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  • Tax avoidance – Caveat

    I will start with an International Consortium of Journalists (“ICIJ”) style caveat that “there are legitimate uses for offshore companies and trusts. We do not intend to suggest or imply that any people, companies or other entities included… have broken the law or otherwise acted improperly”.

    Hopefully that covers everything. Especially as all my information comes from media articles in the public domain and not stolen data.


    A few years ago, I presented a seminar which included a little piece called ‘the tax avoidance ducking stool’.

    The audience’s job was to help the Witch-finder General, at the time Margaret Hodge, in trying the accused (a high-profile politician or celebrity) for the grievous non-crime of tax avoidance.

    This exercise involved a brief presentation of ‘facts’ taken from the media forming the case for the Prosecution. The audience were invited to comment on this evidence and come to a conclusion of ‘guilty’ or ‘not guilty’.

    We discussed seminal ‘cases’ such as:

    • Lord Ashcroft’s benefitting from his non-dom status
    • Peter Mandelson and Chris Hoy having the temerity to take loans from their personal service companies
    • John Redwood’s claim that those investing in a pension scheme or ISA were tax avoiders;
    • Chris Moyles becoming a part-time used car salesman and incurring significant trading losses; and
    • Jimmy Carr’s use of a contractor style scheme.

    However, what was a bit of light heartened seminar content (designed to take the edge off of the pain of a long hard tax seminar) now has a ring of relevance.

    As with the Salem witch trials, beautifully parodied by the Simpsons in one of their Halloween specials, the danger is that it becomes incredibly easy for all kinds of behaviour to be tarred with the same tax avoidance brush. One group or individual accuses another of not doing enough to prevent avoidance or indeed participating it, with the other responding with their own counter accusations.

    The result being that, amongst the hysterical headlines, real issues are not addressed and real progress in terms of improving what is, quite frankly, a poor tax code is kicked down the road.

    What is tax avoidance?

    This is a key question and was the intention of my recent articles surrounding the Paradise Papers.

    Here, my point was that the tax avoidance accusations surrounding the Duchy of Lancaster were completely erroneous. Investing offshore is simply a fact of investment life. To illustrate the point, I showed that the BBC pension fund and the MP’s pension fund invested in precisely the same kind of offshore funds– including ones domiciled in the Cayman Islands – as the Queen.

    So whilst John McDonnell was spouting bile about outrageous offshore investments he was benefitting from the same.

    I did not even touch on the offshore activities of Guardian Media Group.

    I pointed this out not because I wanted to sling my own mud around but I wanted to illustrate how muddled and wrong the press and political view as to what constitutes ‘tax avoidance’ actually is.

    “Offshore” does not necessarily = tax avoidance. Hopefully this point comes out from my earlier blog.

    Secondly, tax avoidance is not simply paying less tax than one might do if a different course of action was taken. There is no maximum tax rule.

    The ‘debate’ is too often couched in binary terms – in other words is something tax avoidance or tax evasion. This is wrong too.

    For instance, John Redwood is equally wrong with his statement above that ISA investors, or those contributing to a pension scheme, are also avoiding tax. I call this the ‘everyone’s at it’ argument.

    This mantle has now seemingly been picked up by another MP, Peter Bone. This is a ‘fail’ by Mr Bone. However, rather than his argument being properly dissected he was, rather appropriately in light of this blog, attacked on the (much lazier) basis that he is a ‘Conservative’ and avoidance is only what all his Tory friends get up to.

    No, no, no. The point is that investing in an ISA, or making a pension contribution is not tax avoidance. It is tax planning (or the slightly more jarring ‘mitigation’).

    The position is that we do not have two buckets – avoidance and evasion. Instead we have a continuum of activity ranging from simple planning at one end and evasion at the other. Somewhere along that spectrum is a line of artificial tax avoidance. Clearly, we have DOTAS and GAAR which give some, though hardly an indelible, idea where that line is.

    The comments of the Chartered Institute of Taxation, an independent body that ‘regulates’ the conduct of its membership of tax advisers via its Professional Conduct Rules are instructive. These guidelines are agreed by the other major professional institutes and have been agreed in conjunction with HMRC.

    These conduct rules set out as follows:

    Tax avoidance

    The definition of ‘avoidance’ is an evolving area that can depend on the tax legislation, the intention of Parliament, interpretations in case law, the view of HMRC and the varying perceptions of different stakeholders and is discussed further below.

    Tax planning vs tax avoidance?

    Despite attempts by courts over the years to elucidate tax ‘avoidance’ and to distinguish this from acceptable tax planning or mitigation, there is no widely accepted definition.

    Publicly, the term ‘avoidance’ is used in the context of a wide range of activities, be it multinational structuring or entering contrived tax-motivated schemes. The application of one word to a range of activities and behaviours oversimplifies the concept and has led to confusion.

    In a 2012 paper on tax avoidance, the Oxford University Centre for Business Taxation states that transactions generally do not fall into clear categories of tax avoidance, mitigation or planning. Similarly, it is often not clear whether something is acceptable or unacceptable Instead the paper concludes that there isa continuum from transactions that would not be effective to save tax under the law as it stands at present to tax planning that would be accepted by revenue authorities and courts without question

    This, in my view, is the better approach. It is a shame that, in my opinion, the Chartered Institute of Taxation seems to have largely shirked its responsibilities in this debate. Perhaps it does not consider this part of its mission statement.

    Following on from my comments on the Paradise Papers I was challenged by a reader as to my view on a past transaction by a Labour Council in the north west of England. It was put to me that, when purchasing a new property, rather than buying the property directly they acquired the shares in a Company which owned the property. The Company was registered outside of the UK.

    As such, the Council saved £1.6m in Stamp Duty Land Tax (“SDLT”). It was put to me that this was outrageous.

    However, my view is different. If the Council identified a property and the vendors gave them the commercial option to (1) buy the shares in the Company and incur no tax; or (2) buy the property directly and incur £1.6m then what should they do?

    Should they embark on a one council moral crusade and unnecessarily spend council taxpayer’s money? Or should they take the option that saves the tax?

    As a council taxpayer in the very same borough I would be disappointed if they took the former option.

    My view is that when one is presented with a straight commercial choice then one should not be compelled to choose a route that creates the biggest tax liability. This would be crazy. As I say, there is no maximum tax rule.

    Thankfully, I believe that, at least for the moment, HMRC would agree with me on this.

    Burning the witch (finder general)?

    There is no better illustration of how the biter may be the one who ends up getting bitten in this arena.

    Dame Margaret Hodge, former chair of the Public Accounts Committee (“PAC”), has been the public face of those critical of tax avoiding multi-nationals, individuals and those advising them (as can be seen from an article published yesterday in the Times).

    However, she also has found herself publicly accused of hypocrisy in the past when it emerged that her family’s business had paid Corporation Tax of just £163,000 in 2011 on revenues of £2.1 billion.

    Of course, if this matter had been examined by PAC, and Stemcor would have been Starbucks, then it might have been pointed out that the tax rate on revenues (yeah, I know that’s not how it works but I am using the PAC framework) was so far below 1% that one is in danger of getting the bends.

    Indeed, her allegedly being the beneficiary of a non-UK family trust, established by a non-UK domiciled family member and managed by one of the Big 4 accountants (those people who, listening to Hodge, come in ‘armies’) would perhaps also put her in the ducking stool right next to Lord Ashcroft.

    Again, to be clear, there is nothing wrong with benefitting from such a trust. If one derives genuine benefits from such a trust then this is not tax avoidance. There is a specific tax framework. It is what the legislation and Parliament intended. And has intended time and time again. However, this is a point lost on many commentators.

    Furthermore, she has also been pulled up in public on the fact that she received shares from this trust after they were allegedly washed through the old Liechtenstein Disclosure Facility (“LDF”). As you may be aware, the LDF was a legal way of bringing out and out tax non-compliance up to date with the added bonus of there being no chance of prosecution. In many people’s eyes this was an egregious piece of legislation.

    However, despite this facility leaving many with a foul taste in the mouth, it was perfectly legal and clearly the intention of Parliament. So how can one really complain?


    The tax avoidance ducking stool is, and seems set to remain, a popular tool for politicians and much (though not all) of the mainstream press. Programmes like Panorama, sadly, seem devoid of any will to understand the issues they are presenting.

    Currently, the logic being applied is akin to that used by Sir Bedivere, in the Monty Python film The Quest for the Holy Grail, in determining whether a villager is a witch or not.

    Bedivere: There are ways of telling whether she is a witch.
    P1: Are there? Well then tell us! (tell us)
    B: Tell me… what do you do with witches?
    P3: Burn’em! Burn them up! (burn burn burn)
    B: What do you burn apart from witches?
    P1: More witches! (P2 nudge P1)
    P3: Wood!
    B: So, why do witches burn?
    (long pause)
    P2: Cuz they’re made of… wood?
    B: Gooood.
    (crowd congratulates P2)
    B: So, how do we tell if she is made of wood?
    P1: Build a bridge out of her!
    B: Ahh, but can you not also make bridges out of stone?
    P1: Oh yeah…
    B: Does wood sink in water?
    P1: No
    P3: No. It floats!
    P1: Let’s throw her into the bog! (yeah yeah ya!)
    B: What also floats in water?
    [Crowd list many things that may – or may not – float in water]
    King: A Duck! (all look and stare at king)
    B: Exactly! So, logically…
    P1(thinking): If she weighs the same as a duck… she’s made of wood!
    B: And therefore, (pause & think)
    P3: A witch! (P1: a witch)(P2: a witch)(all: a witch!)

    High profile figures will continue to be dragged in to the headlines for  doing little more than those who are writing them. Politicians will point their angry fingers at others and conveniently forget to look at themselves in the mirror.

    As a result, we will continue to see knee jerk tax policy reactions and a further proliferation of poorly conceived and badly drafted tax legislation.

    That’s enough to make anyone reach for the broomstick and fly to sunnier climes!

    If you have any queries about this article, tax avoidance, or any other tax issues then please get in touch