Duty-bound by tax planning pitfalls
A great deal has been written and spoken about tax avoidance in recent years. Much of it has been ill-informed, tendentious or just plain wrong.
Very little of it has made it any easier for a taxpayer or an adviser to know where the limits lie. Add to that the fact that the limits of what is acceptable may vary according to the political and judicial climate of the day and the subjective view of the taxpayer – ‘I engage in tax planning: you avoid tax’ – and the problems become almost insuperable.
The heart of the problem is that there is no clear definition of tax avoidance. It has been described by Revenue & Customs as “bending the rules of the tax system to gain a tax advantage that parliament never intended”.
Others have put it more bluntly as “failing to pay the right amount of tax”. But each formulation inevitably poses a question: in the first case, “what did parliament intend?”; in the second, what exactly is the “right amount of tax”? Defenders of aggressive avoidance schemes would counter that the answer to both questions is the same: the right amount of tax, and what parliament intended to be paid, can be nothing other than the amount of tax that is provided for by the strict letter of the law.
Parliament must, after all, be assumed to be capable of saying precisely what it means: therefore, if tax is not eligible under the law it is not payable. “Tax avoidance” does not, on that analysis, come into it: it is not possible to “avoid” tax, but only to establish what the law demands in a given set of circumstances and either pay it (which is the legal requirement) or not (which is unlawful evasion, not avoidance). Hence the plaintive cry of the alleged tax avoider – “I have paid the full amount of tax due”.
Perhaps surprisingly, the courts have, in general, some sympathy for that view. As one judge, Lord (Leonard) Hoffmann, colourfully put it, if a scheme does not work the reason is “simply that upon the true construction of the statute, the transaction which was designed to avoid the charge to tax actually comes within it. It is not that the statute has a penumbral spirit which strikes down devices or stratagems designed to avoid its terms or exploit its loopholes”.
In a sense, therefore, tax avoidance does not really exist. Rather, for advisers it is simply a question of advising a client on the tax consequences of the actions and transactions he has undertaken, or may be planning to undertake, some of which may be fully commercial and some of which may (or may not) have been undertaken because of the hoped-for tax benefits. It is simply a question of advising whether those hoped-for tax benefits are likely to be achieved.
