Avoiding Tax Avoidance

Tax is a taxing subject and designing fair taxes is problematical. There is plenty of tax avoidance around, but what is tax avoidance? A person who gives a sum of money to his or her child will hope to avoid Inheritance tax, if they survive seven years. Opening an ISA account avoids some income tax. Donating to a charity avoids some income tax in many circumstances. Tax avoidance is simply arranging your affairs to minimise tax liability within the law. Some claim that a taxpayer should act within the spirit of the law, but I find it hard to understand the spirit of the law as a general principle. What seems to me to be obvious is that tax should be fair.

Ordinary people have little chance of lawfully avoiding tax, and any tax they may avoid does not really amount to more than the proverbial hill of beans. The big tax avoiders are the multinational corporations.

They use some ways of avoiding tax that sound morally questionable. For example, large companies often arrange their affairs so as to pay small amounts of tax in a low tax jurisdiction, like Luxembourg, (that stalwart of the European Union)even though they earn large amounts of revenue in many high tax jurisdictions. Digital companies, like Apple, Facebook and Google have great expertise in doing this. Trading companies like Amazon and Starbucks also have expertise. For example, Google will pay £49.3 million in Corporation Tax to the UK government this year on a profit of £200 million, even though the value of its UK sales was nearly £6 billion. Many regard this state of affairs as unfair, and if taxes are to be imposed all taxpayers must feel that the tax system is fair.

In the UK Amazon records profits of just £34.4 million and paid £11.9 million in tax. It seems that Amazon does not pay all of its UK staff a living wage. Many of these staff will have their income from Amazon supplement by benefits collected from taxes paid by UK taxpayers, who in effect are subsiding Amazon through the benefits system. That does not sound fair.

The solution is to avoid the tax avoidance on these large multinational companies by imposing a digital tax and a turnover tax. If the value of Google’s UK presence only shows a profit of £200 million then there must be something wrong in the way that profit is defined for tax purposes, and if the definition of profit cannot be redefined without causing all kinds of adverse consequences then it is the duty of the government to look for other ways of collecting revenue, and the most obvious way is by imposing a turnover tax and a digital tax. If the government cannot end tax avoidance it should impose different taxes which avoid tax avoidance.

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