Richard Collier


Oxford University Centre for Business Taxation





By Richard Collier

The Moral Law

The aftermath of the Paradise Papers affair continues to fill the airwaves and fuel ongoing discussion on tax, as seen in the Chancellor’s asides in the Budget Speech last Wednesday.

Unfortunately, however, the overwhelming bulk of commentary struggles to reflect any serious understanding of the issues raised. The mishmash of stories and comments on the affair in the media represent a stew of jumbled and diverse tax issues: tax evasion by individuals; aggressive and highly complex international tax structuring by MNCs; the position of tax havens and higher tax countries; the alleged improper use of offshore funds; and the effectiveness (or lack of effectiveness) of the recent output of institutions like the OECD and the EU. In trying to identify what is wrong and what should be done, this jumble is pretty unhelpful. The most obvious problem is in the lack of distinction between what is legal (avoidance) and what is not (evasion) because the problems, issues, and required responses raised by avoidance are generally very different to those posed by evasion.  Whether they know what they are doing or not, those talking about “tax-dodging” in this undifferentiating manner are adding to the fog.

It is true that some journalists acknowledge in relation to avoidance schemes that “of course there is no question of any illegality”. But then what is the point to these stories beyond the soap-opera value of stories about apparent dirty tricks of celebrities?

The implicit message in these stories seems to be one of replacing a requirement of legality with one of morality. Those profiled in these stories have not broken the law, but they have done something (it is not always obvious what) that is in some way unacceptable. It seems to be taken for granted that the dictates of morality would represent the obvious and complete answer if only everyone (which here seems to include all individuals, corporates and states, everywhere in the world) followed them.

But morality in the context of international tax law is a very difficult issue. Questions on the legal boundary can sometimes be difficult but the existence of any moral line is appreciably harder to draw. Take an example on the taxation of savings. The UK gives favourable treatment to UK pension funds by not taxing the accrued return to their directly-held investments. But if those investments are held via an intermediate fund, then tax may well be due on the accrued return in the fund. Is it immoral if a pension fund investing in a variety of different global markets does so via a fund in a tax haven, thereby preserving the tax-free treatment of the underlying investment income?

It could be argued that the naming and shaming of particular aggressive tax avoiders serves a public benefit. Those that are named and shamed – and those that may fear being named and shamed in the future – may be less likely to use aggressive tax avoidance schemes in the future. But that depends on how far they care about maintaining a good reputation with the general public. And the naming and shaming process seems random – does it matter if there are many other aggressive tax avoiders who have not been named? At the margin, this sort of naming and shaming may even have the effect of reducing public confidence in the tax system and induce people to avoid or evade tax on the grounds that everyone else seems to be doing so.

 There is of course also a more fundamental problem. The public discussion largely ignores any mention of the most important issue – the rules themselves. As a result, it does not engage with questions relating to the state of the existing tax system and rules. Yet an understanding of the rules and their impact – the UK’s domestic tax rules and the global international tax system – is essential if we are to address the real issues raised.

That is difficult because of the enormous complexity of those rules. The domestic UK tax rules are several thousand pages in length and even simple questions about how income is taxed or whether expenses are deductible can give rise to very complex answers. The international tax system was designed almost a hundred years ago and has become ossified, raising real questions on its viability for the 21st century.

The mishmash of soap-opera styled morality tales on half-understood and quite different tax issues in itself provides little or no public benefit. The hope that problems could be solved by taxpayers’ “morality” runs into the sand. The real problems relating to the tax system are of course complex, and provide little in the way of shock/horror. But if we are interested in improving the position, this is the ground that is badly in need of serious public debate. We will not make progress until we leave the soap opera and start discussing the nature and effect of the rules themselves. The starting point for improving the system is a better understanding of the system we actually have.

Back to top of article

Share this post:

follow us in feedly

7 responses to “The Moral Law”

  1. Maric Glaser says:

    Richard is quite right to stress the importance of the rules. Unfortunately, even on rules, society looks at the mechanical rules rather than the principles.

    We would do well to remember Adam Smith’s first canon of taxation –

    “The subject of every state ought to contribute towards the support of the government as early as possible in proportion to their respective abilities that is in proportion to the revenue which they respectively enjoy under the protection of the State.”

    This is often summarised as the “ability to pay” but a careful reading shows that there are two parts to the canon – ability to pay AND what the subject gets in return. Like many people I never liked HMRC’s reference to taxpayers as “customers” but in fact Smith contemplates just that sort of relationship.

    It is perhaps time to analyse what services tax pays for and determine how best to ensure that the second part of Smith’s first canon is met.

  2. iain campbell says:

    I think this is, sadly, too level headed and written by a tax expert to get a lot of media traction, even on Twitter where the tax geeks congregate, like creatures at twilight around the savannah’s waterholes.
    I know CBT has been at the forefront of gathering experts to discuss contemporary issues, prepare briefings, attend conferences and Select Committees, and so on. (As have others, if on a smaller scale.) This has been immensely helpful in getting ideas out in the open and hearing academics, practitioners and business people discuss these from their own perspectives.
    But I suspect this sort of approach does not resonate with the wider public. As Tom Lehrer once wrote, people want films with musical scores they can hum..Tax expertise does not have any tunes like that, especially in the face of a plain and straightforward approach that looks to import “common sense” views into the greyer world of tax law and treaties. Soap operas are popular precisely because they can generate emotional responses. Does anyone feel really deeply about Arms Length to the extent of asking people to sign petitions?
    Nevertheless, I agree that we must try to increase that understanding – perhaps more work in schools on why we tax and how it is done? See if clients will agree to publish more on the background as to why they make their bigger ticket decisions, including the role of tax as a consideration? Ask the NGOs to explain how they make their spending decisions – maybe they too have half an eye on the tax consequences? What do their accountants tell them? More secondments between the Big 4 and smaller businesses? More direct consultation by HMRC?
    A more focussed discussion on what we want from a tax system and politicians brave enough to make a few possibly unpopular decisions and stick to them?
    Following the first two of these blogs I’m already looking forward to next week’s.

  3. Ray says:

    I have taught you well Skywalker!

  4. Michael Walpole says:

    What a great post and response. Isn’t a problem with allowing morals to infiltrate this is that they can also justify non-payment of tax? E.g. “I will not pay my income tax because it will be used to build nuclear weapons/wage an illegal war on Iraq etc”? It’s a slippery slope.
    Add to this a countervailing ethical obligation on the part of advisors to (within the law and I would say within the spirit of the law) give advice that minimizes tax liability – and the area becomes a morass. We in Tax need to find a different road out of the conflict zone and this blog may be showing us a way.

  5. Paddy Carter says:

    “But then what is the point to these stories beyond the soap-opera value of stories about apparent dirty tricks of celebrities?”

    isn’t one point to draw attention to things that are legal but once society at large becomes aware of it, we might wish to change? Which is what you are calling for.

  6. Tax is a funny area where the general public has, in an important sense, a better understanding of the issues than many tax experts do. This article contains several fundamental misunderstandings.

    1. “Some journalists acknowledge in relation to avoidance schemes that “of course there is no question of any illegality”
    The journalists are often wrong to acknowledge this, because they cannot know. They put these statements in because their libel lawyers tell them to: it’s safer to misreport in this way. If there’s a structure with related parties in eight different countries and tax havens, have they checked the whole lot against the body of laws in each place? Generally, no. Big Four officials assert that they’ll approve a scheme that has only a 25% chance of withstanding a court challenge. And yet the journos say ‘it’s all legal’ and slap the avoidance label on it. Go figure.
    How to deal with these tricky legal issues? Much better to use expressions that skirt the issue, such as ‘tax dodging’ or ‘tax cheating’ or ‘escaping tax.’

    2. “The mishmash of stories and comments on the affair”. It’s a mishmash, because there are lots of different stories covering different angles, all coming at us at roughly the same time. Each story has a focus.

    3. The most obvious problem is in the lack of distinction between what is legal (avoidance) and what is not (evasion)
    a) See point 1. You’ve just said they say it’s all legal. Which is it?
    b) “Legality” is indeterminate in many cases, as mentioned. What is not indeterminate – and an extremely valid focus of enquiry – is the all-important economic and political effects of what’s going on. Having articles like this seeking to normalise this stuff is profoundly unhelpful for our democracies.

    4. “morality in the context of international tax law is a very difficult issue. . . the most important issue [is] the rules themselves.”
    Wrong. It is the most important issue for lawyers. It is not the most important issue. See point 3b). This is about much more than law, and about much more than morality. One rule for the rich and powerful, another rule for the rest of us. That touches on so many themes beyond law or morality.

    5. “That is difficult because of the enormous complexity of those rules”. Yes, and why are these rules so complex? In large part because of all these offshore shenanigans going on. Countries try to defend against this stuff, and lawyers and accountants try to find their way around them. Hence the complexity.

    6. The international tax system was designed almost a hundred years ago and has become ossified, raising real questions on its viability for the 21st century.
    Yes, I’m with you on this one. And I’m also with you on the need for there to be a proper understanding of the rules, to understand what needs to be changed. But trying to airbrush away all those essential political and economic issues that these stories raise is not a helpful way forwards.

  7. Caroline Turnbull-Hall says:

    An excellent and clear blog – I agree that there is a need for greater education and starting in schools is the right place to start.

Leave a Reply

Your email address will not be published. Required fields are marked *