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.
