to the RMs of this world), or tax avoidance(which is presumably similarly unethical)?

    I’m asking what your view is of someone who manages to fall into that small part of the Venn diagram where two specific (and explicitly drafted) tax laws coincide. Does it make you a tax mitigator, or a tax avoider? Does the amount of tax mitigated or avoided have a bearing? If I send the missus to Monaco in order to save £100 in tax is that any more ethical than if I do it to save £100m?

  20. I think we wouldn’t be having this conversation if Brown hadn’t spent so much more than he took in, even after a greater tax take.

    Now even members of the government who have access to tax-efficient trust funds seem to think there’s a lottery-ticket worth of money from tax avoidance (let alone evasion) that’s been hiding in the sofa cushions.

  21. Jim: the point of my post #14 was that, contrary to what some commentators seem to think, the letter of statute law is not all that matters to the courts.

    If you want to know what Murphy thinks of the ethics of some particular tax arrangement, you should ask him. If you’re asking me for ethical guidance on your tax affairs, feel free to email me with the details of what you’re proposing and I’ll tell you what I think. But as a practical matter, you may find that your wife has her own view on the question of where she lives, and that it costs her a good deal more than £100 extra to live in Monaco.

    Oh, and if Philip and Tina Green want my advice on the ethics of their tax affairs, they’re welcome to ask me too.

  22. PaulB #14 “Tax avoidance means reducing your tax obligations in ways not intended by parliament.” I’m supposed to be able to read parliament’s mind?

  23. @PaulB ‘Interested: Yes, it was rather pedantic. I was trying to avoid being misunderstood. But it’s all gone over your head anyway.’

    On the contrary, I understood you perfectly – it was just that you were stating the bleeding obvious.

    We all know that judges interpret, and that they sometimes use Hansard in their interpretations. I’m sorry to break it to you, but that is not news.

  24. Interested: As I said, you’ve not understood.

    MSJ: No mind-reading is required. If you give money to charity, or invest it in your pension up to the prescribed limits, or put it in VCTs or EISs you’ll be fine. If you put money in elaborate tax structures that make you think “how does that work?” then you may find them less advantageous than you hoped.

  25. Sorry to come over all lawyerly but tax is not a moral issue. It is a moral issue only to the extent that the democratically elected parliament has determined, through the law, the common standard to which we all must abide through the passing of laws with respect to tax.

    Aside from that tax is purely and simply a legal issue. No more no less. To attempt to inject an ethical element to it is to suggest we should live in a legally pluralistic society. For example in some faiths it is perfectly ethically to engage in polygamy or honour killings. Are we to accept that from some ethical frames of reference that is acceptable in our society?

    It is also the case that ethics evolve over time. For example when James I married princess Anne of Denmark there was outrage over the fact that he was marrying a Catholic which was unacceptable in Protestant Britian. If that happened today we wouldn’t care about the fact she was catholic but we might more concerned about the fact that she was 14 years old.

    Unfortunatly all we have to express societies commonly acceptable ethical standards is the Law. It is a blunt instrumnet at best and unfortunatly it is riddled with problems, loopholes etc. By all means make the law simpler and more effecitve but that is the best that can be done.

    Ritchie is simply incapable of understanding that we live by the rule of law.

  26. Paul B – I think ‘interested’ is right. You’re just stating the obvious. That is, you’re making a sustainable point, but not a novel one.

    (I’m a barrister with c70 percent of my practice in tax law.)

  27. Confusion of the Law with ‘ethics’.

    Common problem with amoral totalitarians. Ethics and morality are whatever the State forces onto citizens.

  28. Tax avoidance means reducing your tax obligations in ways not intended by parliament

    Interesting case in NZ. The government in 2000 raised the rate of excise on cigarettes, saying it was to encourage health. My mother-in-law stopped smoking. Later, it emerged that the rate rise was the same as advice from Treasury on what the revenue-maximising rate was.

    So, was my mother-in-law engaging in tax avoidance or tax mitigation?
    And how about those of us who have never smoked?

  29. Alex: Of course, it’s true that what I wrote is obvious to anyone who’s tolerably well informed on the question – I don’t claim that it’s novel, indeed I insist that it’s not novel, because I’m merely trying to state the law as applied.

    However, the point I was making is that case law has developed in ways which would be unexpected to someone who confined their attention to the close examination of statute law. I think it plain that Interested has not understood this, since he rejected out of hand john b’s point about case law – “JohnB is talking rubbish” – and he attempted to demonstrate his understanding by talking about insider trading and later by reference to judges reading Hansard.

    On the other hand, I suppose it’s possible that Interested does indeed think the Ramsay principle so well known that any allusion to it is “stating the bleeding obvious”. If so, let’s agree that I thought it worth mentioning and he does not.

  30. @ PaulB

    “The law distinguishes between tax evasion, tax avoidance, and tax mitigation.”

    Does it? Where?

    That’s a genuine question, by the way. Where does the law define what tax avoidance is? In what act of parliament, or in what judicial precedent is it written?

    Your definition sounds a lot like Richie’s.. is that also the definition in law? Because if it is, then Richie should probably stop crediting it as his own.

    When one invokes ‘the law’ then one gives a certain gravitas to what one says.. “this is not only what I believe, this is what the law states”. I’d hate to think you were confusing “the law” with “you”.

  31. ‘Distinguishes’ =/= ‘defines’.

    The law certainly _distinguishes_ between tax evasion (illegal), tax avoidance (schemes must be disclosed to HMRC – legal on the bare face but go in front of a judge to determine whether or not legal) and tax mitigation (wholly legal).

  32. Paul B – if I may, I actually think that you are the one who is not understanding the point that ‘interested’ (and others) are making (although I suppose in a round about way you are all making the same, or a similar, point).

    Which is, it seems to me, that a mere history of communication with one’s lawyer, over whatever period, is never sufficient as to prove anything; it’s (very obviously) the substance of the communication which is important, and a desire to approach the limits of the law (for that is how it was phrased by ‘John B’ above) is never going to be enough to sustain anything much.

    Of course, if it entered the realms of insider trading (which was raised I think by ‘John B’, and not ‘interested’, in his comment about an email reading, in terms, ‘sell X now and erase all these emails’), then that would possibly (I put it not higher than that, there may be many reasons to erase emails) be a different matter.

    The Thought Gang – as others have said, the intention of Parliament, and thus the extent of the law, can be derived from reading debates, and even from other extraneous material. This may strike you as a means by which creative and activist judges can arrive at outcomes that they would like, but then it’s always there for Parliament to clear matters up later.

    The tax guides and rules ought to be enough, they are very long indeed, but length creates its own loopholes.

    Still, I have recently bought a second home in Bourg St Maurice so I can’t complain…

  33. TTG: Good question. I’ll answer it, but I wouldn’t be surprised if experts on tax law can be more precise about precedents.

    The distinctions arise largely in case law rather than statute law. Some commentators here writing about what “the law” says seem to be referring to statute law alone, but I am not.

    The clear distinction in UK legal parlance between tax evasion and tax avoidance is a quite modern one, but I think all legal usage since about the mid-eighties has been in the modern sense, in which tax evasion means omission or misrepresentation in reporting one’s affairs to the Revenue with the aim of reducing one’s tax liability. I hope this is not controversial: I’ll dig up specific examples of usage if you think it is.

    A statute law offence of Fraudulent Evasion was created in the Finance Act 2000, section 144. (But most prosecutions seem to be for “cheating the public revenue”).

    The distinction between tax avoidance and tax mitigation dates from IRC v Challenge in 1986. It’s clearly set out by Lord Nolan in his judgment in Inland Revenue v Willoughby

    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.

    So far as I’m aware, Murphy has no claim to responsibility for bringing these distinctions into legal use.

  34. Of course

    a two-year-long chain of emails, between you and your lawyer, testing the absolute limits of what you cna get away with.

    is going to be subject to legal privilege therefore will never get in front of an investigator never mind a legal decider of fact.

  35. Alex: if I may, you are naturally interested in the discussion about john b and his lawyer, a subject on which I’ve expressed no view. I, on the other hand, am naturally interested in rebutting Interested’s rather rudely expressed assertions that I’ve said no more than “if you’ve broken the law, you’ve broken the law”. However, I may be the only person interested in that, so I’ll desist.

    Jim: despite your recommendation, I have no intention of pursuing a career in politics. I am reluctant to express a view here on the ethics of any particular tax arrangements, because, as OO ably points out, whereas we are all bound by the same law, each of us has our own sense of what is ethical.

  36. @PaulB

    Thanks for that. It’s much appreciated.

    Having half read the judgement, I’d say that’s a long way short of a legal definition of anything. It is certainly ‘obiter dictum’ (at least, insofar as I’m able to call anything such given the passage of time since I studied such things.. but, in case you don’t know, that means it’s said ‘in passing’.. it is the judge musing on a topic, rather than seeking to set down precedent). Whether or not the respondent in the case was engaged in tax avoidance seems, I think, to have been irrelevant to the decision of the court.

    It is also somewhat unhelpful in that the topic seemed to arise from an act of parliament saying that a transaction would not be valied if ‘avoidance’ were the objective.. which rather puts us into a vicious circle… if it’s avoidance then it’s not legal, but if it’s not legal then it’s not avoidance.. some rather unhelpful blubber from parliament, there, just throwing the thorny business out to whomever might wish to take it on.

    All that said, as far as the evolution of a definition goes I’m happy to see words from a judge rather than words from a Murphy (even though I have no quarrel with the definition that Murphy gives… just the occasional one with his application of it).

  37. It might be worth mentioning that “legal” and “illegal” can be used somewhat ambiguously.

    Tax evasion is illegal in the very real sense that one can be sent to prison if convicted of it.

    Tax avoidance is never illegal in that sense. It may however be ruled that a particular attempt at tax avoidance does not in law achieve the intended result of reducing one’s taxes.

  38. Really there are only two states of tax. Avoidance and evasion. There is no such thing as mitagation. It’s only a word you use to say that your avoidance is more ethical than others. So it doesn’t mean anything. Law is black and white. So there is only legal or illegal tax affairs. Where law goes gray is in’t implementation when circumstances and other factors come into play in deciding the punishement. The use of mitagation tries to seperate out avoidance into good and bad. And then when something is labelled bad tax mitagation (avoidance) then HMRC can say that they are following an ethical pattern in getting the tax that the country deserves.

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