On the subject of tax avoidance/evasion, my attention was drawn to an interesting paper referenced on Richard Murphy's blog. The paper is not all that long, and it has a major advantage for folk like me because it has a model, and it actually explains what that model means. In words I can understand.

www.davidquentin.co.uk/Risk-Mining_The_Public_Exchequer.pdf

I like this paper because it cuts through a lot of the obfuscation I mentioned above about what tax avoidance is: and it points out that there is no substantive difference between evasion and avoidance, despite what we are repeatedly told. It also makes it plain that there is no real difficulty in identifying the point at which "tax planning" becomes avoidance. Most importantly it demolishes the argument that the responsibility lies with legislators and the tax authorities, who are often blamed for the complexity of tax law which allows the "tax gap" to arise.

This founds on morality, and I have no objection to that at all. As I have said more than once, "you didn't tell me not to do it" is not a respectable argument for a child; it is certainly not to be taken seriously from an adult, or a corporation, or their advisers.

Richard Murphy has drawn my attention to the use of charity as a tax avoidance mechanism. The case he has discussed is that of the Cup Trust.

I had not heard of this charity. It's online statement is typically uninformative: it says


That sounds ok, I suppose, so it is something of a suprise to find that they don't actually do very much of that at all.

Their accounts for the year ending 31/3/11 show that they had total income of £78,941,598. Of that £78,934,026 is described as "voluntary income".

It is then recorded that the costs of generating those funds was £78,918,422. That left £55,000 for charitable activity.

It is often complained that the admin costs of charities are too high, and that not enough goes to the ostensible purpose of the charity. But when you hear such complaints do you envisage it is at this level? I did not. It does not take a a highly trained bloodhound to smell that there is something wrong with this and that what is wrong with it is not administrative inefficiency.

So what is really happening?

The accounts show that the full cost of generating the income is attributed to the purchase of gilts. What appears to have happened is this:

The Cup Trust borrowed money from an offshore trust. It used that money to buy gilts. It sold those gilts to investors (who paid a fee to join the scheme) for a nominal sum. The investors then sold the gilts for full value, and donated the proceeds to the charity. The charity made a charitable donation of about £500 on behalf of each investor, thus establishing itself as a bona fide charity. The "donors" claimed tax relief on the charitable donation, and the charity used the donation to repay the loan which bought the gilts in the first place. From the donor's point of view, they paid the fee to join the scheme; and, say 1% of the face value of the assets. For that they avoided tax on 100% of the value of the assets, at 40% or 50%.

Gift Aid, the tax relief on charitable donations is a scheme aimed at encouraging charitable giving. It does not matter what you do, with the best of intentions, these people will exploit it. I have said before that I am opposed to this relief, and that was before I knew about this. You will remember that a plan to cap relief on charitable donations was scrapped in April by Mr Osborne after a huge outcry. I wonder if that would have been so widely supported if this particular case had been known. And one is such an unlikely number......

This trust was set up in 2009, and it has received £176 million in donations since then: the £55,000 given to charity is the total disbursed because it did not record any in its first year. So basically the treasury has lost the tax on that full some:and since most of the "donors" will be taxed at the higher rate it represents tax avoidance in the order of £80 million.

It is reported that the charity has no staff, and it has one trustee, a company called Mountstar (PTC) limited, based in the Virgin Islands. That company has three directors, Matthew Jenner, John Mehigan, and Darren George Stones. The first two of those have form because they were behind the tax avoidance scheme which brought the comedian Jimmy Carr into disrepute quite recently

Apparently this is perfectly legal, because the charities commission investigated the Cup Trust and found that it had no option but to register it as a charity, under prevailing legislation. The legitimacy of the tax relief is not so certain but many will no doubt argue it is legal and not therefore tax avoidance. Indeed there are already fulminations in the press about the failure of the regulator. You be the judge as to where the primary fault lies: the regulator has not done well, but can anyone really justify this behaviour? I think not, personally. I see no reason to suppose that it is reasonable to expect a regulator to spend all their time thinking about every possible action a bastard might take, and then looking into every institution to see if they have done any of them. It is perfectly clear that the intention of the law is to encourage people to donate money to good causes: enriching yourself and the directors of the charity does not qualify, IMO. Clearly those who engaged in this scheme believe charity begins and ends at home

http://www.mirror.co.uk/news/uk-news/jimmy...-is-tax-1566487

Perhaps that is changing. It is reported that a member of the dutch parliament has said that that the Netherlands should not be a tax haven, and that the parliament itself is has begun a debate on tax justice. Perhaps this issue will become more prominent if that is true.

http://www.sfgate.com/business/article/Net...p#ixzz2JRvoSX9O

www.youtube.com/watch?feature=player_embedded&v=8qjBec3fpBI

Our chancellor of the exchequer: advocating tax avoidance on national TV.

There is a great deal of blather about the difference between tax evasion and tax avoidance. Those who defend companies and people who will not pay their tax insist that avoidance is legal. Sometimes they go further and they say that companies are required to minimise their tax liability, as a matter of duty to shareholders. Coupled with this kind of nonsense there is a lot of focus on the letter of the law and a denial that anyone can be expected to bring any moral or ethical considerations to bear. These people insist it is for government and the inland revenue to write the law in such a way that there are no "loopholes"; and what that effectively demands is that every conceivable way of avoiding tax should be specifically legislated for without any expectation of cooperation from those to whom the law applies. I have said elsewhere that when a child does something they know they should not do, and then tries "you didn't tell me not to do it" they do not get away with that: at least not in my family. In my family that is called cheek. And so it is for tax "avoiders"

Lest anyone should think that folk involved in this are actually moral incompetents, it is very instructive to read the transcript of hearings before the Public Accounts Committee when they questioned some of those folk.

http://www.publications.parliament.uk/pa/c...8-i/uc78801.htm

It is quite long and it is vastly entertaining in its way. Let me quote some selected highlights from on of them for you.

Aiden James is the director of a company which sells tax avoidance schemes. He is very keen that we should understand that his company does not devise those schemes: he only sells them. He cannot tell us the names of any such schemes, because the people who do devise them insist on confidentiality, and there is an agreement to that effect. Note that Mr James has to sell schemes which he cannot name, to people he cannot discuss them with: well not unless they also sign a confidentiality agreement. That is a very highly skilled salesman of pigs in pokes.

Mr James says that the people who devise the schemes have them vetted by lawyers who are QC's, to ensure they are legal. Not content with that, Mr James' company does its own "due diligence" and will not sell schemes they are not satisfied are legal. All very laudable. And there is more. Mr James told the committee that he always advises his clients to pay the tax they are seeking to shelter just in case it turns out the scheme is not legal. I am not clear whether he means pay it: for later he seems to suggest he advises them to hang on to the money, rather than pay it. But no matter. What is clear is that he is very well aware indeed that such schemes may not be legal. As he says in this exchange


You could almost give him credit for his honesty, couldn't you? Well, sadly, no. Because later there is this wee gem


So much for ethics!

https://secure.38degrees.org.uk/pages/tax_dodgers_guide

I got this from 38 degrees: it is a list of major retailers who dodge tax: they want to make people aware of this, so it can inform xmas shopping: it might not be relevant to everyone here, for it is UK based: but some, I think, trade internationally. FWIW

Well we have some detail now of what Starbucks is going to do. They have announced they will pay around £10 million in each of the next two years regardless of whether they are profitable or not. They will do this by not claiming deductions for the royalties they pay to the dutch sister company; not claiming deductions for "the intercompany profit on the coffee it purchases" (that is for the high cost of the coffee it buys from that well known coffee producer, Switzerland); for interest it pays on money it borrows from its own companies; and by not claiming relief for carried forward losses.

The gaffer is all over the media today singing his song of care and responsibility: an example here:

http://www.guardian.co.uk/commentisfree/20...poration-tax-uk

Doing the right thing is in Starbuck's DNA, apparently. I think that means they are allergic to bad publicity and customer boycott, though I may be wrong. What we are asked to believe is that they paid no tax legally and it came as something of a surprise to them that this annoyed people: but now they have realised they are going to step up and pay some money they do not have to pay: even though they really do make losses, mind. Starbucks just hasn't performed as well as they hoped in the UK, according to this boss: though they are making progress, so that is a relief.

It is a bit unfortunate that in the midst of this glowing picture of belated corporate responsibility this has also been reported

http://www.guardian.co.uk/business/2012/de...sh-lunch-breaks

On the same day as Starbucks was criticised for its behaviour it gave staff a new contract abolishing some of their benefits: like a paid lunch break of 30 minutes. According to this report staff were told to sign the new contract or leavel. I have mentioned before what a strange view of the nature of a contract these corporate types have: they think it is a one sided thing: and in practice, because they hold all the power it is. Oddly the very idea of a contract is to equalise the power wrt the subject of the contract, since both parties are meant to be bound by its terms: and that is true unless it is a contract of employment or a contract with the state: it mysteriously changes its nature in those circumstances. But of course I am being overly cynical: this was the subject of "consultation" with the "partners" all having the opportunity to "feedback". I have mentioned how "consultation" has changed its meaning before, and I suspect that this is the same: see, it just doesn't seem likely to me that people will enthusiastically embrace your suggestion that they should have to work half an hour longer each day to get the same wages; or your brilliant idea that tiny benefits which go a long way to building goodwill for not much cost should be abolished. Maybe they do: or maybe you say you will close the place if they don't agree: in which case it is not really "consultation" so much as a "big stick".


Why would they not want the happy outcome of the "consultation" discussed by the universally contented workforce, I wonder?

And we are expected to believe this crap: and to believe that this is nothing at all to do with paying £20 million over two years that they didn't pay before. It is pure coincidence that half an hour's pay for 7000 staff on minimum wage comes to £9.1 million in a year, I am sure. I expect changes to other benefits will coincidentally meet the shortfall: but not to worry for some of those benefits are being preserved


Phew!

It is now reported that Starbucks has been "stung" by criticism and has decided that it will continue to pay the royalty to its sister company in the Netherlands, but will no longer use that payment to reduce profit: the upshot is that it is expected to pay some tax next year.

It pays 4.7% to the Netherlands. It makes losses. So this will presumably result in a payment of corporation tax of something less than 4.7%. I am thrilled!!

Starbucks has just compounded the offence, as I see it. It seems that they are worried about damage to their reputation and so they are in talks with the treasury about the UK tax they pay

www.bbc.co.uk/news/business-20573208

It is interesting how arrogant these people are: but it is more interesting how poor their PR is, given they seem to think they have a problem with this. I get the impression that they think saying they need "to do more " in the uk on tax is likely to be perceived as a good thing. Benevolent, even. Not how it strikes me, I must confess. On this thinking paying tax is voluntary and it slipped their minds: but now it has been drawn to their attention they will kindly drop something in the revenue begging bowl. As if they haven't done a great deal on tax already. They have gone to great lengths to make sure they don't pay any. That didn't just happen: they put time and effort into achieving it. They probably paid quite a bit to do it, as well, what with accountants and tax lawyers fees and all

There is a boycott of starbucks which I unfortunately can't join since I don't use them anyway: but if this is supposed to persuade people that they are the kind of aristos who take noblesse obliges seriously it is not working for me.

This company stinks. It is no good pretending they were absent minded. They stink. That they are not alone does not change that. They are thieving scum no matter how the law allows them to claim they have done nothing illegal. As ever what is shocking is what is legal. But legality is not what this is about. Ethics is what is it is about and Starbucks has quite clearly set out to act in the most unprincipled manner they can devise in this and in other countries.

Who needs Starbucks? A company which is the essence of unfair competition and which drives honest business out of our high streets.

They said:


They did:


If they need feedback from their customers and employees to learn they should pay tax they are employing the usual defence of "we are moral imbeciles"

They have no trust to "maintain", and I sincerely hope they have no chance at all of "rebuilding" it. They are not fit to be walking free, whatever the law might say

http://ht.ly/fDE4h

According to the headline "Two thirds of millionaires left Britain to avoid 50p tax rate". If you happen to think that having millionaires in your country is a good thing that sounds quite serious and of course the implication is that high rates of tax are counter productive. However the headlines is misleading, and I cannot see that is an accident.

In the body of the report what it says is that in the year before the higher 50p rate was introduced 16000 people declared income of more than £1 million to the tax authorities. That fell to about 6000 people when the higher rate was introduced. The headline implies they all left the country though the report itself makes no definite assertion about that: it says "It is believed that rich Britons moved abroad or took steps to avoid paying the new levy by reducing their taxable incomes." Well one or the other may be an exhaustive list of possible explanations, in which case it is no doubt what is "believed". I believe the latter: the 50p rate was only in force for a very short time as Mr Osborne abolished it as soon as he could on just these grounds: that the tax take would fall if a high rate was levied. What that meant, of course was that it was self fulfilling: for if you can choose in which year to declare your income you can avoid a short term tax of this sort altogether. That is not so true if the rate persists over time, though rich people have many ways to avoid tax in any case, if that is what they choose to do. But no: the headline says they left the country. Apparently a lot of them came back when Osborne announced he was reversing the decision, though: since then the number of people declaring more than a million has risen from 6,000 to 10,000. Most people who emigrate do not do so lightly: they find it disruptive in so many ways. They do not easily disrupt their children's education, for example. Not the rich though: maybe they don't live with their children anyway? Or maybe this is a virtual move specifically to avoid tax? Frankly I do not care. Fairness in taxation is important even if it truly does result in a lower tax take, and I can live without a bunch of blackmailing sociopaths setting the rules for all of us. I would even be more accepting of "austerity" in pursuit of the goal of getting those bastards under control.

The Telegraph's credentials as objective reporters of the news is undermined by the headline, which is clearly not factual. And in the same report the point is reinforced with this little gem

" The Tories wish to freeze out-of-work benefits. The handouts...."

Loaded language, anyone?

~Edit: Richard Murphy has a more detailed refutation of this story here:

http://www.taxresearch.org.uk/Blog/2012/11...mpletely-bogus/