Is international tax planning for contractors illegal or immoral?

The differentiation between tax avoidance, tax evasion and the moral duty to pay tax for the betterment of society has been intentionally screwed by politicians and bureaucrats.

This is nothing new. I wrote an couple of articles several years ago questioning the terminology of ‘morally repugnant’ tax avoidance when it was the duty of the legislature to define what was acceptable in terms of tax responsibilities, So who or what is morally repugnant aggressive tax avoidance? And more than a decade ago Shout99 was alert to this subject (See: When a tax ‘avoider’ becomes a tax ‘evader’- Shout99, March 2004).

Now Mike Phillips, Marketing Director at ItsInternational, adds his viewpoint….

He writes……”UK media has highlighted “cash payments to tradesmen” (be they gardeners, window cleaners, etc) as “propagating tax evasion” since they are often undeclared. Conversely, ISA’s and ‘self-employment’ are two examples of common “tax avoidance” – both enshrined in UK law.

In their desire to open new tax revenue streams and to prepare us for fresh law converting “unacceptable” tax avoidance into “tax evasion”, governments across the world have dissected “tax avoidance” into grades of moral and ethical acceptance.

They have created terminology (not yet legally defined or tested in court) such as “tax abuse” and “aggressive tax avoidance”. Such emotive but readily-understood language is meant to embarrass business and individuals to give up profit generated through legal means.

From the beginning of the 20th century, courts of justice in many industrial countries (such as the USA, Germany and the UK) have declared: ‘every person or a legal entity has the right and duty to take reasonable steps to protect their assets using legitimate ways’.

These days, the escalating use of internet and electronic communication is helping more people and businesses operating across the globe to take advantage of their legal rights to pro-actively plan and assess exposure to tax authorities … and avoid unnecessary taxes in their home countries and countries of work.

To its credit, the UK government is bringing clarity to tax arrangements it considers abusive. The 2015 ‘General Anti-Avoidance Rule’ (GAAR) legislation “defines what are, for its (the government’s) purposes, tax arrangements that are abusive”. You cannot undo history as it is retrospective law covering taxes due from 17 July 2013. It has already started to eradicate dodgy umbrellas here in the UK and exposed recruitment agency directors to labour law and “disguised employment” issues.

GAAR legislation has been introduced in many countries and aims to “create certainty for both sides (revenue authorities and taxpayers) as to the tax consequences of any action”. ItsInternational has noted ongoing GAAR actions by tax offices across Europe, especially in Belgium, Germany and Sweden, are uncovering fraudulent international umbrellas and consequently creating costly, embarrassing outcomes for recruiters and their placements.

To ensure a balance in the use of GAAR across the USA (housing what is probably the most intrusive tax authority in the world), the United States Supreme Court has stated: “The legal right of an individual to decrease the amount of what would otherwise be his taxes or altogether avoid them, by means which the law permits, cannot be doubted.”

Some may consider “tax avoidance” to be the dodging of one’s duties to society. Others may deem it to be the right of every citizen and every business to structure their affairs in a manner allowed by law. In other words, to pay no more tax than what is required.