About The Economic View

Monday, 9 February 2015

Tax Avoidance Is Not Wrong

With revelations today about HSBC's part in helping the rich avoid (and possibly evade) tax, the blogosphere has become clogged with high-minded moralising over the wrongness and immorality of tax avoidance more generally.  In recent times, companies like Starbucks and Amazon have been vilified for 'aggressive' tax avoidance, despite avoiding tax being perfectly legal and within the bounds of the law.  The distinction between tax avoidance and tax evasion is important.  Recently, the line between the two has become blurred as people have condemned both, often without realising the difference.

Tax evasion is illegal and clearly wrong.  There is not any disagreement about this.  Companies or individuals found to be breaking laws with regard to their tax liabilities should be made to pay the entire amount originally required (as well as any compensation that may be warranted), and the full extent of the law should be pursued.

Tax avoidance, however, is perfectly legal, and it is here where The Economic View has concerns over the aforementioned recent 'high-minded moralising'.  It is also too easy to criticise and condemn companies for avoiding tax, complaining of the wrongness morally of doing so.  But, if a company is complying with all laws, then what is the right amount of tax to pay, if not the current amount?  What is the moral amount of tax to pay?  Much of the discussion around these issues is very generalised and vague about the wrongs of Amazon or Starbucks or whoever paying a certain amount of tax deemed 'too low'.  But, if it is within the bounds of the law, then what is wrong?  What amount should they pay instead?

As any tax accountant will tell you, there are a million different ways for individuals or companies to manage their tax affairs.  Tax liabilities can be structured in an infinite number of different ways, varying in efficiency and the amount of tax paid.  Who is to say which of these infinite number of different tax structures is more moral, or 'better' than any other, if they are all legal?

Lastly, while it is easy to condemn companies for tax avoidance, who among us does not avoid tax?  The Economic View certainly does not know anybody who voluntarily pays any more tax than is legally required, yet this is not seen as wrong.  Many people will buy things in duty free while going on holiday each year, avoiding VAT, yet this is seen as permissible.

While it is all too easy to moralise about the wrongs of tax avoidance and evasion vaguely and generally, specificity is needed as to whether the activity in question is legal or illegal.  Clearly, illegal tax evasion is wrong, but what about legal tax avoidance?  It is unfair to expect companies, or individuals, to pay anything more than the minimum amount required by law.  If we want rich individuals and large multi-national companies to pay more tax, we need to change the laws to force them to do so.

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