And Richard Brooks gets it wrong again

By far the costliest tax avoidance takes the form of the corporate structuring that has repeatedly hit the front pages in the last couple of years, whether through Starbucks\’ payment of royalties to Amsterdam, Amazon\’s Luxembourg sales hub or Vodafone\’s multibillion-pound internal financing arrangements through the same grand duchy.

But given that all of these (and many more) are expressly allowed in law they cannot, by definition, be tax avoidance. They are tax compliance: companies using the law exactly as written and intended.

What Brooks is actually arguing is that he doesn\’t think that EU law should be the way it is. Which is fine, everyone\’s allowed an opinion of course. But that is a very different argument from the statement that these things are tax avoidance.

15 thoughts on “And Richard Brooks gets it wrong again”

  1. I don’t think you should distinguish between tax avoidance and tax compliance: tax avoidance is in every respect compliant with tax law. It is only buffoons like Ritchie, Cameron, Osborne and that hypocritical woman who chairs the Public Accounts committee who suggest that tax avoidance is somehow a bad thing; as we are all agreed, if the pols don’t like the law as they created it, the remedy lies in their own hands.

  2. You’re conflating “not evasion” with “not avoidance” a bit here. First up, all of these were within the letter of the law. Which means that they’re not evasion, which means that nobody’s going to jail.

    Amazon are also within the spirit of the law, because of the daft but extant rules about logistics centres not counting as established businesses. Which means they’re not avoidance, yes, tick, well done.

    But you’re wrong on Vodafone. Tax law does not require you to create finance companies in low- or no-tax countries where you don’t have otherwise have a business and artificially manipulate profits. Such schemes are often, rightly, shut down as illegal avoidance.

    The Vodafone Luxembourg case was settled out of court, of course, but the fact they settled for GBP1.25 billion – rather than telling HMRC to whistle for it and that they’d see them in court – suggested they were far from certain that the scheme would have been found legit.

    Tim adds: It’s worth pointing out what the Vodafone “settlement” actually was. EU law says that profits kept in Luxembourg do not pay UK tax, whatever the UK CFC laws say.

    And everyone agrees that profits brought in from Lux to pay out as dividends via the UK do pay tax.

    What V “agreed” to do was to bring back some of those Lux profits to use to be paid out as dividends.

    There wasn’t actually an agreement that V would pay tax on the Lux profits at all. Only that they would pay tax as and when they repatriated them.

  3. Glenn is incorrect here. In the UK at least, tax avoidance is a real concept in both usage and law. The Wikipedia page is a good starting point, while HMRC have a fairly straightfoward guide to the current legal status of it all. But it basically comes down to “if you’re obviously taking the piss, then it’s avoidance not compliance”.

  4. Tim: ish. There’s a good write up of the case at page 38 of this NAO report. Both sides viewed it as a settlement; the repatriation of the money wasn’t coincidental. Both sides had previously won and lost several court cases at UK and EU level, again showing that it’s not as cut-and-dried compliance as you suggest.

  5. Dont know what happended there. Full post below.

    Only because the settlement pre-dated an authorative statement from the ECJ. We have that now. V were right and HMRC were wrong. Hence, the judicial investigation concluding that HMRC actually did rather well out of it all. At the time, V knew they had the better argument, but cut a deal that they didn’t think would inconvenience them too much so that they could draw a line under it.

  6. Only because the settlement pre-dated an authorative statement from the ECJ. We have that now. V were right and HMRC were wrong. Hence, the judicial investigation concluding that HMRC actually did rather well out of it all.

    For what it’s worth even at the time, V thought they had the better argument, but cut a deal that they didn’t think would inconvenience them too much so that they could draw a line under it.

  7. john b – if I am incorrect, it is because pols and HMRC are trying to twist the basic definition of tax avoidance, as I think is borne out by the HMRC page you quote. There is a good deal of mealy-mouthing in this field – witness the Orwellian ‘tax planning good, tax avoidance bad’ – The basic fact remains – if it complies with the law, it is tax avoidance; if not, it is tax evasion. The fact that HMRC and the pols whine about how unfair it is is neither here nor there, except to the extent that the law is amended.

  8. @ john b

    Apologies for being a broken record on this one, but I believe Glenn is quite correct.

    The HMRC document is pure spin. They are neither Parliament nor the law in this context – their statements are their interpretations and wishes, and nothing more. From my experience, their documents are often designed to encourage individuals to pay more or claim less than they otherwise legitimately might.

    Wiki as “an authority”..!?? I didn’t properly read past the bit where they used that well used nonsense phrase “contrary to the intention of Parliament”..!!

    If it’s contrary to Parliament’s intention, then Parliament can correct it. btw, when we talk about “Parliament’s wish”, which government’s “wish” are we talking about, the one that originally created the law or the one that now decides “this is not fair, it’s immoral” etc… And whose notion of morality or fairness: yours, mine, the anarchist that believes that all taxation is theft, or the communist that believes that everything (including you and I) belongs to the state.. If it’s an MP’s notion of fairness – then – they got themselves democratically elected and (for a short while at least) they potentially have the means..:)

    “But given that all of these (and many more) are expressly allowed in law they cannot, by definition, be tax avoidance. ”

    Hence: Actually, yes they are; simple straightforward legitimate tax avoidance.

    Off on a tangent: If Cameron and Clegg genuinely want to change the use of the word “avoidance” in this context, then (as MPs currently forming a government) they have the means to try and change it, and then we can simply use a different word for “legally reducing one’s tax liabilities”. Personally, I’ve always quite liked “mitigation” – as in it makes good sense to always try to mitigate one’s losses. Whereas “compliant” sounds very statist / authoritarian / robotic / controlled and much more..:) From reading his blog, I think Mr Murphy would like everyone to be very compliant…..

  9. @ john b – But it basically comes down to “if you’re obviously taking the piss, then it’s avoidance not compliance”.

    Legal basis..???

    “Obviously taking the piss” – but people like Murphy might conclude that we were all taking the piss..!? I might (genuinely) take a totally different view, and you another..???

  10. Starbucks payment of royalties is a bit dubious too. One might legitimately pay a Royalty based on the premium Starbucks can charge over (say) Costa.

    Er… which would appear to be nil.

    HMRC are numpties for not challenging it, but that probably isn’t a controversial point.

  11. PW: rather than throwing a hissy fit about being pointed to a useful collection of links, why not follow them? If you were to do that, you would discover that the concept of tax avoidance is well-defined in case law, and that the definition established by case law is also the one in the HMRC document. And also that judges pretty much *do* apply the don’t-take-the-piss test.

  12. Certainly in some countries one can be successfully prosecuted for making arrangements that, while ostensibly legal, are entirely contrived for the sole point of reducing taxation and without reasonable commercial consideration. That “commercial consideration” of course excludes the busu=iness of paying less tax.

    For example a pair of Doctors set up a company that they owned through a personal trust. They charged a market rate for their medical expertise through the company and paid themselves salaries specifically just under the top tax bracket. They then regularly lent themselves significant sums of money from the trust at zero interest with no requirement to repay those loans.

    Taken to court, this was ruled to an abusive tax position although nothing about it was specifically illegal. The judge did comment that the use of zero interest no recourse loans was going several steps beyond what might have been a commercial arrangement.

  13. John,

    It was not intended to be a hissy fit – and my apologies if I offended!

    I followed your links in full (and the references within them). I am not really sure there was anything in any of the links that contradicted any of the points that I raised at #10 above..??

    I do understand though that ultimately this is nothing more than playing with words & terminology, and that there are more substantive battles in this area.

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