When you are busy making sure that your company is doing well, modernizing your finance operations can seem like an excessive, unnecessary and not a priority-grade task. But believe our accounting experience here, the benefits of overhauling your business’ accounting system can save you tons of time and… money! Most SMB companies initially headquarter their accounting systems in
“I have no idea whether Ian Cameron, the Prime Minister’s father, was a tax planner, a tax dodger or a tax evader”. That was what a lot of people felt like during a polling, recently conducted among Londoners. Adam Smith
And to clarify our editorial board’s position on that, we’ll say that for once, we’re on a “David Cameron” team. A range of Sunday papers said that his mother’s gift of £200,000 was a tax “dodge.” The Mail on Sunday used that term in its front page headline. But the truth is that it can hardly be called that, at least when we analyze it legal-wise… The main problem here is that the issue goes deeper than this particular transaction. The whole “Panama Papers” leak drama has been bedeviled by inexact terminology and a sloppy language.
We’re sure that a majority, if not all of our readers know the precise difference between tax avoidance, and evasion. The former, which is legal, and the latter tax evasion, which is a prosecuted felony are cats and dogs different. The major newspapers though were mindful enough to describe most of the behavior disclosed by the leaked Panama documents as tax avoidance. Their stories, at the same time, regularly trot out a statement along the lines of “there is no evidence that this was illegal”. As we investigate through the matter, we believe that the behavior was wrongful in some ways, just not all of them…
But can we make that assumption sound little less vague? The problem lies within the “tax avoidance” term. It’s just too elastic… It allows journalists with not quite enough expertise or proof of wrongdoing to imply misbehavior. All while using the “no evidence” phrase as its weapon of choice for avoiding being sued for libel.
Still, we’ve got a new suggestion that just might solve this linguistic and ethical dilemma. Let’s ban the term “tax avoidance”! Instead, decide which of the two following terms apply. We should say “tax planning” when we’re talking about any tax related activities that are held in accordance with the spirit of the accountant. On the other hand, the “tax dodging” term must be invoked to ascribe activities that are technically legal. Though which are designed to circumvent the spirit of the accountant. “Tax planning” behavior involves more sophisticated actions. Examples are: registering an ISA account; sending money into a pension fund, and giving your son £200,000 more than seven years before you die. While “Tax dodging” is the kind of thing the comedian Jimmy Carr, among others, confessed to a few years ago. Specific path undertaken by Mr. Carr was called K2. That one helps high earners to “fake quit” their jobs and sign employment contracts with offshore shell companies. The offshore companies then pay them lower salaries but “loan” them money in addition. These loans are even written down as tax liabilities in their tax returns…
So now we have three, completely specific and technically (legally) proper terms. Firstly, the tax planning, which does not warrant criticism. Secondly, the tax dodging, which is morally wrong but technically legal. And finally, the tax evasion, which is straightforward criminal and is a prosecuted felony which goes against the state’s interests…
But where do Panama’s offshore trusts fit among these 3 categories? The truth is that, with too many unprocessed information contained in the Panama leaks, we can’t be sure yet…. Depending on the circumstances, an offshore trust, like the one PM’s dad have had, can assist in all of the 3 given schemes: tax planning, tax dodging or tax evasion. On its own, the existence of such a trust might arouse some legitimate suspicion. Still it does not legally prove either moral turpitude or a committed crime.
For example, the Inland Revenue has long accepted that Britons who earn money abroad may keep it in an offshore account. There its value grew in a tax-free environment. Of course, there’s a catch, provided that when that money is repatriated, it is taxed at that point. But if the owner of that money fails to declare it, or tries to repatriate it by a roundabout path in order to avoid tax, then, depending on specific circumstances, he/she is guilty of tax dodging or tax evasion.
I have no idea whether Ian Cameron, the Prime Minister’s dad, was a tax planner, a tax dodger or a tax evader. The evidence set out in the stories so far is not properly analyzed yet. Until and unless more specific evidence comes to light, we should avoid rushing to judgment. Let’s instead remember Sir Thomas Macaulay’s dictum: “We know no spectacle so ridiculous as the British public in one of its periodical fits of morality”.