John Mills, tax and dishonesty

by Dan McCurry

On the issue of taxation abuse, we need to move on from the oversimplified distinction between legal avoidance and illegal evasion.

At the moment some avoidance has shocked people, while other avoidance, such as my tax free savings, is not an abuse. In order to sort out the difference between good and bad avoidance, I suggest people concern themselves with whether the avoidance was dishonest or not.

In the case of George Osborne’s complaint about a Labour donation, we need to ask, was John Mills dishonest in his method of avoiding tax in this donation? If he was, then Labour is in trouble, if he wasn’t then we are not. Mr Mills chose not to sell the £1.5m of shares and give the cash to Labour, as that would have been taxed as a capital gain. By giving Labour the shares, then Labour will be taxed on the dividends, but only liable to the capital gains if they are sold.

I have some of my savings in an ISA as a tax efficient method of building a pension. I can invest £11,250 per year in my ISA and this will be exempt from taxation both on the dividends and on the capital gains. The same applies to a donation I might give to charity that can be given with “Gift Aid” so that the tax paid amount is passed on to the charity. Is that dishonest? No.

This is quite different from the case of Jimmy Carr who passed his money to an Isle of Man, company who then provided him with same amount back but called it a loan. A loan isn’t taxable, so he avoided tax. Now, any sensible person would describe that as completely dishonest, but because tax law is based on a set of rules, he wasn’t prosecuted.

Criminal law is a different set of law and can take precedence if policy makers wish it to. If the authorities wished to prosecute him for fraud, they could have done so, but if they had, then they would probably have to prosecute everyone else who has done similar, and that is a prospect that can be frightening to the people who run this country.

Fraud is when someone commits a dishonest act which makes a gain for himself, or a loss to another.

The other problem that exists with tax is that countries tend to have bilateral treaties with each other.

We make an agreement with America not to prosecute their companies and they won’t hassle our companies. We then have a bilateral agreement with Ireland, France, Switzerland etc. At the time that these agreements were made, they worked, but these days, globalisation makes it possible for companies to move money about and operate within rules, but in a completely dishonest way.

Is it honest or dishonest for Starbucks to say that a £1.50 cup of coffee is made up of £1.40 in intellectual property and the other 10p is the cost of the raw materials. Taking into account that the £1.40p is paid to a company owned by Starbucks, it is fair to say that this is totally dishonest. However, the rules allow to happen because we have a rules based system.

When Ed Miliband was asked about the donation from John Mills, following his keynote speech the other day, he would have been wise to have answered using the distinction of honesty and dishonesty. There is no question of dishonesty in this example.

Philip Green paid a £1 billion dividend to his wife in Monaco. As a foreign national, she doesn’t pay tax in this country but may pay a tiny amount in Monaco. The entire business is in the UK, but she makes sure she only goes to the UK for 3 months of the year in order to qualify as a foreigner. Is that honest or dishonest? I’m not sure that it is dishonest to live elsewhere, but I’m sure it would be dishonest to claim that she is the sole beneficiary of the dividend, if they are married and in a relationship.

The current trend is for policy makers to be concerned with opening up tax havens to transparency, and the media have been exposing the abuse of multinationals. We should at some point move towards discussing a change in the system from rules-based to principle-based law.

Dan McCurry is a Labour activist who blogs here


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13 Responses to “John Mills, tax and dishonesty”

  1. Nick says:

    I don’t think he was dishonest.

    I think Labour was dishonest. From what he says, the donation was arranged to avoid Capital gains tax.

    That Labour comes out and says, look we are paying tax on the dividends, and using that as a distraction from the massive avoidance of capital gains shows just what scum they are.

    They have stood up and castigated companies for doing exactly the same.

    So all this tells me, ring up my accountant and see what he can do for me.

    As for principles, you’ve just lost yours by using the same approach.

    Princple based is just another word for making it up as you go. Write the laws properly.

    Meanwhile, its still screwed. on the matter of principles why would Labour and Milliband persist in claiming debts of 1,200 bn, when that excludes the 5,300 bn pensions debts.

    Politicians are dishonest liars. The public have worked that out. So part of that is not playing the game the way you want.

    You could always ask people directly for donations. They will probably refuse.

  2. Nick says:

    s it honest or dishonest for Starbucks to say that a £1.50 cup of coffee is made up of £1.40 in intellectual property and the other 10p is the cost of the raw materials

    ===============

    Is it honest for you to make up numbers?

    So lets see – staff costs are zero.
    Rates are free
    Rents are free.
    Heating – free
    Lighting – free.

    You’re living in la la land if you think is 10p materials, 140 p profit. Complete la la land.

    As a result why should we trust you with any of our money, when you are so deluded as to what is going on.

  3. Ex-labour says:

    Your narrative is based on avoidance (legal) or evasion(illegal) and then go on to talk about honesty or dishonesty with regards to avoidance. There is no such thing, if you avoid tax then it’s legal. However I don’t think this is really what it’s about. In reality it’s about hypocracy and whether Labour are being hypocritical.

    The answer you are searching for is yes.

    If Labour take the moral high ground on legal avoidance telling the world it’s wrong, then taking Mills donation in the knowledge, according to Mills himself, that it was “tax efficient” I.e. tax avoiding, then Labour are bing dishonest with the public and themselves.

    The rank hypocracy is made worse when the person hectoring everyone else is none other than Margret Hodge.

    It’s a classic case from Labour of do as I say, not as I do.

  4. McCurry says:

    @EX-LABOUR

    So if I give a donation to charity and have the tax added to that donation, then this is avoidance, but it’s not a bad thing.
    What I’m saying is that some legal avoidance should be illegal, and I’m making the distinction along the lines of dishonesty.

  5. Ex-labour says:

    @mcCurry

    I agree that some avoidance should be made illegal, but tax systems in all countries have loop holes which are exploited. However you raised the question of Labour and the Mills donation and once again raised the old canard of Philip Green.

    My point is that Miliband, Hodge and Labour in general have been hectoring individuals, companies and banks on tax avoidance, but then are happy to defend a tax dodging donation to the Labour Party.

    You seem to want now to draw a distinction between acceptable and unacceptable avoidance and what avoidance is honest or dishonest. This is a subjective veiw and the message from Labour is that their avoidance is acceptable and honest.

    Both Green and Mills have “tax efficient” financial arrangments which are within the law and personally I don’t have a problem with that, but it seems you deem one dishonest and the other honest , or is it really that one is Conservative and the other Labour?

  6. McCurry says:

    @ Ex

    If John Mills gave a massive amount of money to his wife in Monaco, I would condemn it.

  7. There is more going on here.

    It is absolutely forbidden to be a hugely successful businessman and a much-published economist in the Classic Labour tradition.

    Or else.

    It is absolutely forbidden to oppose the EU from a Classic Labour, by no means Hard Left, perspective, and to have been doing so since the Year Dot, or indeed for anyone in business to deviate from the CBI’s line of uncritical support for what has, after all, always been a project expressing the depth, breadth and ferocity of Thatcherism that she of the Single European Act was never able to implement through the British Parliament that she utterly despised.

    Or else.

    It is absolutely compulsory to uphold neoliberal capitalism as the only pro-business position, no matter how corrosive it might be of business, of fiscal responsibility, of a large and thriving private sector, and of a large and thriving middle class.

    Or else.

    It is absolutely compulsory to uphold the Conservative Party as this country’s approved vehicle of opposition to the EU, no matter how preposterous that might have always have been in actual fact, and to defer to the saloon bar ranting of UKIP, which has no specific objection to the EU and in fact agrees with its view that the only problem with British austerity is that it does not go far enough, as somehow a serious contribution to the debate.

    Or else.

    And it is absolutely unconscionable that a major political party, with a large and permanent lead in the opinion polls and sweeping all before it whenever real votes are cast, might have as its single largest donor a hugely successful businessman who is also a much-published economist in the Classic Labour tradition, and who on that basis has been an opponent of the EU since the Year Dot.

    Or else.

  8. Fred smith says:

    Ex Labour,

    Thanks you made the point that I wanted to. You are however making two mistakes.

    1 Assuming McCurry has the intellect to understand your argument.
    2 Assuming he sees anything other through his rose tinted spectacles.

  9. Henrik says:

    Oh come on, comrades. Tax isn’t a moral issue, it’s a legal one. The law says we have to pay tax and it sets out a rather complex set of circumstances which determine how much and when. It’s purely rational to manage down the amount you pay to the least amount feasible. I rather wish I was a huge multinational company and could manage down my tax – as it is, I’m a PAYE wage slave and there’s very limited scope for me to avoid paying tax at the higher rate + NI – but I would if I could, it’s *my* money, after all.

    If people are ‘getting away’ with stuff, then it’s surely up to Parliament and the Revenue to come up with a set of obligations which make that impossible. A simple, flatter – and cheaper – tax structure might well help, here. The Laffer Curve might still be our friends – although Labour, with its addiction to spending other people’s money, might not agree.

  10. McCurry says:

    I’m scratching my intellect with this tiny match, as it’s the only thing small enough to do the job.

    @David Lindsay. Are you saying that Miliband has been silenced on the EU debate by a large donation?

    It is curious how someone could give such a large amount of money to Labour and then make such an obvious gaff as to tell the Torygraph that he avoided tax in the giving of it. It almost looks like a deliberate act. A shot across the bows?

    Interesting…. No, that would make me a conspiracy theorist. I know I’m not one of them, because whenever I propose a conspiracy they always come true.

  11. Piorot says:

    A plausible but dishonest exposition.

    While you know Starbucks do not pay anything remotely like £1.40 in IP, you also know they can not just freely decide what to pay to themselves in their tax accounts. To say otherwise is one dishonest lie deliberately disguised within another.

    Where value is transferred the rules say it should be accounted for and the value must be that of a free, arms length transaction. None of this is a matter of freedom and, as Starbucks have some franchised outlets, even room for estimation is limited.

    The reason for these rules is very simple, the taxation burden on our activities is far higher than post tax profits (about 20 times the size) and thus it has significant impact on what we chose to do and not do. It is so significant that even “zero tax” Starbucks hands over more than 50p of the £1.50 you paid them straight to the taxman.

    If the rules were not as they are, more total tax would be bourn by customers using Starbucks owned outlets than by Starbucks badged franchises. Effectively the rules would prevent customers having the benefit of Starbucks owned shops in the UK and not a penny more would be collected in tax.

  12. John Reid says:

    I agree with ex labour second comment and what David Lindsay said

  13. Money online says:

    Until there are ways to avoide taxation, there will always be opportunities not to pay.
    It’s quite natural for a person to take care of himself and his family. Earning moneyin the first turn he does it for his own sake, and if it’s possible to preserve them, everybody will for sure do.
    Charity is the most noble way among the described above, still the motivation upsets.

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