Tax avoidance is fine but tax evasion isn't. The EU, in a roundabout way, is basically saying that Apple has been evading tax.
No they aren't. The EU isn't saying much about Apple at all, the problem is with Ireland.
And tax avoidance isn't fine, just legal.
If you think tax avoidance isn't fine can I just ask if you claim any tax deductions or personal allowances on your own tax return? If you do then you are performing "tax avoidance" yourself by using the tax law, and the provisions it provides, to lower the tax due on your total earnings.
Certain tax avoidance performed by companies (and people) can become tax evasion when the grey areas of tax law become clear, usually through litigation or other means. Until such time, avoidance is perfectly legal and good business/personal practice.
Tax avoidance is fine but tax evasion isn't. The EU, in a roundabout way, is basically saying that Apple has been evading tax.
No they aren't. The EU isn't saying much about Apple at all, the problem is with Ireland.
And tax avoidance isn't fine, just legal.
If you think tax avoidance isn't fine can I just ask if you claim any tax deductions or personal allowances on your own tax return? If you do then you are performing "tax avoidance" yourself by using the tax law, and the provisions it provides, to lower the tax due on your total earnings.
Certain tax avoidance performed by companies (and people) can become tax evasion when the grey areas of tax law become clear, usually through litigation or other means. Until such time, avoidance is perfectly legal and good business/personal practice.
No, using deductions for the reason that they are provided is a very different proposition than deliberately structuring your economic assets in such a way as to misrepresent economic activity for a tax advantage. I do some (actually very little) of the former, and absolutely none of the latter. I do not claim tax residency in a low tax jurisdiction, though I probably could, I do not claim that my employment is that of a lower-tax small business business rather than an individual, though I probably could; I do not export my savings into schemes that exploit investment loopholes, though I probably could. I have in the past taken tax relief on my student loan, my pension, and some small enterprise investments, all of which were government backed and used in exactly the way they were intended to be used.
Using deductions is not tax avoidance. Deliberate restructuring is tax avoidance, and when it exploits legal ambiguity and misrepresentation to achieve lower tax it is not fine. Gaming the system is not something to be applauded, or even tolerated, it is cheating everyone else. People who avoid tax cause your tax bill to be higher, and your public services to be starved of resources. And you think this is fine
I'm sorry but that is exactly what it is. I worked for the Inland Revenue in the late eighties, early nineties. Good personal accounting means paying as less taxes as possible. The deductions are due to the people they are aimed at and it is up to those people to know if they are entitled to them or not. It's impossible for the government to know all your personal circumstances although in some areas (banking) you may find the government has already taken into account your mortgage payments, investments, and salaried income. Other areas, such as swapping out old windows for energy efficient ones may entitle you to deductions that the government cannot know about until you send in your return.
Yes, there are lots of grey areas but that's why we have tax inspectors.
Tax evasion is completely different and if you read the EU summary report, it becomes clear that the EU has found some very dubious accounting practices at Apple. The formal complaint centres on illegal state aid but it's clear that this is also a wake up call to Apple (and many others) on how they account for their business.
We do not know anything about the realities of Apple's accounting (in spite of the claims of innocence and moral chest beating) beyond what has been outlined in the EU investigation summary but when Apple formally makes its defence available to the public we will see if public opinion sides with them or not. That's the PR part. After that, we will have to wait for a formal ruling.
Tax avoidance is fine but tax evasion isn't. The EU, in a roundabout way, is basically saying that Apple has been evading tax.
No they aren't. The EU isn't saying much about Apple at all, the problem is with Ireland.
And tax avoidance isn't fine, just legal.
Taxes are man-made and tax levels are decided by the people who are employed thanks to their existence. Only a fool would argue there isn't a massive conflict of interest there.
the arrangement of one's financial affairs to minimize tax liability within the law.
Deductions are not necessarily made to minimize one's tax liability, they are a tax benefit offered for a specific reason, such as child benefit, incentive to work low wage jobs, incentive to invest in a pension etc. Very few people have children, go to work, or invest in a pension in order to minimise their tax liability, it is a by-product.
A person may arrange their affairs to exploit deductions and loopholes in order to minimise their tax liability, but the former does not necessarily follow the latter.
Taking deductions are not tax avoidance. In this country many common deductions don't even need to be claimed, they are built into the PAYE system. It can hardly be avoidance if it occurs automatically, avoid is an active verb.
Tax avoidance involves bending the rules of the tax system to gain a tax advantage that Parliament never intended.
QED, properly used deductions are not tax avoidance.
Yes. An eye opener for sure. Thank you for the link. It seems that not only the name of the department has changed.
So what term are we using now to make the difference between legal and illegal 'avoidance'?
As an aside we were always shown that it was important to distinguish between those that 'couldn't' pay their taxes and those who 'didn't want' to pay. I bet that has changed too. I personally wrote off hundreds of thousands of pounds on cases where recovery would have cost more than the amount being sought.
I don't agree with the change in terminology but it could have something to do with the campaign for simple English that was all the rage at the time.
Anyway, thanks for the information Crowley. It is appreciated.
I have made some consultations and done some digging and it seems government has dug a hole for itself while at the same time wanting to have its cake and eat it.
I don't know when the use of the terminology changed in earnest but the legislative side was cooked up as a result of the world economic crisis. Now the government has enshrined in its definitions the term 'unintended' which means that tax avoidance is completely legal as long as you take advantage of the system as it was 'intended' by parliament. The definition of 'intended' logically and conveniently isn't provided and is going to prove prickly to define, but to cover its back, the government introduced legislation which came into force on the 1.1.17 which allows it to impose penalties on professionals who simply provide information on how to avoid tax. This is also going to be prickly too.
Ironically, the government is trying to clean up its own mess with these tactics as the root cause of this situation is clear: poor legislation.
Given the extreme complexity of the UK tax system and its covering legislation, you would think that they would be working towards clarifying the duties of the taxpayer and defining 'intended use' through clearly defined legislation. Something that isn't all that difficult to implement.
As a result we now have the absurd situation where avoidance is perfectly legal (and even encouraged by government) but unintended use of avoidance is deemed illegal with the final word on what is legal or illegal falling on the courts who will have the unenviable task of also deciding what 'intended' meant in the first place. The interpretation of extreme cases is clear. The problem is that by definition, this situation creates grey areas which could largely have been avoided (especially when it comes to individuals).
I can't speak to the semantics of the use of the terms tax avoidance and tax evasion in the U.K. or by U.K. agencies, I'm not familiar with their usage there.
But in the U.S. tax avoidance refers to most anything someone does to reduce their tax liability - e.g., claiming deductions for children or making donations to charity. It is not only legal but encouraged by the I.R.S. whereas tax evasion is illegal and of course not encouraged by the Internal Revenue Service.
Comments
Certain tax avoidance performed by companies (and people) can become tax evasion when the grey areas of tax law become clear, usually through litigation or other means. Until such time, avoidance is perfectly legal and good business/personal practice.
Using deductions is not tax avoidance. Deliberate restructuring is tax avoidance, and when it exploits legal ambiguity and misrepresentation to achieve lower tax it is not fine. Gaming the system is not something to be applauded, or even tolerated, it is cheating everyone else. People who avoid tax cause your tax bill to be higher, and your public services to be starved of resources. And you think this is fine
I'm sorry but that is exactly what it is. I worked for the Inland Revenue in the late eighties, early nineties. Good personal accounting means paying as less taxes as possible. The deductions are due to the people they are aimed at and it is up to those people to know if they are entitled to them or not. It's impossible for the government to know all your personal circumstances although in some areas (banking) you may find the government has already taken into account your mortgage payments, investments, and salaried income. Other areas, such as swapping out old windows for energy efficient ones may entitle you to deductions that the government cannot know about until you send in your return.
Yes, there are lots of grey areas but that's why we have tax inspectors.
Tax evasion is completely different and if you read the EU summary report, it becomes clear that the EU has found some very dubious accounting practices at Apple. The formal complaint centres on illegal state aid but it's clear that this is also a wake up call to Apple (and many others) on how they account for their business.
We do not know anything about the realities of Apple's accounting (in spite of the claims of innocence and moral chest beating) beyond what has been outlined in the EU investigation summary but when Apple formally makes its defence available to the public we will see if public opinion sides with them or not. That's the PR part. After that, we will have to wait for a formal ruling.
A person may arrange their affairs to exploit deductions and loopholes in order to minimise their tax liability, but the former does not necessarily follow the latter.
Taking deductions are not tax avoidance. In this country many common deductions don't even need to be claimed, they are built into the PAYE system. It can hardly be avoidance if it occurs automatically, avoid is an active verb.
So what term are we using now to make the difference between legal and illegal 'avoidance'?
As an aside we were always shown that it was important to distinguish between those that 'couldn't' pay their taxes and those who 'didn't want' to pay. I bet that has changed too. I personally wrote off hundreds of thousands of pounds on cases where recovery would have cost more than the amount being sought.
I don't agree with the change in terminology but it could have something to do with the campaign for simple English that was all the rage at the time.
Anyway, thanks for the information Crowley. It is appreciated.
I don't know when the use of the terminology changed in earnest but the legislative side was cooked up as a result of the world economic crisis. Now the government has enshrined in its definitions the term 'unintended' which means that tax avoidance is completely legal as long as you take advantage of the system as it was 'intended' by parliament. The definition of 'intended' logically and conveniently isn't provided and is going to prove prickly to define, but to cover its back, the government introduced legislation which came into force on the 1.1.17 which allows it to impose penalties on professionals who simply provide information on how to avoid tax. This is also going to be prickly too.
Ironically, the government is trying to clean up its own mess with these tactics as the root cause of this situation is clear: poor legislation.
Given the extreme complexity of the UK tax system and its covering legislation, you would think that they would be working towards clarifying the duties of the taxpayer and defining 'intended use' through clearly defined legislation. Something that isn't all that difficult to implement.
As a result we now have the absurd situation where avoidance is perfectly legal (and even encouraged by government) but unintended use of avoidance is deemed illegal with the final word on what is legal or illegal falling on the courts who will have the unenviable task of also deciding what 'intended' meant in the first place. The interpretation of extreme cases is clear. The problem is that by definition, this situation creates grey areas which could largely have been avoided (especially when it comes to individuals).
https://www.transparency.org.uk/publications/ti-uk-position-statement-on-tax-avoidance-by-individuals/
Seeing how the Brexit referendum legislation was cooked up I suppose I shouldn't be surprised by any of this.
But in the U.S. tax avoidance refers to most anything someone does to reduce their tax liability - e.g., claiming deductions for children or making donations to charity. It is not only legal but encouraged by the I.R.S. whereas tax evasion is illegal and of course not encouraged by the Internal Revenue Service.