Tax Avoidance

I nearly became a tax lawyer. The thought still haunts me. There is something chilling about the memory of trying to parse the 18,000 pages of Tolley's Yellow and Orange books, or of the hours spent waiting for someone at HMRC to pick up the damn phone.

What it did teach me, however, was an understanding of the fiendish complexity involved in navigating the English tax system. Any corporate deal is massively complicated by its tax implications - many transactions incur such a large potential tax exposure that they are simply not viable as a result. In most cases specific exemptions apply for precisely this reason - to prevent legitimate business activity being stifled by unintended tax charges. Structuring a deal, therefore, involves a great deal of tax advice, to ensure that the deal doesn't become liable for massive tax charges.

This, obviously, is tax avoidance, and sophisticated tax avoidance at that. Lawyers' and accountants' jobs are entirely dependent on piloting corporates and individuals through the weird and incomprehensible channels that a century's accretion of taxes, exemptions and anomalies have created. This is an area defined by its ambiguity - while tax avoidance measures will be held invalid if they were entered into solely to avoid tax, this is a pretty unclear benchmark. The 2009 Code of Practice for banking says that a bank "should not engage in tax planning other than that which supports genuine commercial activity", which goes some way towards clarity, but stops short of actually reaching it.

The long and the short of it therefore is that, as Lord Fink says, more or elss everyone avoids tax to a certain degree. This is obviously true of all companies and rich people - when dealing with large sums of money, unless you actually take positive steps to maximise your tax liability (and if anyone does this, I've never heard of it) you will be avoiding tax to an extent. It is also true of most people in more normal circumstances. Paying into an ISA, or into a pension avoids paying tax. Hell, if your definition of tax avoidance is just "not paying all the tax you possibly could" then buying orange squash instead of orange juice means you're avoiding paying VAT.

The conflation of tax avoidance with tax evasion, therefore, is pretty disingenuous. Ed Miliband is having a great time at the moment calling people "tax avoiders", but this as swords go, this is a pretty double-edged one. There are a lot of rich people in the Labour party, and I doubt any of them wish their tax activities being subject to that much scrutiny. Ed himself used a Deed of Variation to protect himself from a potential IHT liability on his parents' house (the fact that he didn't face an IHT charge is irrelevant - the purpose of the Deed was to avoid a potential liability). Tony Benn used a trust structure to minimise IHT expsoure on his death. More obviously, dozens of Labour MPs 'flipped' their second homes to avoid a CGT liability. There are very few clean hands in all of this, and no winners from a 'back to basics' on tax.

It may be, as Phillip Collins says, that linking Tories to tax avoidance is good politics for Labour in the short-term. In the longer term, however, I suspect that all it does is make life harder for everyone.