Avoidance vs. Evasion

[mrmr96]

Seems to me that there's some confusion in the general public about what the difference is, and it's not being helped by the media in many cases.

Evasion = Breaking the tax laws. Illegal.
Avoidance = Carefully acting within tax laws. Legal.

If a person or company is engaged in tax evasion then they are already breaking the law and will be subject to prosecution if caught.

If a person or company is engaged in tax avoidance then they are acting within the law, so there's nothing anyone can do to stop them, short of changing the laws to make what they are doing illegal and THEN prosecute them if they don't stop doing it.

So there's been much made of big companies who avoid tax through 'clever schemes' and 'loop holes' but really they are abiding by the law. If we want to stop them then we need to change the law. In the mean time it seems like 'public pressure' is being used to try to shame companies into stopping doing legal tax avoidance.

For example, this BBC story:
http://www.bbc.co.uk/news/business-22977174
Headline: "Dolce and Gabbana sentenced to jail for tax evasion"
That's fine, you can go to prison for tax evasion, as it's illegal

Body: "The investigation by the Italian authorities began around six years ago as part of a government plan to crack down on tax avoidance."
Doesn't make much sense. You can't "crack down" on something which is legal. You can only "crack down" on things which are illegal, so they'd need to change the law first. Which would make what they are doing illegal and hence Evasion. So there's no way to "crack down" on avoidance, as BY DEFINITION it's legal.

Further Body Quote: "At the hearing on Wednesday, the judge ruled that the designers moved their brand to a Luxembourg-based holding company Gado in 2004. He said they had done this to avoid declaring taxes on royalties of around 1 billion euros (£833m; $1.3bn)."
This is either phrased wrongly, or irrelevant. Because if it was to avoid tax, then there's nothing illegal. If it's to evade tax then the article should say so.

It's this kind of thing which I think is really muddying the water around this issue and making it more difficult for voters to see that they can't just "complain" at the companies who they think "should" pay more tax; instead the politicians need to change the rules to compel these companies to pay more tax.

/Rant

[London424]

It's because law makers are inept, and therefore are trying to guilt companies into doing things (not saying that's the case with D&G) rather than just make tax laws without these "workarounds".

[grumbledoak]

The government seem to be intentionally blurring the terms. Presumably so they can portray everything as "those nasty companies' fault" as they did with the banks and bankers. wkers. Much of the blame for our economic situation is directly attributable to past governments.

And good on those companies who do avoid corporation tax. And a pox on those who do not understand why I say that.

I am, for my part, currently avoiding the punitive taxes on fags, booze, and petrol.

[FiF]

Completely agree with grumbledoak though sadly only avoiding punitive tax on two of those three.

Some of the companies that are accused, some please note, are doing so by playing fast and loose with transfer pricing. Is it their fault for playing fast and loose or HMRC fault for not enforcing such rules as are present?

It's certainly government's fault for the way they write the tax rules. That cannot be denied.

[mrmr96]

FiF said:

Completely agree with grumbledoak though sadly only avoiding punitive tax on two of those three.

Some of the companies that are accused, some please note, are doing so by playing fast and loose with transfer pricing. Is it their fault for playing fast and loose or HMRC fault for not enforcing such rules as are present?

It's certainly government's fault for the way they write the tax rules. That cannot be denied.

There are rules around acceptable prices used in transfer pricing. Admitedly some of these areas can be subject to judegment; because sometimes it can be difficult to determine what a fair market price is for things. However there ARE rules in place, and they should be enforced as they are, or changed to suit and THEN enforced.

Companies and individuals must be compelled by a rule change, and not coerced by public opinion.

[oyster]

mrmr96 said:

FiF said:

Completely agree with grumbledoak though sadly only avoiding punitive tax on two of those three.

Some of the companies that are accused, some please note, are doing so by playing fast and loose with transfer pricing. Is it their fault for playing fast and loose or HMRC fault for not enforcing such rules as are present?

It's certainly government's fault for the way they write the tax rules. That cannot be denied.

There are rules around acceptable prices used in transfer pricing. Admitedly some of these areas can be subject to judegment; because sometimes it can be difficult to determine what a fair market price is for things. However there ARE rules in place, and they should be enforced as they are, or changed to suit and THEN enforced.

Companies and individuals must be compelled by a rule change, and not coerced by public opinion.

There may come a point though that the public decide for themselves not to patronise companies that legally avoid tax in such ways. They can have no complaint about that.

As to the OP, government and media are deliberately inter-using 'avoidance' and 'evasion'. It suits their cause for the public to be confused.


And I put £5k into an ISA the other week, so I must be filthy rich scum. Avoiding tax like that.

[audidoody]

Cameron bleating about tax "dodging" is the same as me eating lots of pies and bleating about being fat.

[TwigtheWonderkid]

Aggressive tax avoidance is perfectly legal. But so is the government pointing out to the British public that a huge chain of coffee shops have, whilst not breaking any laws, only paid 83p in tax on 40 billion of sales.

No laws broken by anyone, but if the British public choose to boycott said coffee shops in disgust, that's not the governments fault.

This is surely the best way forward, and seems to have worked for one coffee shop chain, who I understand are now actually overpaying tax to make up for previous avoidance schemes.

[0000]

We seem to be slipping into a really nasty situation where greed determines whether or not we should have a larger tax take from companies rather than the law. It should be black and white.

[ClaphamGT3]

And presumably the very same hand-wringing, green-eyed socialist scum who seek to change the laws to drive up the tax-take from corporations will moan like buggery when those corporations have to put up their prices and all of a sudden they're paying more for their caramel frappacinos and on-line books

All because they can't bear the fact that some people pay less tax than they do. s

[anonymous-user]

mrmr96 said:

Seems to me that there's some confusion in the general public

thats because the general public is thick and poor journalism doesn't help. raising the corporate tax take is a political wet dream because most people don't realise it is a tax on them as customers, employees and shareholders (via their pensions). corporate tax is a stealth tax on individuals and they bleat for more! doh

Edited by fbrs on Wednesday 19th June 21:01

[FiF]

But what about a company that is obeying the rules including those on transfer pricing vs an outfit that isn't?

I don't see any hand wringing green eyed socialist scum there.

[anonymous-user]

FiF said:

But what about a company that is obeying the rules including those on transfer pricing vs an outfit that isn't?

I don't see any hand wringing green eyed socialist scum there.

lower corporate tax such that complex avoidance schemes confer little advantage over the little guys?

[vonuber]

ClaphamGT3 said:

And presumably the very same hand-wringing, green-eyed socialist scum who seek to change the laws to drive up the tax-take from corporations will moan like buggery when those corporations have to put up their prices and all of a sudden they're paying more for their caramel frappacinos and on-line books

All because they can't bear the fact that some people pay less tax than they do. s

I doubt the tax avoidance is used to keep prices low.

[Murph7355]

TwigtheWonderkid said:

Aggressive tax avoidance is perfectly legal. But so is the government pointing out to the British public that a huge chain of coffee shops have, whilst not breaking any laws, only paid 83p in tax on 40 billion of sales.

No laws broken by anyone, but if the British public choose to boycott said coffee shops in disgust, that's not the governments fault.

This is surely the best way forward, and seems to have worked for one coffee shop chain, who I understand are now actually overpaying tax to make up for previous avoidance schemes.

No. The best way forwards is for HMRC to stop employing muppets and start devising taxation rules that conform to their and your typical Daily Mail readers' sense of morality/fairness.

Or, come to think of it, the very best way would be for the govt not to spend (and waste) so much money. Maybe we could all pay significantly less tax then?

Two final thoughts....

- as others have said before, companies do not pay tax. So if a company takes a higher tax hit, its owners, staff and customers will be the ones paying for that. I hope you do not fall into one of those categories (knowingly or otherwise) and avoid the laws of unintended consequences.

- did the coffee shops in question suffer a directly correlating drop in revenue as a result of this which was sustained? And has the "overpayment of tax" been widely publicised? I thought there were duties of care on the directors not to do such things...so I wonder what will happen if it is publicised?

[grumbledoak]

fbrs said:

raising the corporate tax take is a political wet dream because most people don't realise it is a tax on them as customers, employees and shareholders (via their pensions).

Actually the burden falls mostly on the employees of the company through lower salaries. The EU was framed to allow companies to pay their corporation tax wherever they put their plaque on purpose to try to prevent politicians using it as a stealth tax. This seems to be the response.

[FiF]

fbrs said:

FiF said:

But what about a company that is obeying the rules including those on transfer pricing vs an outfit that isn't?

I don't see any hand wringing green eyed socialist scum there.

lower corporate tax such that complex avoidance schemes confer little advantage over the little guys?

Fair enough but it's not just little guys. You can have one international operator sticking to the rules and one taking the mick.

But in principle the solution besides adjustment of tax per your suggestion is to make the tax code simpler, clear and enforce it accurately.

[anonymous-user]

FiF said:

But in principle the solution besides adjustment of tax per your suggestion is to make the tax code simpler, clear and enforce it accurately.

sounds like a laudible plan but is this with a view to raising more tax from corporations or with a view to leveling the tax playing field? if the later then rates can be lowered to adjust for the wider base however that won't happen so your suggestion will simply be used to raise stealth taxes on us all... hmm

[Jasandjules]

grumbledoak said:

The government seem to be intentionally blurring the terms. Presumably so they can portray everything as "those nasty companies' fault" as they did with the banks and bankers. wkers. Much of the blame for our economic situation is directly attributable to past governments.

And good on those companies who do avoid corporation tax. And a pox on those who do not understand why I say that.

I am, for my part, currently avoiding the punitive taxes on fags, booze, and petrol.

This man speaks sense.

Plus, to add insult to injury, the lying cheating self serving scum have their own tax avoidances whilst they harp on about others paying their share.

[Diderot]

Yep and those who question the morality of tax avoidance are ignoring the elephant in the room: the immorality of punitive levels of direct, indirect and corporate taxation. Tax is theft, pure and simple.