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The right to avoid tax
Freedom of speech is valued by us all. But, as with most freedoms, there are always people who are willing to test them to their limit.
That is why, for instance, there is much discussion about the rights to offend and to not be offended.
The distinction between the two is important. The fact we have no right to oppress others’ voices does not give them carte blanche to wilfully abuse others. There is a point at which expression becomes oppression. Where that point is difficult to determine, as I’m sure you appreciate.
If there is a parallel between freedom of speech and freedom to minimise tax liability, it can be seen at the extremes. If there is a tax equivalent of the right to offend, it is the right to tax avoidance.
It was actually David Murray, ex-owner of Rangers Football Club, who has come out with the statement, ‘Tax avoidance is a right’.
Comedian Jimmy Carr was one of over 500 directors of Romangate Ltd, a company that reputedly sought to campaign for the right of tax avoidance as a human rights issue.
One of the fundamental tenets of the tax advisory profession is that an individual has the right to arrange his or her affairs so as to minimise liabilities. I agree with that, but not with the assertion it equates to a right to avoid tax.
Many advisers will be familiar with this extract from Baron Tomlin’s speech in Duke of Westminster v Commissioners of Inland Revenue 19 TC 490:
‘Every man is entitled if he can to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure this result, then, however unappreciative the Commissioners of Inland Revenue or his fellow tax-payers may be of his ingenuity, he cannot be compelled to pay an increased tax.’
The passage has long been used as a legal justification for the right to avoid tax. Anybody quoting it, however, should read it in its context. I have reproduced the key section here, with a little editing for brevity:
‘It is said that in Revenue cases, there is a doctrine that the court may ignore the legal position and regard what is called "the substance of the matter”. This supposed doctrine seems to rest for its support upon a misunderstanding of language used in some earlier cases. The sooner this misunderstanding is dispelled and the supposed doctrine given its quietus the better it will be for all concerned, for the doctrine seems to involve substituting "the uncertain and crooked cord of discretion" for "the golden and straight mete wand of the law".
‘Every man is entitled if he can to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure this result, then, however unappreciative the commissioners of Inland Revenue or his fellow tax-payers may be of his ingenuity, he cannot be compelled to pay an increased tax. This so-called doctrine of "the substance" seems to me to be nothing more than an attempt to make a man pay notwithstanding that he has so ordered his affairs that the amount of tax sought from him is not legally claimable.’
That last sentence is crucial in the context of the first paragraph: Tomlin is not proposing a doctrine of the right for taxpayers to artificially reduce their tax liability; he is denying the right of the Revenue to artificially maximise the burden of tax on an individual.
To bring it back to the analogy with the right to offend, Tomlin does not suggest the right to avoid tax but suggests the non-right to not have tax avoided.
My point in exploring the analogy is the comparison with the risk posed to the freedom of speech by laws introduced, which target those who exploit the non-right of others not to be offended.
If we are not careful in how we address the advocates of the right to avoid tax, we risk losing much more.
Or rather, we risk gifting the state an opportunity to create a right it has never had, one that is as open to abuse as a right to avoid: the right to interpret ‘the substance of the matter’ as it chooses.
Ben Saunders CTA is an assistant business tax manager at LexisNexis
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