Debate and legal consideration of the difference between tax evasion and tax avoidance is nothing new. However, a new joint report released by the House of Commons All-Party Parliamentary Group on Anti-Corruption & Responsible Tax and lobby organisation TaxWatch, Putting a stop to the tax fraud game, seeks to have something new to say.
Most of us are familiar with the words of Lord Tomlin in Inland Revenue Commissioners v Duke of Westminster (1936) AC 1 that: ‘Every man is entitled, if he can, to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure this result, then, however unappreciative the Commissioners of Inland Revenue or his fellow tax-payers may be of his ingenuity, he cannot be compelled to pay an increased tax.’
On the other hand, just as familiar is former chancellor of the exchequer Denis Healey’s pronouncement that: ‘The difference between tax avoidance and tax evasion is the thickness of a prison wall.’
At the core of the new report is the authors’ perception that for too long, tax advisers have sought to gain improper tax advantages for their clients through artificiality, which they term ‘playing the game’. The report bemoans that, although they feel a jury might be convinced that many such actions could be considered dishonest, instances of HMRC bringing criminal prosecutions against advisers and taxpayers for cheating the public revenue are precious few.
The report argues that ‘so-called “legal” tax avoidance and tax fraud should therefore be treated as categories which substantially overlap’ and that HMRC is errant and ‘should be enforcing the law of the land, not the “rules of the game”.’
The report questions why HMRC only tends to prosecute where documents were falsified or there was some sort of concealment. However, the answer, which the report ducks around, is obvious: successful criminal prosecutions rely upon convincing a jury of dishonesty to a criminal standard and burden of proof, i.e. beyond reasonable doubt and with the burden on HMRC. That does not lend itself – in the absence of clear self-incriminating evidence – to complex and nuanced situations, whatever the authors might want to think to the contrary. HMRC cannot afford to waste precious resources on speculative prosecutions or afford the fallout of such prosecutions failing.
The report is also dismissive and ill-informed about the civil process. It states: ‘it is not the tax tribunal’s job to determine whether the taxpayer’s behaviour was dishonest, fraudulent ... the question of whether tax fraud has taken place is not very often considered by a court.’
On the contrary, that is the everyday determination which decides civil penalty levels as, well, frequently, as which years HMRC is still in time to assess.
There is no denying that there have been a few bad actors who have crossed a crucial line into dishonesty in advising their clients. Sometimes that dishonesty has extended to complicit taxpayers too. However, in seeking to reform tried and tested processes, one must first properly understand what those processes are.
Home >Articles > Blurring the boundary between avoidance and evasion
Blurring the boundary between avoidance and evasion
Debate and legal consideration of the difference between tax evasion and tax avoidance is nothing new. However, a new joint report released by the House of Commons All-Party Parliamentary Group on Anti-Corruption & Responsible Tax and lobby organisation TaxWatch, Putting a stop to the tax fraud game, seeks to have something new to say.
Most of us are familiar with the words of Lord Tomlin in Inland Revenue Commissioners v Duke of Westminster (1936) AC 1 that: ‘Every man is entitled, if he can, to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure this result, then, however unappreciative the Commissioners of Inland Revenue or his fellow tax-payers may be of his ingenuity, he cannot be compelled to pay an increased tax.’
On the other hand, just as familiar is former chancellor of the exchequer Denis Healey’s pronouncement that: ‘The difference between tax avoidance and tax evasion is the thickness of a prison wall.’
At the core of the new report is the authors’ perception that for too long, tax advisers have sought to gain improper tax advantages for their clients through artificiality, which they term ‘playing the game’. The report bemoans that, although they feel a jury might be convinced that many such actions could be considered dishonest, instances of HMRC bringing criminal prosecutions against advisers and taxpayers for cheating the public revenue are precious few.
The report argues that ‘so-called “legal” tax avoidance and tax fraud should therefore be treated as categories which substantially overlap’ and that HMRC is errant and ‘should be enforcing the law of the land, not the “rules of the game”.’
The report questions why HMRC only tends to prosecute where documents were falsified or there was some sort of concealment. However, the answer, which the report ducks around, is obvious: successful criminal prosecutions rely upon convincing a jury of dishonesty to a criminal standard and burden of proof, i.e. beyond reasonable doubt and with the burden on HMRC. That does not lend itself – in the absence of clear self-incriminating evidence – to complex and nuanced situations, whatever the authors might want to think to the contrary. HMRC cannot afford to waste precious resources on speculative prosecutions or afford the fallout of such prosecutions failing.
The report is also dismissive and ill-informed about the civil process. It states: ‘it is not the tax tribunal’s job to determine whether the taxpayer’s behaviour was dishonest, fraudulent ... the question of whether tax fraud has taken place is not very often considered by a court.’
On the contrary, that is the everyday determination which decides civil penalty levels as, well, frequently, as which years HMRC is still in time to assess.
There is no denying that there have been a few bad actors who have crossed a crucial line into dishonesty in advising their clients. Sometimes that dishonesty has extended to complicit taxpayers too. However, in seeking to reform tried and tested processes, one must first properly understand what those processes are.
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