9 ms·

Let's be careful with terms. Dodging is avoiding - generally thought to be a sensible activity. 'No man in the country is under the smallest obligation, moral

by vixen99 11y ago

Let's be careful with terms. Dodging is avoiding - generally thought to be a sensible activity. 'No man in the country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in his stores. The Inland Revenue is not slow, and quite rightly, to take every advantage which is open to it under the Taxing Statutes for the purposes of depleting the taxpayer's pocket. And the taxpayer is in like manner entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue' Lord Clyde: Ayrshire Pullman Motor Services v Inland Revenue [1929] 14 Tax Case 754, at 763,764:

sageikosa 11y ago
Tax exposure abatement!
DanBC 11y ago
Sure, everyone is happy with normal tax planning. But some of these tax avoidance schemes are only legal because tax authorities do not have the number of staff needed to investigate and prosecute all of them. They use weird loopholes (which get closed, and which sometimes require repayment of unpaid tax) and bizarre corporate structures which only exist to avoid tax. Tax avoidance has changed its meaning from normal tax planning to become that gray not-yet-regulated area near outright tax evasion.
- junto 11y ago
  If they really wanted to close these loopholes they would. Politicians only push them to be closed whilst a) the companies in question aren't lining their pockets, and b) the politicians start to lose votes because of it.
  - rbcgerard 11y ago
    I think that that for every "loophole", separating the legitimate and illegitimate users (however you wish to define those) objectively is next to impossible.
  - asift 11y ago
    While I think there is truth to your point, it's also true that some loopholes are the result of unintended consequences rather than conscious creation. In these instances, there will still be companies lobbying to keep these loopholes open, but the government can still fail at closing loopholes even when they are explicitly trying to close them.
    - junto 11y ago
      Indeed, many loopholes are due to the fact that taxes are national whist companies are global.
- LordKano 11y ago
  But some of these tax avoidance schemes are only legal because tax authorities do not have the number of staff needed to investigate and prosecute all of them. There is a difference between something that is legal and something that is illegal but difficult to prove. You seem to be conflating the two issues. They use weird loopholes (which get closed, and which sometimes require repayment of unpaid tax) and bizarre corporate structures which only exist to avoid tax. If tax law were not so onerous and burdensome, there would be no incentive to crease these corporate structures and to manage business in such a way. There is nothing legally or morally objectionable about using the rules, written by your adversary, to your own advantage.
  - joosters 11y ago
    But tax laws have to become more and more onerous in order to close each loophole... it's a self-fulfilling prophecy.
    - jpgvm 11y ago
      Not entirely true. Tax laws have loopholes because exceptions were made. If there were no exceptions there would be no loopholes. So the real goal should be instead of trying to patch the infinite number of loopholes created by ever increasing complexity is to throw it all out and come up with a simple ruleset that applies to everyone and everything with no exceptions.
      - derekp7 11y ago
        Let's try on an example: All revenue is taxed at 20%. Now this will work for some businesses, as the cost to make the product is low enough, and the sale price high enough, that 20% can be paid and there is still profit left over. But then there are very low margin, high volume businesses. They may have only a marginal profit per unit sold due to the nature of what they are selling, leaving no room for 20% tax. So we add in an exception that says "You can deduct from revenue the cost of goods sold" (i.e., tax on net instead of gross). Now all the business has to do is find ways of hiding profit in the cost of goods sold. Then there are products which contain materials that changed hands many times before it got to the final product. So if a raw material (lets say, cotton) is the majority expense, it has to go to one company to refine it, a second company to turn it into thread, a third to add color, a fourth to make it into fabric, and finally a fifth company to make a shirt. So that cotton gets taxed 5 times before it gets sold to the end consumer. So let's add another exception, that goods sold for use in making another product aren't taxed -- that way, large businesses that produce the entire vertical stack in-house don't have an unfair tax advantage against smaller companies. Gee, now we have another loophole that can be creatively exploited.
- gizi 11y ago
  Concerning "normal tax planning", there is no definition for the term "normal tax planning" for which we could implement a function that returns a yes or a no. In other words, the term "normal tax planning" would never appear in any policy document. The tax code is already arbitrary enough as it stands.
  - rbcgerard 11y ago
    What many forget, but is fairly straightforward, is that tax planning is usually performed by accountants and lawyers at an hourly rate and is largely disconnected from the sum involved. Therefore the ROI of tax planning increases dramatically with larger sums. i.e. spend $50k to setup some complex structure to save $60k in taxes? no thanks, spend $75k to save $1m? i'm listening...
gozo 11y ago
Someone always feels the need to point that out. That isn't the point here though. A lot of these offshore jurisdictions are used for dirty money from Russia, China and the Middle East. The reason the US has become a lot harder on offshore jurisdictions isn't primarily because of tax reasons, as illustrated by continued existence of the loophole used by large tech companies, but to give more power to the NSA to prevent terrorism financing and conduct other forms of intelligence, like industrial espionage. That's also why they spied on SWIFT transactions and why they don't care that the US itself is secretive.
- JoshTriplett 11y ago
  > The reason the US has become a lot harder on offshore jurisdictions isn't primarily because of tax reasons, as illustrated by continued existence of the loophole used by large tech companies, but to give more power to the NSA to prevent terrorism financing and conduct other forms of intelligence, like industrial espionage. That's the stated reason behind "know your customer" laws and international pressures to enact the same. However, once you have the information, nothing requires that it only serve that purpose...
noja 11y ago
https://www.youtube.com/watch?v=m2q-Csk-ktc https://www.youtube.com/watch?v=m2q-Csk-ktc
branchless 11y ago
Would someone in 1929 have conceived international tax havens, shell companies and modern creative accounting? If he had, would he have approved? I doubt it.
- KaiserPro 11y ago
  They had been around for a while, and had been legally tested... The U.K. passed legislation in 1925 that made it easier for individuals to use trusts to keep their financial affairs under wraps. Four years later, London courts ruled that Egyptian Delta Land and Investment Co. Ltd., which was registered in London and headquartered in Cairo, did not have to pay tax in the U.K., setting a precedent for future tax avoidance.[1] [1]http://www.bloomberg.com/news/articles/2013-05-03/offshore-tax-havens-in-spotlight-after-200-year-history http://www.bloomberg.com/news/articles/2013-05-03/offshore-t...
  - branchless 11y ago
    Taking any lead from the UK for guidance on right and wrong is a bad idea. It's a rentier paradise. The UK establishment love not paying their way. Again I doubt the person quoted envisaged shell companies for avoiding tax across international borders when they are in fact based in the country they are avoiding tax and using the infrastructure.
mfringel 11y ago
[IANAUKTL] That would appear to run directly up against the Ramsay Principle.[1] Specifically, if a company does a series of pre-ordained business transactions with no commercial purpose, specifically with the goal of reducing their tax burden, Inland Revenue can look at the whole transaction and assess payment based on what would have happened otherwise. A similar case happened in the US with Gregory v. Helvering[2], with the out-of-context quote from Judge Learned Hand in the predecessor case (Helvering v. Gregory[3]) saying roughly the same thing as Lord Clyde. [1] https://en.wikipedia.org/wiki/Ramsay_principle https://en.wikipedia.org/wiki/Ramsay_principle [2] https://en.wikipedia.org/wiki/Gregory_v._Helvering https://en.wikipedia.org/wiki/Gregory_v._Helvering [3] http://www.leagle.com/decision/193487869F2d809_1591/HELVERING%20v.%20GREGORY http://www.leagle.com/decision/193487869F2d809_1591/HELVERIN...
- AnthonyMouse 11y ago
  The Ramsay Principle requires there to be no commercial purpose. But "commercial purpose" is so broad that you can fall into it without even trying.
Marazan 11y ago
Funny how you don't quote the Ramsey Principle which comes decades after Pullman Motor Services and thus has primacy.

by vixen99 11y ago

sageikosa 11y ago

Tax exposure abatement!

DanBC 11y ago

Sure, everyone is happy with normal tax planning. But some of these tax avoidance schemes are only legal because tax authorities do not have the number of staff needed to investigate and prosecute all of them. They use weird loopholes (which get closed, and which sometimes require repayment of unpaid tax) and bizarre corporate structures which only exist to avoid tax. Tax avoidance has changed its meaning from normal tax planning to become that gray not-yet-regulated area near outright tax evasion.

junto 11y ago
If they really wanted to close these loopholes they would. Politicians only push them to be closed whilst a) the companies in question aren't lining their pockets, and b) the politicians start to lose votes because of it.
- rbcgerard 11y ago
  I think that that for every "loophole", separating the legitimate and illegitimate users (however you wish to define those) objectively is next to impossible.
- asift 11y ago
  While I think there is truth to your point, it's also true that some loopholes are the result of unintended consequences rather than conscious creation. In these instances, there will still be companies lobbying to keep these loopholes open, but the government can still fail at closing loopholes even when they are explicitly trying to close them.
  - junto 11y ago
    Indeed, many loopholes are due to the fact that taxes are national whist companies are global.
LordKano 11y ago
But some of these tax avoidance schemes are only legal because tax authorities do not have the number of staff needed to investigate and prosecute all of them. There is a difference between something that is legal and something that is illegal but difficult to prove. You seem to be conflating the two issues. They use weird loopholes (which get closed, and which sometimes require repayment of unpaid tax) and bizarre corporate structures which only exist to avoid tax. If tax law were not so onerous and burdensome, there would be no incentive to crease these corporate structures and to manage business in such a way. There is nothing legally or morally objectionable about using the rules, written by your adversary, to your own advantage.
- joosters 11y ago
  But tax laws have to become more and more onerous in order to close each loophole... it's a self-fulfilling prophecy.
  - jpgvm 11y ago
    Not entirely true. Tax laws have loopholes because exceptions were made. If there were no exceptions there would be no loopholes. So the real goal should be instead of trying to patch the infinite number of loopholes created by ever increasing complexity is to throw it all out and come up with a simple ruleset that applies to everyone and everything with no exceptions.
    - derekp7 11y ago
      Let's try on an example: All revenue is taxed at 20%. Now this will work for some businesses, as the cost to make the product is low enough, and the sale price high enough, that 20% can be paid and there is still profit left over. But then there are very low margin, high volume businesses. They may have only a marginal profit per unit sold due to the nature of what they are selling, leaving no room for 20% tax. So we add in an exception that says "You can deduct from revenue the cost of goods sold" (i.e., tax on net instead of gross). Now all the business has to do is find ways of hiding profit in the cost of goods sold. Then there are products which contain materials that changed hands many times before it got to the final product. So if a raw material (lets say, cotton) is the majority expense, it has to go to one company to refine it, a second company to turn it into thread, a third to add color, a fourth to make it into fabric, and finally a fifth company to make a shirt. So that cotton gets taxed 5 times before it gets sold to the end consumer. So let's add another exception, that goods sold for use in making another product aren't taxed -- that way, large businesses that produce the entire vertical stack in-house don't have an unfair tax advantage against smaller companies. Gee, now we have another loophole that can be creatively exploited.
gizi 11y ago
Concerning "normal tax planning", there is no definition for the term "normal tax planning" for which we could implement a function that returns a yes or a no. In other words, the term "normal tax planning" would never appear in any policy document. The tax code is already arbitrary enough as it stands.
- rbcgerard 11y ago
  What many forget, but is fairly straightforward, is that tax planning is usually performed by accountants and lawyers at an hourly rate and is largely disconnected from the sum involved. Therefore the ROI of tax planning increases dramatically with larger sums. i.e. spend $50k to setup some complex structure to save $60k in taxes? no thanks, spend $75k to save $1m? i'm listening...

gozo 11y ago

Someone always feels the need to point that out. That isn't the point here though. A lot of these offshore jurisdictions are used for dirty money from Russia, China and the Middle East. The reason the US has become a lot harder on offshore jurisdictions isn't primarily because of tax reasons, as illustrated by continued existence of the loophole used by large tech companies, but to give more power to the NSA to prevent terrorism financing and conduct other forms of intelligence, like industrial espionage. That's also why they spied on SWIFT transactions and why they don't care that the US itself is secretive.

JoshTriplett 11y ago
> The reason the US has become a lot harder on offshore jurisdictions isn't primarily because of tax reasons, as illustrated by continued existence of the loophole used by large tech companies, but to give more power to the NSA to prevent terrorism financing and conduct other forms of intelligence, like industrial espionage. That's the stated reason behind "know your customer" laws and international pressures to enact the same. However, once you have the information, nothing requires that it only serve that purpose...

noja 11y ago

https://www.youtube.com/watch?v=m2q-Csk-ktc https://www.youtube.com/watch?v=m2q-Csk-ktc

branchless 11y ago

Would someone in 1929 have conceived international tax havens, shell companies and modern creative accounting? If he had, would he have approved? I doubt it.

KaiserPro 11y ago
They had been around for a while, and had been legally tested... The U.K. passed legislation in 1925 that made it easier for individuals to use trusts to keep their financial affairs under wraps. Four years later, London courts ruled that Egyptian Delta Land and Investment Co. Ltd., which was registered in London and headquartered in Cairo, did not have to pay tax in the U.K., setting a precedent for future tax avoidance.[1] [1]http://www.bloomberg.com/news/articles/2013-05-03/offshore-tax-havens-in-spotlight-after-200-year-history http://www.bloomberg.com/news/articles/2013-05-03/offshore-t...
- branchless 11y ago
  Taking any lead from the UK for guidance on right and wrong is a bad idea. It's a rentier paradise. The UK establishment love not paying their way. Again I doubt the person quoted envisaged shell companies for avoiding tax across international borders when they are in fact based in the country they are avoiding tax and using the infrastructure.

mfringel 11y ago

[IANAUKTL] That would appear to run directly up against the Ramsay Principle.[1] Specifically, if a company does a series of pre-ordained business transactions with no commercial purpose, specifically with the goal of reducing their tax burden, Inland Revenue can look at the whole transaction and assess payment based on what would have happened otherwise. A similar case happened in the US with Gregory v. Helvering[2], with the out-of-context quote from Judge Learned Hand in the predecessor case (Helvering v. Gregory[3]) saying roughly the same thing as Lord Clyde. [1] https://en.wikipedia.org/wiki/Ramsay_principle https://en.wikipedia.org/wiki/Ramsay_principle [2] https://en.wikipedia.org/wiki/Gregory_v._Helvering https://en.wikipedia.org/wiki/Gregory_v._Helvering [3] http://www.leagle.com/decision/193487869F2d809_1591/HELVERING%20v.%20GREGORY http://www.leagle.com/decision/193487869F2d809_1591/HELVERIN...

AnthonyMouse 11y ago
The Ramsay Principle requires there to be no commercial purpose. But "commercial purpose" is so broad that you can fall into it without even trying.

Marazan 11y ago

Funny how you don't quote the Ramsey Principle which comes decades after Pullman Motor Services and thus has primacy.